10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           .

Commission File No. 000-26719

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan	38-3360865
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

310 Leonard Street, NW, Grand Rapids, MI 49504

(Address of principal executive offices) (Zip Code)

(616) 406-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X              No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    X              No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ___	Accelerated filer X
Non-accelerated filer	Smaller reporting company __
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes             No       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes             No    X 

At April 30, 2018, there were 16,598,027 shares of common stock outstanding.

MERCANTILE BANK CORPORATION

INDEX

PART I.	Financial Information	Page No.
	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) - March 31, 2018 and December 31, 2017	1
	Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2018 and March 31, 2017	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2018 and March 31, 2017	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2018 and March 31, 2017	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2018 and March 31, 2017	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	63
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	79
	Item 4. Controls and Procedures	81
PART II.	Other Information
	Item 1. Legal Proceedings	82
	Item 1A. Risk Factors	82
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	82
	Item 3. Defaults Upon Senior Securities	82
	Item 4. Mine Safety Disclosures	82
	Item 5. Other Information	82
	Item 6. Exhibits	83
	Signatures	84

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2018			2017
ASSETS
Cash and due from banks	$	47,278,000		$	55,127,000
Interest-earning deposits		163,879,000			144,974,000
Total cash and cash equivalents		211,157,000			200,101,000
Securities available for sale		336,988,000			335,744,000
Federal Home Loan Bank stock		11,036,000			11,036,000
Loans		2,551,204,000			2,558,552,000
Allowance for loan losses		(19,974,000	)		(19,501,000	)
Loans, net		2,531,230,000			2,539,051,000
Premises and equipment, net		46,300,000			46,034,000
Bank owned life insurance		69,010,000			68,689,000
Goodwill		49,473,000			49,473,000
Core deposit intangible		7,044,000			7,600,000
Other assets		31,662,000			28,976,000
Total assets	$	3,293,900,000		$	3,286,704,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	830,187,000		$	866,380,000
Interest-bearing		1,709,866,000			1,655,985,000
Total deposits		2,540,053,000			2,522,365,000
Securities sold under agreements to repurchase		104,894,000			118,748,000
Federal Home Loan Bank advances		220,000,000			220,000,000
Subordinated debentures		45,688,000			45,517,000
Accrued interest and other liabilities		14,925,000			14,204,000
Total liabilities		2,925,560,000			2,920,834,000
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		0			0
Common stock, no par value; 40,000,000 shares authorized; 16,598,466 shares outstanding at March 31, 2018 and 16,592,125 shares outstanding at December 31, 2017		310,601,000			309,772,000
Retained earnings		68,241,000			61,001,000
Accumulated other comprehensive income (loss)		(10,502,000	)		(4,903,000	)
Total shareholders’ equity		368,340,000			365,870,000
Total liabilities and shareholders’ equity	$	3,293,900,000		$	3,286,704,000

See accompanying notes to condensed consolidated financial statements.

1

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2018		2017
Interest income
Loans, including fees	$	32,315,000	$	26,733,000
Securities, taxable		1,602,000		1,278,000
Securities, tax-exempt		594,000		550,000
Other interest-earning assets		470,000		143,000
Total interest income		34,981,000		28,704,000
Interest expense
Deposits		3,085,000		1,868,000
Short-term borrowings		57,000		51,000
Federal Home Loan Bank advances		945,000		655,000
Subordinated debentures and other borrowings		695,000		621,000
Total interest expense		4,782,000		3,195,000
Net interest income		30,199,000		25,509,000
Provision for loan losses		0		600,000
Net interest income after provision for loan losses		30,199,000		24,909,000
Noninterest income
Service charges on deposit and sweep accounts		1,053,000		1,018,000
Credit and debit card income		1,243,000		1,106,000
Mortgage banking income		884,000		1,123,000
Earnings on bank owned life insurance		331,000		1,738,000
Other income		870,000		866,000
Total noninterest income		4,381,000		5,851,000
Noninterest expense
Salaries and benefits		12,337,000		11,272,000
Occupancy		1,772,000		1,554,000
Furniture and equipment depreciation, rent and maintenance		548,000		535,000
Data processing costs		2,128,000		2,011,000
Other expense		4,362,000		4,404,000
Total noninterest expenses		21,147,000		19,776,000
Income before federal income tax expense		13,433,000		10,984,000
Federal income tax expense		2,552,000		3,369,000
Net income	$	10,881,000	$	7,615,000
Basic earnings per share	$	0.66	$	0.46
Diluted earnings per share	$	0.66	$	0.46
Cash dividends per share	$	0.22	$	0.18
Average basic shares outstanding		16,595,115		16,434,647
Average diluted shares outstanding		16,604,325		16,449,210

See accompanying notes to condensed consolidated financial statements.

2

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Net income	$	10,881,000		$	7,615,000
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale		(7,142,000	)		980,000
Fair value of interest rate swap		2,000			42,000
Total other comprehensive income (loss)		(7,140,000	)		1,022,000
Tax effect of unrealized holding gains (losses) on securities available for sale		1,500,000			(343,000	)
Tax effect of fair value of interest rate swap		(1,000	)		(15,000	)
Total tax effect of other comprehensive income		1,499,000			(358,000	)
Other comprehensive income (loss), net of tax effect		(5,641,000	)		664,000
Comprehensive income	$	5,240,000		$	8,279,000

See accompanying notes to condensed consolidated financial statements.

3

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

($ in thousands except per share amounts)	Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, January 1, 2018	$	0	$	309,772	$	61,001		$	(4,903	)	$	365,870
Reclassification of equity securities related to ASU 2016-01 adoption						(42	)		42			0
Employee stock purchase plan (426 shares)				14								14
Dividend reinvestment plan (4,624 shares)				164								164
Stock option exercises (7,000 shares)				54								54
Stock-based compensation expense				597								597
Cash dividends ($0.22 per common share)						(3,599	)					(3,599	)
Net income for the three months ended March 31, 2018						10,881						10,881
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									(5,642	)		(5,642	)
Change in fair value of interest rate swap, net of tax effect									1			1
Balances, March 31, 2018	$	0	$	310,601	$	68,241		$	(10,502	)	$	368,340

See accompanying notes to condensed consolidated financial statements.

