Regulatory Matters

12 Months Ended

Dec. 31, 2012

Federal Home Loan Bank Advances/Regulatory Matters [Abstract]

REGULATORY MATTERS

NOTE 18 – 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 2012 and 2011, 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, 2012 that we believe has 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
2012
Total capital (to risk weighted assets)
Consolidated	$	173,323		14.6	%	$	94,738		8.0	%	$	NA		NA
Bank		173,828		14.7			94,629		8.0			118,286		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		158,349		13.4			47,369		4.0			NA		NA
Bank		158,871		13.4			47,315		4.0			70,972		6.0
Tier 1 capital (to average assets)
Consolidated		158,349		11.3			55,995		4.0			NA		NA
Bank		158,871		11.4			55,937		4.0			69,922		5.0
2011
Total capital (to risk weighted assets)
Consolidated	$	187,940		15.5	%	$	97,237		8.0	%	$	NA		NA
Bank		188,378		15.5			97,203		8.0			121,504		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		172,469		14.2			48,619		4.0			NA		NA
Bank		172,910		14.2			48,602		4.0			72,902		6.0
Tier 1 capital (to average assets)
Consolidated		172,469		12.1			57,072		4.0			NA		NA
Bank		172,910		12.1			57,199		4.0			71,499		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 2012, under the most restrictive of these regulations (to remain well capitalized), our Bank could distribute approximately $23.0 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 October 11, 2012, our Board of Directors declared a cash dividend on our common stock in the amount of $0.09 per share, that was paid on December 10, 2012 to shareholders of record as of November 9, 2012. This represented our first common stock cash dividend since the first quarter of 2010, as in April 2010 we had suspended payments of cash dividends on our common stock. On January 10, 2013, our Board of Directors declared a cash dividend on our common stock in the amount of $0.10 per share, that was paid on March 8, 2013 to shareholders of record as of February 8, 2013.

Our consolidated capital levels as of December 31, 2012 and 2011 include $32.0 million of trust preferred securities issued by the trust in September 2004 and December 2004 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, 2012 and 2011, all $32.0 million of the trust preferred securities were included as Tier 1 capital of Mercantile.