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Note 2 - Business Combination | 6 Months Ended
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Jun. 30, 2014
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] | 2. BUSINESS COMBINATION We completed the merger of Firstbank Corporation (“Firstbank”), a Michigan corporation with approximately $1.5 billion in total assets and 46 branch locations, into Mercantile Bank Corporation as of June 1, 2014 (“Merger Date”). The results of operations due to the Firstbank transaction have been included in Mercantile’s financial results since the Merger Date. All of Firstbank’s common stock was converted into the right to receive one share of Mercantile common stock for each share of Firstbank common stock. The conversion of Firstbank’s common stock into Mercantile’s common stock resulted in Mercantile issuing 8,087,272 shares of its common stock. The merger provided an expanded geographic footprint for the Company and increased the size of the balance sheet wherein the combined companies can realize economies of scale and other operating efficiencies. In conjunction with the completion of the merger, Mercantile assumed the obligations of Firstbank Capital Trust I, Firstbank Capital Trust II, Firstbank Capital Trust III and Firstbank Capital Trust IV. The Firstbank transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the Merger Date. Preliminary goodwill of $50.9 million was calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the two banking organizations as well as the economies of scale expected from combining the operations of the two companies. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange. The following table provides the purchase price calculation as of the Merger Date and the identifiable assets purchased and the liabilities assumed at their estimated fair values. These fair value measurements are provisional based on third-party valuations that are currently under review and are subject to refinement for up to one year after the Merger Date based on additional information that may be obtained by us that existed as of the Merger Date.
Mercantile common shares issued for Firstbank common shares |  |  |  |  |  |  | 8,087,272 |
Price per share, based on Mercantile closing price on May 30, 2014 |  |  |  |  |  | $ | 21.43 |
Value of common stock issued |  |  |  |  |  |  | 173,310,000 |
Replacement stock options |  |  |  |  |  |  | 1,664,000 |
Total purchase price |  |  |  |  |  | $ | 174,974,000 |
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 91,806,000 |  |  |  |  |
Securities |  |  | 358,599,000 |  |  |  |  |
Total loans |  |  | 943,662,000 |  |  |  |  |
Premises and equipment |  |  | 24,049,000 |  |  |  |  |
Core deposit intangible |  |  | 17,478,000 |  |  |  |  |
Mortgage servicing rights |  |  | 7,389,000 |  |  |  |  |
Other assets |  |  | 8,500,000 |  |  |  |  |
Total Assets |  | $ | 1,451,483,000 |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |
Deposits |  | $ | 1,229,609,000 |  |  |  |  |
Borrowings |  |  | 87,615,000 |  |  |  |  |
Other liabilities |  |  | 10,155,000 |  |  |  |  |
Total Liabilities |  | $ | 1,327,379,000 |  |  |  |  |
Net Identifiable Assets Acquired |  |  |  |  |  | $ | 124,104,000 |
Goodwill |  |  |  |  |  | $ | 50,870,000 |
The fair value of mortgage servicing rights was $7.4 million at the Acquisition Date. During the month of June 2014, new servicing rights amounting to less than $0.1 million and amortization expense of $0.1 million were recorded. Firstbank’s results of operations prior to the Merger Date are not included in our consolidated statements of income or consolidated statements of comprehensive income. The operations of the former Firstbank organization provided approximately $4.5 million in net interest income for the period from the Merger Date to June 30, 2014. We recorded merger-related expenses of $3.5 million and $3.8 million during the three month and six month periods ended June 30, 2014, respectively. Such expenses were generally for professional services, costs related to termination of existing contractual arrangements for various services, retention and severance compensation costs, marketing and promotional expenses, travel costs, and printing and supplies costs. Virtually all of Mercantile and Firstbank’s operating systems are now integrated. The following table provides the unaudited pro forma information for the results of operations for the three and six month periods ended June 30, 2014 and 2013, as if the acquisition had occurred on January 1 of each year. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily comprised of Firstbank’s loan and deposit portfolios. In addition, the $3.8 million in merger-related expenses noted earlier are included in each period presented. We expect to achieve further operating cost savings and other business synergies as a result of the merger which are not reflected in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the combined banking organization that would have been achieved had the merger occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.