4

MERCANTILE BANK CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

($ in thousands except per share amounts)	Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, January 1, 2017	$	0	$	305,488	$	40,904		$	(5,581	)	$	340,811
Employee stock purchase plan (338 shares)				12								12
Dividend reinvestment plan (35,319 shares)				1,145								1,145
Stock option exercises (20,000 shares)				248								248
Stock grant for director fees (62 shares)				2								2
Stock-based compensation expense				476								476
Cash dividends ($0.18 per common share)						(2,923	)					(2,923	)
Net income for the three months ended March 31, 2017						7,615						7,615
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									637			637
Change in fair value of interest rate swap, net of tax effect									27			27
Balances, March 31, 2017	$	0	$	307,371	$	45,596		$	(4,917	)	$	348,050

See accompanying notes to condensed consolidated financial statements.

5

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31, 2018			March 31, 2017
Cash flows from operating activities
Net income	$	10,881,000		$	7,615,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		2,483,000			2,548,000
Accretion of acquired loans		(357,000	)		(483,000	)
Provision for loan losses		0			600,000
Stock-based compensation expense		597,000			476,000
Stock grants to directors for retainer fees		0			2,000
Proceeds from sales of mortgage loans held for sale		21,010,000			19,317,000
Origination of mortgage loans held for sale		(19,585,000	)		(19,342,000	)
Net gain from sales of mortgage loans held for sale		(736,000	)		(867,000	)
Net gain from sales and valuation write-downs of foreclosed assets		(105,000	)		(43,000	)
Net loss from sales and valuation write-downs of former bank premises		99,000			15,000
Net loss from sales and write-downs of fixed assets		53,000			40,000
Earnings on bank owned life insurance		(331,000	)		(1,738,000	)
Net change in:
Accrued interest receivable		(820,000	)		(828,000	)
Other assets		(866,000	)		(321,000	)
Accrued interest and other liabilities		722,000			980,000
Net cash from operating activities		13,045,000			7,971,000
Cash flows from investing activities
Loan originations and payments, net		7,257,000			(61,701,000	)
Purchases of securities available for sale		(13,303,000	)		(14,701,000	)
Proceeds from maturities, calls and repayments of securities available for sale		4,609,000			10,858,000
Purchases of Federal Home Loan Bank stock		0			(1,210,000	)
Proceeds from sales of foreclosed assets		410,000			99,000
Proceeds from bank owned life insurance cash value release and death benefits		0			2,720,000
Net purchases of premises and equipment		(1,429,000	)		(1,138,000	)
Net cash for investing activities		(2,456,000	)		(65,073,000	)
Cash flows from financing activities
Net decrease in time deposits		(8,412,000	)		(55,203,000	)
Net increase (decrease) in all other deposits		26,100,000			(41,766,000	)
Net decrease in securities sold under agreements to repurchase		(13,854,000	)		(5,031,000	)
Maturities of Federal Home Loan Bank advances		0			(10,000,000	)
Proceeds from Federal Home Loan Bank advances		0			40,000,000
Proceeds from stock option exercises		54,000			248,000
Employee stock purchase plan		14,000			12,000
Dividend reinvestment plan		164,000			1,145,000
Payment of cash dividends to common shareholders		(3,599,000	)		(2,923,000	)
Net cash from (for) financing activities		467,000			(73,518,000	)
Net change in cash and cash equivalents		11,056,000			(130,620,000	)
Cash and cash equivalents at beginning of period		200,101,000			183,596,000
Cash and cash equivalents at end of period	$	211,157,000		$	52,976,000

See accompanying notes to condensed consolidated financial statements.

6

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Three Months		Three Months
	Ended		Ended
	March 31, 2018		March 31, 2017
Supplemental disclosures of cash flows information
Cash paid during the period for:
Interest	$	4,529,000	$	3,322,000
Federal income tax		0		0
Noncash financing and investing activities:
Transfers from loans to foreclosed assets		232,000		97,000
Transfers from bank premises to other real estate owned		296,000		0

See accompanying notes to condensed consolidated financial statements.

7

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the three months ended March 31, 2018 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s two subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended March 31, 2018 should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2017.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately 236,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2018. In addition, stock options for approximately 17,000 shares of common stock were included in determining diluted earnings per share for the three months ended March 31, 2018. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three months ended March 31, 2018.

Approximately 225,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2017. In addition, stock options for approximately 34,000 shares of common stock were included in determining diluted earnings per share for the three months ended March 31, 2017. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three months ended March 31, 2017.

(Continued)

8

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged-off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

(Continued)

9

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of March 31, 2018 and December 31, 2017, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $1.9 million and $2.6 million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately $611 million as of March 31, 2018.

Mortgage Banking Activities: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

(Continued)

10

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

(Continued)

11

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Core Deposit Intangible: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We may elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a two-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In 2016 and 2017, we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than not our fair value was greater than its carrying amount; therefore, no further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a ten-year period using the sum-of-the-years-digits methodology.

Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Condensed Consolidated Statements of Income was not necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Adoption of New Accounting Standards: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We adopted this ASU effective January 1, 2018 using the modified retrospective approach.

(Continued)

12

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of ASU 2014-09 did not have a material impact on our consolidated financial statements and related disclosures as the primary sources of revenues are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of the new standard. Our revenue recognition pattern for revenue streams within the scope of the new standard, including but not limited to service charges on deposit accounts, credit and debit card interchange fees and payroll service income, did not change significantly from prior practice. The modified retrospective method requires application of ASU 2014-09 to uncompleted contracts at the date of adoption; however, periods prior to the date of adoption have not been retrospectively revised as the impact of the new standard on uncompleted contracts as the date of adoption was not material, and therefore a cumulative effective adjustment to opening retained earnings was not deemed necessary.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. Our adoption of this ASU effective January 1, 2018 did not have a material effect on our financial position or results of operations. The adoption of this guidance resulted in an insignificant cumulative-effect adjustment that decreased retained earnings, with offsetting-related adjustments to deferred taxes and AOCI. In addition, the fair value of loans has been estimated using an exit price notion as disclosed in Note 10.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

(Continued)

13

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements. We have selected a software vendor for applying this new ASU, and have initiated the process to establish a framework which we plan to implement later in 2018.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. This ASU made eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after December 15, 2017. The new standard required adoption on a retrospective basis unless it was impractical to apply, in which case it was required to apply the amendments prospectively as of the earliest date practicable. Adoption of this ASU did not have a material effect on our financial position or results of operations.

