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Note 21 - Regulatory Matters
 12 Months Ended
Dec. 31, 2015
Disclosure Text Block [Abstract]  
Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 21 - REGULATORY MATTERS


We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.


The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. At year-end 2015 and 2014, our Bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since December 31, 2015 that we believe have changed our Bank’s categorization.


Our actual capital levels (dollars in thousands) and minimum required levels were:


   

Actual

    

Minimum Required

for Capital

Adequacy Purposes

    

Minimum Required

to be Well

Capitalized Under

Prompt Corrective

Action Regulations

  
   

Amount

    

Ratio

    

Amount

    Ratio    

Amount

    Ratio  
2015                                                

Total capital (to risk weighted assets)

                                                

Consolidated

   $ 345,539       13.5 %   $ 205,602       8.0 %  

$ NA

    

NA

  

Bank

     347,433       13.5       205,624       8.0       257,030       10.0 %

Tier 1 capital (to risk weighted assets)

                                                

Consolidated

     329,858       12.8       102,801       4.0    

NA

    

NA

  

Bank

     331,752       12.9       102,812       4.0       154,218       6.0  

Common equity (to risk weighted assets)

                                                

Consolidated

     280,171       10.9       115,804       4.5    

NA

    

NA

  

Bank

     331,752       12.9       115,664       4.5       167,070       6.5  

Tier 1 capital (to average assets)

                                                

Consolidated

     329,858       11.6       114,138       4.0    

NA

    

NA

  

Bank

     331,752       11.6       114,280       4.0       142,850       5.0  
                                                 

2014

                                                

Total capital (to risk weighted assets)

                                                

Consolidated

   $ 334,793       14.4 %   $ 185,553       8.0 %  

$ NA

    

NA

  

Bank

     332,749       14.4       185,309       8.0       231,636       10.0 %

Tier 1 capital (to risk weighted assets)

                                                

Consolidated

     314,752       13.6       92,777       4.0    

NA

    

NA

  

Bank

     312,708       13.5       92,655       4.0       138,982       6.0  

Tier 1 capital (to average assets)

                                                

Consolidated

     314,752       11.2       112,949       4.0    

NA

    

NA

  

Bank

     312,708       11.1       112,856       4.0       141,070       5.0  

Federal and state banking laws and regulations place certain restrictions on the amount of dividends our Bank can transfer to Mercantile and on the capital levels that must be maintained. At year-end 2015, under the most restrictive of these regulations, our Bank could distribute approximately $66.3 million to Mercantile as dividends without prior regulatory approval.


Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On January 15, 2015, our Board of Directors declared a cash dividend on our common stock in the amount of $0.14 per share that was paid on March 25, 2015 to shareholders of record as of March 13, 2015. On April 16, 2015, our Board of Directors declared a cash dividend on our common stock in the amount of $0.14 per share that was paid on June 24, 2015 to shareholders of record as of June 12, 2015. On July 16, 2015, our Board of Directors declared a cash dividend on our common stock in the amount of $0.15 per share that was paid on September 23, 2015 to shareholders of record as of September 11, 2015. On October 15, 2015, our Board of Directors declared a cash dividend on our common stock in the amount of $0.15 per share that was paid on December 23, 2015 to shareholders of record as of December 11, 2015. In addition, on January 30, 2015, we announced that our Board of Directors had authorized a new program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. During 2015, we repurchased 788,541 shares at a total price of $15.8 million, which was funded from cash dividends paid to us from our Bank. We expect further repurchases during 2016 under the authorized plan, which will also likely be funded from cash dividends paid to us from our Bank.


On January 14, 2016, our Board of Directors declared a cash dividend on our common stock in the amount of $0.16 per share that will be paid on March 23, 2016 to shareholders of record as of March 11, 2016.


Our consolidated capital levels as of December 31, 2015 and 2014 include $53.1 million and $52.4 million, respectively, of trust preferred securities subject to certain limitations. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009 were less than $15.0 billion. At December 31, 2015 and 2014, all $53.1 million and $52.4 million, respectively, of the trust preferred securities were included as Tier 1 capital of Mercantile.


On January 26, 2016, we closed on a repurchase of trust preferred securities that were auctioned as part of a pooled collateralized debt obligation (“Fund”). The Fund owned $11.0 million of the $32.0 million in trust preferred securities that had been issued by Mercantile Bank Capital Trust I, a wholly-owned business trust subsidiary. The $11.0 million in trust preferred securities was retired upon the repurchase, resulting in a commensurate reduction in the related Floating Rate Junior Subordinate Note, leaving $21.0 million outstanding. Our winning bid equated to 73% of the $11.0 million par value, with the 27% discount resulting in an after-tax gain of approximately $1.8 million, or $0.11 per diluted share. On a pro forma basis as of December 31, 2015, the repurchase resulted in a nine basis point increase in our tangible equity to tangible assets ratio and an $0.11 increase in our tangible book value per share, but an approximately 35 basis point decline in our regulatory tier 1 capital and total risk-based capital ratios. The repurchase was funded via a $9.1 million cash dividend from our Bank, resulting in a similar approximately 35 basis point decline in the regulatory capital ratios. Subsequent to the repurchase, our and our Bank’s regulatory capital ratios remained well above the minimum thresholds to be categorized as well capitalized.