|  | Three months ended June 30, |  |  | Six months ended June 30, |
|  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Net interest income |  | $ | 15,453,000 |  |  | $ | 11,212,000 |  |  | $ | 26,417,000 |  |  | $ | 22,566,000 |
Noninterest expense |  |  | 17,160,000 |  |  |  | 13,407,000 |  |  |  | 26,862,000 |  |  |  | 22,786,000 |
Net income |  |  | 863,000 |  |  |  | 900,000 |  |  |  | 4,186,000 |  |  |  | 5,043,000 |
Net income per diluted share |  |  | 0.05 |  |  |  | 0.05 |  |  |  | 0.25 |  |  |  | 0.30 |
In most instances, determining the fair value of the acquired assets and assumed liabilities required us to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with the applicable accounting guidance for business combinations, there was no carry-over of Firstbank’s previously established allowance for loan losses. The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (“acquired impaired”), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (“acquired non-impaired”). In addition, the loans are further categorized into different loan pools based primarily on the type and purpose of the loan. The provisional fair value of loans at the Acquisition Date is presented in the following table:
|  | Acquired |  |  | Acquired |  |  | Acquired |
|  | Impaired |  |  | Non-Impaired |  |  | Total Loans |
Commercial Loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial & industrial |  | $ | 878,000 |  |  | $ | 163,316,000 |  |  | $ | 164,194,000 |
Commercial real estate |  |  | 12,973,000 |  |  |  | 378,016,000 |  |  |  | 390,989,000 |
Construction & development |  |  | 1,289,000 |  |  |  | 33,726,000 |  |  |  | 35,015,000 |
Total Commercial Loans |  | $ | 15,140,000 |  |  | $ | 575,058,000 |  |  | $ | 590,198,000 |
Consumer Loans: |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgages |  | $ | 9,694,000 |  |  | $ | 216,653,000 |  |  | $ | 226,347,000 |
Instalment |  |  | 167,000 |  |  |  | 61,657,000 |  |  |  | 61,824,000 |
Home equity lines |  |  | 288,000 |  |  |  | 52,054,000 |  |  |  | 52,342,000 |
Construction |  |  | 76,000 |  |  |  | 12,875,000 |  |  |  | 12,951,000 |
Total Consumer Loans |  | $ | 10,225,000 |  |  | $ | 343,239,000 |  |  | $ | 353,464,000 |
Total Loans |  | $ | 25,365,000 |  |  | $ | 918,297,000 |  |  | $ | 943,662,000 |
The following table presents data on acquired impaired loans at the Acquisition Date:
|  |  |  |  |  | Acquired |  |  |  |  |
|  |  |  |  |  | Impaired |  |  |  |  |
Contractual required payments |  |  |  |  |  | $ | 44,936,000 |  |  |  |  |
Nonaccretable difference |  |  |  |  |  |  | 17,057,000 |  |  |  |  |
Expected cash flows |  |  |  |  |  |  | 27,879,000 |  |  |  |  |
Accretable yield |  |  |  |  |  |  | 2,514,000 |  |  |  |  |
Carrying balance |  |  |  |  |  | $ | 25,365,000 |  |  |  |  |
The nonaccretable difference includes $10.4 million in principal cash flows not expected to be collected, $2.8 million of pre-acquisition charge-offs and $3.9 million of future interest not expected to be collected. The unpaid principal balance of acquired performing loans was $926.4 million at the Acquisition Date, and the unaccreted discount on such loans was $8.1 million. We also assumed obligations under junior subordinated debentures with an aggregate balance of $36.1 million and an aggregate fair value of $21.1 million as of the Acquisition Date, payable to four unconsolidated trusts (Firstbank Capital Trust I, Firstbank Capital Trust II, Firstbank Capital Trust III, and Firstbank Capital Trust IV) that have issued trust preferred securities. The junior subordinated debentures are the sole assets of each trust. Interest rates on all trust preferred securities issued by the trusts are tied to the 90 Day Libor rate with spreads ranging from 135 basis points to 199 basis points, and reset quarterly. The trust preferred securities have maturity dates ranging from October, 2034 to July, 2037, and are callable by us in whole or in part quarterly. The junior subordinated debentures are unsecured obligations of Mercantile, who has guaranteed that interest payments on the junior subordinated debentures made to the trust will be distributed by the trust to the holders of the trust preferred securities. The trust preferred securities currently fully qualify as Tier 1 Capital, and under current risk-based capital guidelines, will remain fully qualified as Tier 1 Capital until maturity unless called by us at an earlier date.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4922-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4934-128472 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4926-128472 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4845-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 + Details
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