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The provisions of this ASU will not have an impact on our financial position or results of operations as we have always amortized premiums to the earliest call date.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The ASU changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. The ASU also eases certain documentation and assessment requirements and modifies the accounting components excluded from the assessment of hedge effectiveness. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

(Continued)

14

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU requires reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical 35% corporate income tax rate and the newly enacted 21% corporate income tax rate. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws of rates be included in income from continuing operations is not affected. This ASU is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. We early adopted this ASU effective December 31, 2017, which resulted in the reclassification of $0.9 million from accumulated other comprehensive income to retained earnings at year-end 2017.

2.    SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018
U.S. Government agency debt obligations	$	184,422,000	$	4,000	$	(11,257,000	)	$	173,169,000
Mortgage-backed securities		41,104,000		278,000		(1,031,000	)		40,351,000
Municipal general obligation bonds		118,881,000		404,000		(1,625,000	)		117,660,000
Municipal revenue bonds		3,910,000		6,000		(73,000	)		3,843,000
Other investments		2,018,000		0		(53,000	)		1,965,000
	$	350,335,000	$	692,000	$	(14,039,000	)	$	336,988,000
December 31, 2017
U.S. Government agency debt obligations	$	175,953,000	$	99,000	$	(6,352,000	)	$	169,700,000
Mortgage-backed securities		38,967,000		335,000		(510,000	)		38,792,000
Municipal general obligation bonds		121,040,000		891,000		(638,000	)		121,293,000
Municipal revenue bonds		3,978,000		30,000		(30,000	)		3,978,000
Other investments		2,010,000		0		(29,000	)		1,981,000
	$	341,948,000	$	1,355,000	$	(7,559,000	)	$	335,744,000

(Continued)

15

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES (Continued)

Securities with unrealized losses at March 31, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2018
U.S. Government agency debt obligations	$	44,594,000	$	1,464,000	$	126,600,000	$	9,793,000	$	171,194,000	$	11,257,000
Mortgage-backed securities		14,519,000		479,000		18,867,000		552,000		33,386,000		1,031,000
Municipal general obligation bonds		43,826,000		615,000		43,537,000		1,010,000		87,363,000		1,625,000
Municipal revenue bonds		1,499,000		16,000		1,159,000		57,000		2,658,000		73,000
Other investments		1,518,000		53,000		0		0		1,518,000		53,000
	$	105,956,000	$	2,627,000	$	190,163,000	$	11,412,000	$	296,119,000	$	14,039,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2017
U.S. Government agency debt obligations	$	35,677,000	$	434,000	$	115,374,000	$	5,918,000	$	151,051,000	$	6,352,000
Mortgage-backed securities		10,179,000		156,000		21,084,000		354,000		31,263,000		510,000
Municipal general obligation bonds		12,807,000		114,000		54,703,000		524,000		67,510,000		638,000
Municipal revenue bonds		0		0		1,187,000		30,000		1,187,000		30,000
Other investments		1,510,000		29,000		0		0		1,510,000		29,000
	$	60,173,000	$	733,000	$	192,348,000	$	6,826,000	$	252,521,000	$	7,559,000

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

(Continued)

16

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES (Continued) 

At March 31, 2018, 394 debt securities and one mutual fund with fair values totaling $296 million have unrealized losses aggregating $14.0 million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at March 31, 2018, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2018		1.86	$	28,193,000	$	28,181,000
Due in 2019 through 2023		2.12		65,051,000		64,576,000
Due in 2024 through 2028		2.52		99,189,000		94,685,000
Due in 2029 and beyond		2.95		114,780,000		107,230,000
Mortgage-backed securities		2.33		41,104,000		40,351,000
Other investments		2.84		2,018,000		1,965,000
Total available for sale securities		2.51	$	350,335,000	$	336,988,000

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $112 million at March 31, 2018 and December 31, 2017, with estimated market values of $111 million and $112 million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of $10.8 million and $12.9 million at March 31, 2018 and December 31, 2017, respectively, with estimated market values of $10.7 million and $13.0 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements was $105 million and $119 million at March 31, 2018 and December 31, 2017, respectively. Investments in Federal Home Loan Bank stock are restricted and may only be resold or redeemed by the issuer.

(Continued)

17

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with no carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Acquired loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools.

The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

(Continued)

18

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

Our total loans at March 31, 2018 were $2.55 billion compared to $2.56 billion at December 31, 2017, a decrease of $7.3 million, or 0.3%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at March 31, 2018 and December 31, 2017, and the percentage change in loans from the end of 2017 to the end of the first quarter of 2018, are as follows:

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	675,188,000		30.8	%	$	680,805,000		31.3	%		(0.8	%)
Vacant land, land development, and residential construction		25,514,000		1.2			23,682,000		1.1			7.7
Real estate – owner occupied		468,777,000		21.4			456,065,000		21.0			2.8
Real estate – non-owner occupied		715,725,000		32.6			708,824,000		32.7			1.0
Real estate – multi-family and residential rental		61,762,000		2.8			64,852,000		3.0			(4.8	)
Total commercial		1,946,966,000		88.8			1,934,228,000		89.1			0.7
Retail:
Home equity and other		65,604,000		3.0			69,675,000		3.2			(5.8	)
1-4 family mortgages		179,281,000		8.2			166,054,000		7.7			8.0
Total retail		244,885,000		11.2			235,729,000		10.9			3.9
Total originated loans	$	2,191,851,000		100.0	%	$	2,169,957,000		100.0	%		1.0	%

(Continued)

19

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	64,617,000		18.0	%	$	72,959,000		18.8	%		(11.4	%)
Vacant land, land development, and residential construction		5,924,000		1.6			6,191,000		1.6			(4.3	)
Real estate – owner occupied		62,375,000		17.5			70,263,000		18.1			(11.2	)
Real estate – non-owner occupied		78,481,000		21.8			82,861,000		21.3			(5.3	)
Real estate – multi-family and residential rental		34,666,000		9.6			37,066,000		9.5			(6.5	)
Total commercial		246,063,000		68.5			269,340,000		69.3			(8.6	)
Retail:
Home equity and other		27,575,000		7.7			30,750,000		7.9			(10.3	)
1-4 family mortgages		85,715,000		23.8			88,505,000		22.8			(3.2	)
Total retail		113,290,000		31.5			119,255,000		30.7			(5.0	)
Total acquired loans	$	359,353,000		100.0	%	$	388,595,000		100.0	%		(7.5	%)

