Note 21 - Regulatory Matters

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

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 ov

erall 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

2017

and

2016,

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, 2017

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 Re quired to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
201 7
Total capital (to risk weighted assets)
Consolidated	$	379,417		12.9	%	$	235,723		8.0	%	NA		NA
Bank		371,346		12.6			235,515		8.0			294,393		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		359,915		12.2			176,792		6.0		NA		NA
Bank		351,844		12.0			176,636		6.0			235,515		8.0
Common equity (to risk weighted assets)
Consolidated		316,472		10.7			132,594		4.5		NA		NA
Bank		351,844		12.0			132,477		4.5			191,356		6.5
Tier 1 capital (to average assets)
Consolidated		359,915		11.3			127,782		4.0		NA		NA
Bank		351,844		11.0			127,698		4.0			159,623		5.0

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
201 6
Total capital (to risk weighted assets)
Consolidated	$	354,278		13.1	%	$	215,819		8.0	%	NA		NA
Bank		353,243		13.1			215,605		8.0			269,506		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		336,316		12.5			161,864		6.0		NA		NA
Bank		335,282		12.4			161,704		6.0			215,605		8.0
Common equity (to risk weighted assets)
Consolidated		293,555		10.9			121,398		4.5		NA		NA
Bank		335,282		12.4			121,278		4.5			175,179		6.5
Tier 1 capital (to average assets)
Consolidated		336,316		11.2			120,486		4.0		NA		NA
Bank		335,282		11.1			120,383		4.0			150,479		5.0

Under the final Basel III capital rules that became effective on

January 1,

201

5,

there is a requirement for a common equity Tier

1

capital conservation buffer of

2.5%

of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do

not

meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over

three

years beginning in

2016.

The capital buffer requirement effectively raises the minimum required common equity Tier

1

capital ratio to

7.0%,

the Tier

1

capital ratio to

8.5%

and the total capital ratio to

10.5%

on a fully phased-in basis on

January 1, 2019.

We believe that, as of

December 31, 2017,

our bank would meet all capital adequacy requirements under the Basel III capital rules on a fully phased-in basis as if all such requirements were currently in effect.

Federal and state banking laws and regul

ations 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

2017,

under the most restrictive of these regulations, our Bank could distribute approximately

$42.6

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 12, 2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.18

per share that was paid on

March 22, 2017

to shareholders of record as of

March 10, 2017.

On

April 13, 2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.18

per share that was paid on

June 21, 2017

to shareholders of record as of

June 9, 2017.

On

July 13, 2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.19

per share that was paid on

September 20, 2017

to shareholders of record as of

September 8, 2017.

On

October 12, 2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.19

per share that was paid on

December 20, 2017

to shareholders of record as of

December 8, 2017.

On

January 11, 2018,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.22

per share that will be paid on

March 21, 2018

to shareholders of record as of

March 9, 2018.

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. On

April 19, 2016,

we announced a

$15.0

million expansion of the stock repurchase plan. Since inception, we have purchased a total of

956,419

shares at a total price of

$19.5

million, at an average price per share of

$20.38;

no

shares were purchased under the authorized plan during

2017.

The stock buybacks have been funded from cash dividends paid to us from our Bank. Additional repurchases

may

be made in future periods under the authorized plan, which would also likely be funded from cash dividends paid to us from our Bank.

Our consolidated capita

l levels as of

December 31, 2017

and

2016

include

$43.4

million and

$42.8

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, 2017

and

2016,

all

$43.4

million and

$42.8

million, respectively, of the trust preferred securities were included as Tier

1

capital of Mercantile.