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Note 2 - Business Combination | 12 Months Ended
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Dec. 31, 2015
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] | NOTE 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”). Each share of Firstbank’s common stock was converted into the right to receive one share of Mercantile common stock, resulting 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. 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. Goodwill of $49.5 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.
Purchase Price: |  |  |  |  |  |  |  |
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 |
Value of replacement stock options granted |  |  |  |  |  |  | 1,664,000 |
Total purchase price |  |  |  |  |  | $ | 174,974,000 |
Statement of Net Assets Acquired at Fair Value: |  |  |  |  |  |  |  |
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 |  |  | 9,897,000 |  |  |  |  |
Total Assets |  | $ | 1,452,880,000 |  |  |  |  |
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 |  |  |  |  |  | $ | 125,501,000 |
Goodwill |  |  |  |  |  | $ | 49,473,000 |
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. We recorded merger-related expenses of $5.4 million and $1.2 million during 2014 and 2013, 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. The following table provides the unaudited pro forma information for the results of operations for the twelve month period ended December 31, 2014, as if the acquisition had occurred on January 1, 2013. These adjustments reflect the impact of certain purchase accounting fair value measurements primarily related to Firstbank’s loan and deposit portfolios. 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.
|  | 2014 |
Net interest income |  | $ | 98,607,000 |
Noninterest expense |  |  | 81,295,000 |
Net income |  |  | 22,659,000 |
Net income per diluted share |  |  | 1.33 |
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 final fair value of loans at the Merger Date is presented in the following table:
|  | Acquired Impaired |  |  | Acquired Non-Impaired |  |  | Acquired 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 Merger Date:
|  | Acquired Impaired |
Contractually 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 Merger Date, and the unaccreted discount on such loans was $8.1 million.

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