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	739,805,000		29.0	%	$	753,764,000		29.4	%		(1.9	%)
Vacant land, land development, and residential construction		31,438,000		1.2			29,873,000		1.2			5.2
Real estate – owner occupied		531,152,000		20.8			526,328,000		20.6			0.9
Real estate – non-owner occupied		794,206,000		31.2			791,685,000		30.9			0.3
Real estate – multi-family and residential rental		96,428,000		3.8			101,918,000		4.0			(5.4	)
Total commercial		2,193,029,000		86.0			2,203,568,000		86.1			(0.5	)
Retail:
Home equity and other		93,179,000		3.6			100,425,000		3.9			(7.2	)
1-4 family mortgages		264,996,000		10.4			254,559,000		10.0			4.1
Total retail		358,175,000		14.0			354,984,000		13.9			0.9
Total loans	$	2,551,204,000		100.0	%	$	2,558,552,000		100.0	%		(0.3	%)

(Continued)

20

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The total contractually required payments due on and carrying value of acquired impaired loans were $9.2 million and $5.0 million, respectively, as of March 31, 2018. The total contractually required payments due on and carrying value of acquired impaired loans were $11.9 million and $5.2 million, respectively, as of December 31, 2017. Changes in the accretable yield for acquired impaired loans for the three months ended March 31, 2018 and March 31, 2017 were as follows:

Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(131,000	)
Net reclassification from nonaccretable to accretable		86,000
Reductions (1)		(40,000	)
Balance at March 31, 2018	$	1,319,000
Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000

(1) Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

Nonperforming originated loans as of March 31, 2018 and December 31, 2017 were as follows:

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,763,000		3,672,000
Total nonperforming originated loans	$	2,763,000	$	3,672,000

Nonperforming acquired loans as of March 31, 2018 and December 31, 2017 were as follows:

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,979,000		3,471,000
Total nonperforming acquired loans	$	2,979,000	$	3,471,000

(Continued)

21

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The recorded principal balance of all nonperforming loans was as follows:

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	619,000	$	1,444,000
Vacant land, land development, and residential construction		0		35,000
Real estate – owner occupied		1,831,000		2,241,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		154,000		178,000
Total commercial		2,604,000		3,898,000
Retail:
Home equity and other		512,000		577,000
1-4 family mortgages		2,626,000		2,668,000
Total retail		3,138,000		3,245,000
Total nonperforming loans	$	5,742,000	$	7,143,000

Acquired impaired loans are not reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

(Continued)

22

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

An age analysis of past due loans is as follows as of March 31, 2018:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	1,350,000	$	929,000	$	0	$	2,279,000	$	672,909,000	$	675,188,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		25,514,000		25,514,000		0
Real estate – owner occupied		0		0		251,000		251,000		468,526,000		468,777,000		0
Real estate – non-owner occupied		0		0		0		0		715,725,000		715,725,000		0
Real estate – multi-family and residential rental		0		0		0		0		61,762,000		61,762,000		0
Total commercial		1,350,000		929,000		251,000		2,530,000		1,944,436,000		1,946,966,000		0
Retail:
Home equity and other		65,000		0		0		65,000		65,539,000		65,604,000		0
1-4 family mortgages		0		246,000		220,000		466,000		178,815,000		179,281,000		0
Total retail		65,000		246,000		220,000		531,000		244,354,000		244,885,000		0
Total past due loans	$	1,415,000	$	1,175,000	$	471,000	$	3,061,000	$	2,188,790,000	$	2,191,851,000	$	0

(Continued)

23

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	113,000	$	113,000	$	64,504,000	$	64,617,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		5,924,000		5,924,000		0
Real estate – owner occupied		0		156,000		243,000		399,000		61,976,000		62,375,000		0
Real estate – non-owner occupied		0		0		0		0		78,481,000		78,481,000		0
Real estate – multi-family and residential rental		27,000		0		9,000		36,000		34,630,000		34,666,000		0
Total commercial		27,000		156,000		365,000		548,000		245,515,000		246,063,000		0
Retail:
Home equity and other		163,000		44,000		42,000		249,000		27,326,000		27,575,000		0
1-4 family mortgages		645,000		231,000		475,000		1,351,000		84,364,000		85,715,000		0
Total retail		808,000		275,000		517,000		1,600,000		111,690,000		113,290,000		0
Total past due loans	$	835,000	$	431,000	$	882,000	$	2,148,000	$	357,205,000	$	359,353,000	$	0

(Continued)

24

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

An age analysis of past due loans is as follows as of December 31, 2017:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	178,000	$	178,000	$	680,627,000	$	680,805,000	$	0
Vacant land, land development, and residential construction		0		0		35,000		35,000		23,647,000		23,682,000		0
Real estate – owner occupied		0		0		1,244,000		1,244,000		454,821,000		456,065,000		0
Real estate – non-owner occupied		0		0		0		0		708,824,000		708,824,000		0
Real estate – multi-family and residential rental		0		0		0		0		64,852,000		64,852,000		0
Total commercial		0		0		1,457,000		1,457,000		1,932,771,000		1,934,228,000		0
Retail:
Home equity and other		647,000		11,000		86,000		744,000		68,931,000		69,675,000		0
1-4 family mortgages		0		0		250,000		250,000		165,804,000		166,054,000		0
Total retail		647,000		11,000		336,000		994,000		234,735,000		235,729,000		0
Total past due loans	$	647,000	$	11,000	$	1,793,000	$	2,451,000	$	2,167,506,000	$	2,169,957,000	$	0

(Continued)

