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Note 20 - Regulatory Matters
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Regulatory Capital Requirements under Banking Regulations [Text Block]
NOTE
2
0
- 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
2019
and
2018,
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, 2019
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
 
2019
                                               
Total capital (to risk weighted assets)
                                               
Consolidated
  $
429,038
     
13.1
%
  $
262,141
     
8.0
%
 
NA
   
NA
 
Bank
   
424,917
     
13.0
     
262,088
     
8.0
     
327,610
     
10.0
%
Tier 1 capital (to risk weighted assets)
                                               
Consolidated
   
405,148
     
12.4
     
196,606
     
6.0
   
NA
   
NA
 
Bank
   
401,027
     
12.2
     
196,566
     
6.0
     
262,088
     
8.0
 
Common equity (to risk weighted assets)
                                               
Consolidated
   
360,342
     
11.0
     
147,454
     
4.5
   
NA
   
NA
 
Bank
   
401,027
     
12.2
     
147,425
     
4.5
     
212,947
     
6.5
 
Tier 1 capital (to average assets)
                                               
Consolidated
   
405,148
     
11.3
     
143,689
     
4.0
   
NA
   
NA
 
Bank
   
401,027
     
11.2
     
143,670
     
4.0
     
179,588
     
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
 
2018
                                               
Total capital (to risk weighted assets)
                                               
Consolidated
  $
396,102
     
12.5
%
  $
253,413
     
8.0
%
 
NA
   
NA
 
Bank
   
388,591
     
12.3
     
253,225
     
8.0
     
316,531
     
10.0
%
Tier 1 capital (to risk weighted assets)
                                               
Consolidated
   
373,721
     
11.8
     
190,060
     
6.0
   
NA
   
NA
 
Bank
   
366,211
     
11.6
     
189,919
     
6.0
     
253,225
     
8.0
 
Common equity (to risk weighted assets)
                                               
Consolidated
   
329,596
     
10.4
     
142,545
     
4.5
   
NA
   
NA
 
Bank
   
366,211
     
11.6
     
142,439
     
4.5
     
205,745
     
6.5
 
Tier 1 capital (to average assets)
                                               
Consolidated
   
373,721
     
11.4
     
131,014
     
4.0
   
NA
   
NA
 
Bank
   
366,211
     
11.2
     
130,913
     
4.0
     
163,641
     
5.0
 
 
Under the final Basel III capital rules that became effective on
January 1, 2015,
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 has been phased in over
three
years beginning in
2016.
The capital buffer requirement effectively raised 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, 2019,
our bank met all capital adequacy requirements under the Basel III capital rules.
 
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
2019,
under the most restrictive of these regulations, our bank could distribute
$75.2
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 17, 2019,
our Board of Directors declared a cash dividend on our common stock in the amount of
$0.26
per share that was paid on
March 20, 2019
to shareholders of record as of
March 8, 2019.
On
April 11, 2019,
our Board of Directors declared a cash dividend on our common stock in the amount of
$0.26
per share that was paid on
June 19, 2019
to shareholders of record as of
June 7, 2019.
On
July 11, 2019,
our Board of Directors declared a cash dividend on our common stock in the amount of
$0.27
per share that was paid on
September 18, 2019
to shareholders of record as of
September 6, 2019.
On
October 10, 2019,
our Board of Directors declared a cash dividend on our common stock in the amount of
$0.27
per share that was paid on
December 18, 2019
to shareholders of record as of
December 6, 2019.
 
On
January 16, 2020,
our Board of Directors declared a cash dividend on our common stock in the amount of
$0.28
per share that will be paid on
March 18, 2020
to shareholders of record as of
March 6, 2020.
 
In
May 2019,
we announced that our Board of Directors had authorized a 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. This stock repurchase plan was instituted in conjunction with the completion of our existing program that was introduced in
January 2015
and later expanded in
April 2016.
During
2019,
we repurchased a total of
233,300
shares at a total price of
$7.2
million, at an average price per share of
$30.79.
During the period of
January 2015
through
December 2019,
we repurchased a total of about
1.4
million shares at a total price of
$32.6
million, at an average price per share of
$23.47.
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 or a new plan, which would also likely be funded from cash dividends paid to us from our bank.
 
Our consolidated capital levels as of
December 31, 2019
and
2018
include
$44.8
million and
$44.1
million, respectively, of trust preferred securities. 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 capital 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, 2019
and
2018,
all
$44.8
million and
$44.1
million, respectively, of the trust preferred securities were included as Tier
1
capital of Mercantile.