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Note 12 - Regulatory Matters
 3 Months Ended
Mar. 31, 2016
Disclosure Text Block [Abstract]  
Regulatory Capital Requirements under Banking Regulations [Text Block]

12.     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 our 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 March 31, 2016 and December 31, 2015, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since March 31, 2016 that we believe have changed our bank’s categorization.


Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:


                                   

Minimum Required

  
                                   

to be Well

  
                   

Minimum Required

    

Capitalized Under

  
                   

for Capital

    

Prompt Corrective

  
   

Actual

    

Adequacy Purposes

    

Action Regulations

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  

March 31, 2016

                                                

Total capital (to risk weighted assets)

                                                

Consolidated

   $ 340,557       13.1 %   $ 207,722       8.0 %   $ NA       NA  

Bank

     340,668       13.1       207,495       8.0       259,369       10.0 %

Tier 1 capital (to risk weighted assets)

                                                

Consolidated

     324,296       12.5       155,792       6.0        NA        NA  

Bank

     324,406       12.5       155,622       6.0       207,495       8.0  

Common equity tier 1 (to risk weighted assets)

                                                

Consolidated

     282,044       10.9       116,844       4.5        NA        NA  

Bank

     324,406       12.5       116,716       4.5       168,590       6.5  
Tier 1 capital (to average assets)                                                

Consolidated

     324,296       11.4       113,529       4.0        NA        NA  

Bank

     324,406       11.4       113,448       4.0       141,810       5.0  

                                    Minimum Required  
                                    to be Well  
                   

Minimum Required

    

Capitalized Under

  
                   

for Capital

    

Prompt Corrective

  
   

Actual

    

Adequacy Purposes

    

Action Regulations

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  

December 31, 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       154,201       6.0        NA        NA  

Bank

     331,752       12.9       154,218       6.0       205,624       8.0  

Common equity tier 1 (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  

Our consolidated capital levels as of March 31, 2016 and December 31, 2015 include $42.3 million and $53.1 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 our 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. As of March 31, 2016 and December 31, 2015, all $42.3 million and $53.1 million, respectively, of the trust preferred securities were included in our consolidated Tier 1 capital.


Our regulatory capital calculations and the minimum requirements to be categorized as well capitalized and adequately capitalized under the prompt corrective action regulations were impacted by BASEL III, which became effective January 1, 2015 and are included in the tables above. The net impact on our regulatory capital ratios and our overall capital position was not material.


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 accepted bid equated to 73% of the $11.0 million par value, with the 27% discount resulting in a pre-tax gain of approximately $3.0 million (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 cash dividend from our bank, resulting in a similar decline of approximately 35 basis points in the regulatory capital ratios. Subsequent to the repurchase, the regulatory capital ratios of both Mercantile and our bank remained well above the minimum thresholds to be categorized as well capitalized.


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 14, 2016, our Board of Directors declared a cash dividend on our common stock in the amount of $0.16 per share that was paid on March 23, 2016 to shareholders of record as of March 11, 2016. On April 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 June 23, 2016 to shareholders of record as of June 10, 2016.


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 the first three months of 2016, we purchased approximately 148,000 shares of common stock at an average price of $22.07, totaling about $3.3 million. Since the program’s inception, we have purchased approximately 936,000 shares of common stock at an average price of $20.32, totaling about $19.0 million. On April 19, 2016, we announced that our Board of Directors had authorized a $15.0 million expansion of the existing common stock repurchase program. All common stock repurchases to date have been funded from cash dividends paid to us from our bank, and we expect future common stock repurchases to be funded in the same manner.