25

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	40,000	$	0	$	114,000	$	154,000	$	72,805,000	$	72,959,000	$	0
Vacant land, land development, and residential construction		14,000		0		0		14,000		6,177,000		6,191,000		0
Real estate – owner occupied		634,000		0		271,000		905,000		69,358,000		70,263,000		0
Real estate – non-owner occupied		0		0		0		0		82,861,000		82,861,000		0
Real estate – multi-family and residential rental		0		0		108,000		108,000		36,958,000		37,066,000		0
Total commercial		688,000		0		493,000		1,181,000		268,159,000		269,340,000		0
Retail:
Home equity and other		408,000		52,000		154,000		614,000		30,136,000		30,750,000		0
1-4 family mortgages		690,000		333,000		661,000		1,684,000		86,821,000		88,505,000		0
Total retail		1,098,000		385,000		815,000		2,298,000		116,957,000		119,255,000		0
Total past due loans	$	1,786,000	$	385,000	$	1,308,000	$	3,479,000	$	385,116,000	$	388,595,000	$	0

(Continued)

26

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired originated loans as of March 31, 2018, and average originated impaired loans for the three months ended March 31, 2018, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	234,000	$	234,000		$	206,000
Vacant land, land development and residential construction		0		0			17,000
Real estate – owner occupied		2,937,000		2,875,000			2,164,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		337,000		337,000			343,000
Total commercial		3,508,000		3,446,000			2,730,000
Retail:
Home equity and other		768,000		751,000			716,000
1-4 family mortgages		1,106,000		419,000			437,000
Total retail		1,874,000		1,170,000			1,153,000
Total with no related allowance recorded	$	5,382,000	$	4,616,000		$	3,883,000

(Continued)

27

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,623,000	$	2,133,000	$	304,000	$	2,561,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,717,000		1,674,000		226,000		1,532,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		145,000		145,000		17,000		72,000
Total commercial		4,485,000		3,952,000		547,000		4,165,000
Retail:
Home equity and other		508,000		498,000		258,000		823,000
1-4 family mortgages		412,000		354,000		58,000		232,000
Total retail		920,000		852,000		316,000		1,055,000
Total with an allowance recorded	$	5,405,000	$	4,804,000	$	863,000	$	5,220,000
Total impaired loans:
Commercial	$	7,993,000	$	7,398,000	$	547,000	$	6,895,000
Retail		2,794,000		2,022,000		316,000		2,208,000
Total impaired loans	$	10,787,000	$	9,420,000	$	863,000	$	9,103,000

(Continued)

28

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired acquired loans as of March 31, 2018, and average impaired acquired loans for the three months ended March 31, 2018, were as follows: 

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	743,000	$	733,000		$	877,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,110,000		715,000			687,000
Real estate – non-owner occupied		232,000		232,000			235,000
Real estate – multi-family and residential rental		62,000		44,000			131,000
Total commercial		2,147,000		1,724,000			1,930,000
Retail:
Home equity and other		690,000		649,000			578,000
1-4 family mortgages		2,586,000		2,007,000			2,080,000
Total retail		3,276,000		2,656,000			2,658,000
Total with no related allowance recorded	$	5,423,000	$	4,380,000		$	4,588,000

(Continued)

29

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,597,000		1,597,000		307,000		799,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		1,597,000		1,597,000		307,000		799,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		0
Total retail		0		0		0		0
Total with an allowance recorded	$	1,597,000	$	1,597,000	$	307,000	$	799,000
Total impaired loans:
Commercial	$	3,744,000	$	3,321,000	$	307,000	$	2,729,000
Retail		3,276,000		2,656,000		0		2,658,000
Total impaired loans	$	7,020,000	$	5,977,000	$	307,000	$	5,387,000

(Continued)

30

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired originated loans as of December 31, 2017, and average impaired originated loans for the three months ended March 31, 2017, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	765,000	$	178,000		$	1,589,000
Vacant land, land development and residential construction		454,000		35,000			88,000
Real estate – owner occupied		1,528,000		1,452,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		349,000		349,000			197,000
Total commercial		3,096,000		2,014,000			1,987,000
Retail:
Home equity and other		693,000		680,000			247,000
1-4 family mortgages		1,126,000		456,000			649,000
Total retail		1,819,000		1,136,000			896,000
Total with no related allowance recorded	$	4,915,000	$	3,150,000		$	2,883,000

(Continued)

31

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,038,000	$	2,989,000	$	963,000	$	2,690,000
Vacant land, land development and residential construction		0		0		0		749,000
Real estate – owner occupied		1,409,000		1,391,000		239,000		1,144,000
Real estate – non-owner occupied		0		0		0		4,745,000
Real estate – multi-family and residential rental		0		0		0		751,000
Total commercial		4,447,000		4,380,000		1,202,000		10,079,000
Retail:
Home equity and other		1,225,000		1,147,000		652,000		697,000
1-4 family mortgages		165,000		110,000		13,000		137,000
Total retail		1,390,000		1,257,000		665,000		834,000
Total with an allowance recorded	$	5,837,000	$	5,637,000	$	1,867,000	$	10,913,000
Total impaired loans:
Commercial	$	7,543,000	$	6,394,000	$	1,202,000	$	12,066,000
Retail		3,209,000		2,393,000		665,000		1,730,000
Total impaired loans	$	10,752,000	$	8,787,000	$	1,867,000	$	13,796,000

(Continued)

32

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired acquired loans as of December 31, 2017, and average impaired acquired loans for the three months ended March 31, 2017, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,039,000	$	1,021,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,027,000		659,000			1,151,000
Real estate – non-owner occupied		238,000		237,000			751,000
Real estate – multi-family and residential rental		237,000		218,000			160,000
Total commercial		2,541,000		2,135,000			2,954,000
Retail:
Home equity and other		694,000		507,000			336,000
1-4 family mortgages		2,703,000		2,153,000			1,662,000
Total retail		3,397,000		2,660,000			1,998,000
Total with no related allowance recorded	$	5,938,000	$	4,795,000		$	4,952,000

(Continued)

33

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		0		0		0		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		0		0		0		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		172,000
Total retail		0		0		0		172,000
Total with an allowance recorded	$	0	$	0	$	0	$	239,000
Total impaired loans:
Commercial	$	2,541,000	$	2,135,000	$	0	$	3,021,000
Retail		3,397,000		2,660,000		0		2,170,000
Total impaired loans	$	5,938,000	$	4,795,000	$	0	$	5,191,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled $0.3 million and $0.2 million during the first quarters of 2018 and 2017, respectively. No interest income was recognized on nonaccrual loans during either the first quarter of 2018 or 2017. Lost interest income on nonaccrual loans totaled $0.1 million during both the first quarter of 2018 and the respective 2017 period.

(Continued)

34

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of March 31, 2018:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	468,826,000	$	17,645,000	$	313,933,000	$	564,093,000	$	39,571,000
Grades 5 – 7		187,118,000		7,767,000		140,088,000		151,632,000		21,709,000
Grades 8 – 9		19,244,000		102,000		14,756,000		0		482,000
Total commercial	$	675,188,000	$	25,514,000	$	468,777,000	$	715,725,000	$	61,762,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	65,604,000	$	179,281,000

(Continued)

35

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	39,543,000	$	1,412,000	$	28,823,000	$	54,951,000	$	17,376,000
Grades 5 – 7		24,591,000		4,512,000		30,940,000		23,448,000		17,132,000
Grades 8 – 9		483,000		0		2,612,000		82,000		158,000
Total commercial	$	64,617,000	$	5,924,000	$	62,375,000	$	78,481,000	$	34,666,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	27,575,000	$	85,715,000

(Continued)

36

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit quality indicators were as follows as of December 31, 2017:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	469,537,000	$	15,090,000	$	326,700,000	$	559,388,000	$	42,951,000
Grades 5 – 7		189,851,000		8,557,000		123,024,000		149,135,000		21,552,000
Grades 8 – 9		21,417,000		35,000		6,341,000		301,000		349,000
Total commercial	$	680,805,000	$	23,682,000	$	456,065,000	$	708,824,000	$	64,852,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,675,000	$	166,054,000

(Continued)

37

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	46,263,000	$	1,446,000	$	28,706,000	$	52,674,000	$	17,499,000
Grades 5 – 7		25,654,000		4,745,000		39,565,000		30,102,000		19,212,000
Grades 8 – 9		1,042,000		0		1,992,000		85,000		355,000
Total commercial	$	72,959,000	$	6,191,000	$	70,263,000	$	82,861,000	$	37,066,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	30,750,000	$	88,505,000

(Continued)

38

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

All commercial loans are graded using the following criteria:
Grade 1.	Excellent credit rating that contain very little, if any, risk of loss.
Grade 2.	Strong sources of repayment and have low repayment risk.
Grade 3.	Good sources of repayment and have limited repayment risk.
Grade 4.	Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.
Grade 5.	Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.
Grade 6.	Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management).
Grade 7.	Defined weaknesses or negative trends that merit close monitoring through Watch List status.
Grade 8.	Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status.
Grade 9.	Vital weaknesses exist where collection of principal is highly questionable.
Grade 10.	Considered uncollectable and of such little value that continuance as an asset is not warranted.
The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments.  We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value.  The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments.  We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

(Continued)

39

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the three months ended March 31, 2018 are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	16,456,000		$	2,584,000		$	93,000	$	19,133,000
Provision for loan losses		(341,000	)		(563,000	)		122,000		(782,000	)
Charge-offs		(258,000	)		(135,000	)		0		(393,000	)
Recoveries		1,008,000			115,000			0		1,123,000
Ending balance	$	16,865,000		$	2,001,000		$	215,000	$	19,081,000
Ending balance: individually evaluated for impairment	$	547,000		$	316,000		$	0	$	863,000
Ending balance: collectively evaluated for impairment	$	16,318,000		$	1,685,000		$	215,000	$	18,218,000
Total loans:
Ending balance	$	1,946,966,000		$	244,885,000				$	2,191,851,000
Ending balance: individually evaluated for impairment	$	7,398,000		$	2,022,000				$	9,420,000
Ending balance: collectively evaluated for impairment	$	1,939,568,000		$	242,863,000				$	2,182,431,000

Activity in the allowance for loan losses for acquired loans during the three months ended March 31, 2018 is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		314,000			468,000			0		782,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			4,000			0		4,000
Ending balance	$	359,000		$	534,000		$	0	$	893,000

(Continued)

40

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the twelve months ended December 31, 2017 are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		1,148,000			1,360,000			133,000			2,641,000
Charge-offs		(2,292,000	)		(891,000	)		0			(3,183,000	)
Recoveries		1,574,000			233,000			0			1,807,000
Ending balance	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Ending balance: individually evaluated for impairment	$	1,202,000		$	665,000		$	0		$	1,867,000
Ending balance: collectively evaluated for impairment	$	15,254,000		$	1,919,000		$	93,000		$	17,266,000
Total loans:
Ending balance	$	1,934,228,000		$	235,729,000					$	2,169,957,000
Ending balance: individually evaluated for impairment	$	6,394,000		$	2,393,000					$	8,787,000
Ending balance: collectively evaluated for impairment	$	1,927,834,000		$	233,336,000					$	2,161,170,000

Activity in the allowance for loan losses for acquired loans during the twelve months ended December 31, 2017 is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000		$	0	$	93,000
Provision for loan losses		210,000			99,000			0		309,000
Charge-offs		(12,000	)		(40,000	)		0		(52,000	)
Recoveries		18,000			0			0		18,000
Ending balance	$	291,000		$	77,000		$	0	$	368,000

In accordance with acquisition accounting rules, acquired loans were recorded at fair value at the merger date and the prior allowance was eliminated.

(Continued)

41

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended March 31, 2018 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		3	$	107,000	$	96,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		4		3,865,000		3,854,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		7		3,972,000		3,950,000
Retail:
Home equity and other		1		50,000		50,000
1-4 family mortgages		0		0		0
Total originated retail		1		50,000		50,000
Total originated loans		8	$	4,022,000	$	4,000,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		1,597,000		1,597,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		3		1,597,000		1,597,000
Retail:
Home equity and other		6		118,000		119,000
1-4 family mortgages		0		0		0
Total acquired retail		6		118,000		119,000
Total acquired loans		9	$	1,715,000	$	1,716,000

(Continued)

42

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended March 31, 2017 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

(Continued)

43

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2018 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		1		251,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		251,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	251,000

The following acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2018 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	113,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		113,000
Retail:
Home equity and other		2		20,000
1-4 family mortgages		0		0
Total retail		2		20,000
Total		3	$	133,000

(Continued)

44

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2017 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

The following acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2017 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

(Continued)

45

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for originated loans categorized as troubled debt restructurings during the three months ended March 31, 2018 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,989,000		$	383,000		$	1,599,000		$	0	$	0
Charge-Offs		(230,000	)		0			0			0		0
Payments		(882,000	)		(45,000	)		(855,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		105,000			0			3,804,000			0		0
Ending Balance	$	1,982,000		$	338,000		$	4,548,000		$	0	$	0

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(8,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		50,000			0
Ending Balance	$	1,169,000		$	144,000

(Continued)

46

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for acquired loans categorized as troubled debt restructurings during the three months ended March 31, 2018 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,001,000		$	0	$	427,000		$	237,000		$	41,000
Charge-Offs		(275,000	)		0		0			0			0
Payments		(10,000	)		0		(17,000	)		(5,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		1,597,000			0			0
Ending Balance	$	716,000		$	0	$	2,007,000		$	232,000		$	36,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(15,000	)		0
Payments		(1,000	)		(9,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		119,000			0
Ending Balance	$	240,000		$	384,000

(Continued)

47

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for originated loans categorized as troubled debt restructurings during the three months ended March 31, 2017 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

(Continued)

48

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for acquired loans categorized as troubled debt restructurings during the three months ended March 31, 2017 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

(Continued)

49

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The allowance related to loans categorized as troubled debt restructurings was as follows: 

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	85,000	$	107,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		375,000		141,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		460,000		248,000
Retail:
Home equity and other		215,000		196,000
1-4 family mortgages		21,000		0
Total retail		236,000		196,000
Total related allowance	$	696,000	$	444,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal; we believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

(Continued)

50

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.    PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	March 31,		December 31,
	2018		2017
Land and improvements	$	17,938,000	$	18,046,000
Buildings		41,751,000		41,179,000
Furniture and equipment		17,858,000		17,398,000
		77,547,000		76,623,000
Less: accumulated depreciation		31,247,000		30,589,000
Premises and equipment, net	$	46,300,000	$	46,034,000

Depreciation expense totaled $0.8 million and $0.7 million during the first quarters of 2018 and 2017, respectively.

5.    DEPOSITS

Our total deposits at March 31, 2018 totaled $2.54 billion, an increase of $17.7 million, or 0.7%, from December 31, 2017. The components of our outstanding balances at March 31, 2018 and December 31, 2017, and percentage change in deposits from the end of 2017 to the end of the first quarter of 2018, are as follows:

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	830,187,000		32.7	%	$	866,380,000		34.3	%		(4.2	%)
Interest-bearing checking		392,134,000		15.4			387,758,000		15.4			1.1
Money market		486,318,000		19.1			427,119,000		16.9			13.9
Savings		326,247,000		12.9			327,530,000		13.0			(0.4	)
Time, under $100,000		156,053,000		6.2			152,294,000		6.0			2.5
Time, $100,000 and over		246,703,000		9.7			258,626,000		10.3			(4.6	)
Total local deposits		2,437,642,000		96.0			2,419,707,000		95.9			0.7
Out-of-area time, under $100,000		0	NA				0	NA			NA
Out-of-area time, $100,000 and over		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total out-of-area deposits		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total deposits	$	2,540,053,000		100.0	%	$	2,522,365,000		100.0	%		0.7	%

Time deposits of more than $250,000 totaled $252 million and $266 million at March 31, 2018 and December 31, 2017, respectively.

(Continued)

51

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.    SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Three Months Ended			Twelve Months Ended
	March 31, 2018			December 31, 2017
Outstanding balance at end of period	$	104,894,000		$	118,748,000
Average interest rate at end of period		0.25	%		0.16	%
Average daily balance during the period	$	108,048,000		$	116,587,000
Average interest rate during the period		0.22	%		0.16	%
Maximum daily balance during the period	$	123,046,000		$	142,459,000

Repurchase agreements generally have original maturities of less than one year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

7.    FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled $220 million at March 31, 2018 and December 31, 2017, and mature at varying dates from May 2018 through April 2024, with fixed rates of interest from 1.04% to 2.39% and averaging 1.72%.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. The advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of March 31, 2018 totaled about $739 million, with remaining availability based on collateral approximating $519 million.

Maturities of currently outstanding FHLBI advances are as follows:

2018	$	20,000,000
2019		40,000,000
2020		30,000,000
2021		40,000,000
2022		40,000,000
Thereafter		50,000,000

(Continued)

52

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.    COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and is generally recorded as a liability. There was no reserve or liability balance for these instruments as of March 31, 2018 and December 31, 2017.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at March 31, 2018 and December 31, 2017 follows:

	March 31,		December 31,
	2018		2017
Commercial unused lines of credit	$	678,832,000	$	682,202,000
Unused lines of credit secured by 1 – 4 family residential properties		60,930,000		61,606,000
Credit card unused lines of credit		42,693,000		39,807,000
Other consumer unused lines of credit		17,788,000		17,629,000
Commitments to make loans		238,437,000		184,923,000
Standby letters of credit		23,592,000		26,030,000
	$	1,062,272,000	$	1,012,197,000

9.    HEDGING ACTIVITIES

Our interest rate risk policy includes guidelines for measuring and monitoring interest rate risk. Within these guidelines, parameters have been established for maximum fluctuations in net interest income. Possible fluctuations are measured and monitored using net interest income simulation. Our policy provides for the use of certain derivative instruments and hedging activities to aid in managing interest rate risk to within the policy parameters.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 9.   HEDGING ACTIVITIES (Continued)

In February 2012, we entered into an interest rate swap agreement with a correspondent bank to hedge the floating rate on the subordinated debentures issued to Mercantile Bank Capital Trust I; the interest rate swap agreement became effective in January 2013 and matured in January 2018. The $32.0 million of subordinated debentures have a rate equal to the 90-Day Libor Rate plus a fixed spread of 218 basis points, and are subject to repricing quarterly. The interest rate swap agreement provided for us to pay our correspondent bank a fixed rate, while our correspondent bank paid us the 90-Day Libor Rate on a $32.0 million notional amount. The quarterly re-set dates for the floating rate on the interest rate swap agreement were the same as the re-set dates for the floating rate on the subordinated debentures. The interest rate swap agreement was accounted for under hedge accounting guidelines; therefore, monthly fluctuations in the present value of the interest rate swap agreement, net of tax effect, were recorded in other comprehensive income. As of December 31, 2017, the fair value of the interest rate swap agreement was recorded as a liability in the amount of less than $0.1 million.

Effective January 26, 2016, the notional amount of the interest rate swap agreement was reduced from $32.0 million down to $21.0 million, reflecting the $11.0 million repurchase of the associated trust preferred securities on that date. We reclassified out of accumulated other comprehensive income and recorded interest expense of approximately $0.2 million in January 2016 as part of the transaction, reflecting the market value (i.e., present value of expected future cash flows) of the interest rate swap on that date of the $11.0 million portion.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of March 31, 2018 and December 31, 2017 (dollars in thousands):

	Level in	March 31, 2018				December 31, 2017
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy	Values		Values		Values		Values
Financial assets:
Cash	Level 1	$	11,148	$	11,148	$	11,565	$	11,565
Cash equivalents	Level 2		200,009		200,009		188,536		188,536
Securities available for sale	(1)		336,988		336,988		335,744		335,744
FHLBI stock	(2)		11,036		11,036		11,036		11,036
Loans, net	Level 3		2,529,366		2,528,622		2,536,498		2,520,063
Loans held for sale	Level 2		1,864		1,864		2,553		2,553
Mortgage servicing rights	Level 2		4,899		8,223		5,106		8,373
Accrued interest receivable	Level 2		9,590		9,590		8,770		8,770
Financial liabilities:
Deposits	Level 2		2,540,053		2,361,212		2,522,365		2,368,188
Repurchase agreements	Level 2		104,894		104,894		118,748		118,748
FHLBI advances	Level 2		220,000		214,172		220,000		217,130
Subordinated debentures	Level 2		45,688		46,280		45,517		45,732
Accrued interest payable	Level 2		2,172		2,172		1,919		1,919
Interest rate swap	(1)		0		0		2		2

(1) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. Fair value for loans as of March 31, 2018 is based on an exit price model as required by ASU 2016-01, taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. As of December 31, 2017, the fair value of floating rate loans was primarily based on carrying value, while fair value of other loans was estimated using discounted cash flow analysis using interest rates the being offered for loans with similar terms to borrowers of similar credit quality. Fair value for deposits accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The fair values of subordinated debentures and FHLBI advances are based on current rates for similar financing. The fair value of the interest rate swap was determined primarily utilizing market-consensus forecasted yield curves. The fair value of off-balance sheet items is estimated to be nominal.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, municipal general obligation and revenue bonds and mutual funds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information that becomes known to us necessitates an impairment. There was no such impairment as of March 31, 2018 or December 31, 2017. We have no Level 1 securities available for sale.

Derivatives. The interest rate swap is measured at fair value on a recurring basis. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves, and accordingly, the interest rate swap agreement is classified as Level 2.

Mortgage loans held for sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of March 31, 2018 and December 31, 2017, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $1.9 million and $2.6 million, respectively.

Loans. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off.

Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	173,169,000	$	0	$	173,169,000	$	0
Mortgage-backed securities		40,351,000		0		40,351,000		0
Municipal general obligation bonds		117,660,000		0		112,469,000		5,191,000
Municipal revenue bonds		3,843,000		0		3,843,000		0
Other investments		1,965,000		0		1,965,000		0
Total	$	336,988,000	$	0	$	331,797,000	$	5,191,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during the first three months of 2018.

The balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	169,700,000		$	0	$	169,700,000		$	0
Mortgage-backed securities		38,792,000			0		38,792,000			0
Municipal general obligation bonds		121,293,000			0		116,102,000			5,191,000
Municipal revenue bonds		3,978,000			0		3,978,000			0
Other investments		1,981,000			0		1,981,000			0
Interest rate swap		(2,000	)		0		(2,000	)		0
Total	$	335,742,000		$	0	$	330,551,000		$	5,191,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during 2017.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2018 are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	4,498,000	$	0	$	0	$	4,498,000
Foreclosed assets		2,384,000		0		0		2,384,000
Total	$	6,882,000	$	0	$	0	$	6,882,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2017 are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	5,836,000	$	0	$	0	$	5,836,000
Foreclosed assets		2,260,000		0		0		2,260,000
Total	$	8,096,000	$	0	$	0	$	8,096,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a 15% to 25% discount factor for commercial-related properties, and a 25% to 50% discount factor for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2018 and December 31, 2017, 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, 2018 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, 2018
Total capital (to risk weighted assets)
Consolidated	$	387,520		13.2	%	$	234,830		8.0	%	$	NA		NA
Bank		379,370		12.9			234,646		8.0			293,307		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		367,546		12.5			176,123		6.0			NA		NA
Bank		359,396		12.3			175,984		6.0			234,646		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		323,932		11.0			132,092		4.5			NA		NA
Bank		359,396		12.3			131,988		4.5			190,650		6.5
Tier 1 capital (to average assets)
Consolidated		367,546		11.5			127,794		4.0			NA		NA
Bank		359,396		11.3			127,712		4.0			159,640		5.0

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.   REGULATORY MATTERS (Continued)

											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, 2017
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 tier 1 (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

Our consolidated capital levels as of March 31, 2018 and December 31, 2017 include $43.6 million and $43.4 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 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, 2018 and December 31, 2017, all $43.6 million and $43.4 million, respectively, of the trust preferred securities were included in our consolidated Tier 1 capital.

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 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 March 31, 2018, 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.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.  REGULATORY MATTERS (Continued)

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 11, 2018, our Board of Directors declared a cash dividend on our common stock in the amount of $0.22 per share that was paid on March 21, 2018 to shareholders of record as of March 9, 2018. On April 12, 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 June 20, 2018 to shareholders of record as of June 8, 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 the first three months of 2018. 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.

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Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “projects,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward looking-statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include, among others, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies; and risk factors described in our annual report on Form 10-K for the year ended December 31, 2017 or in this report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Introduction

The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Bank of Michigan (“our bank”) and our bank’s two subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance company”), at March 31, 2018 and December 31, 2017 and the results of operations for the three months ended March 31, 2018 and March 31, 2017. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to “us,” “we,” “our” or “the company” include Mercantile Bank Corporation and its consolidated subsidiaries referred to above.

Critical Accounting Policies 

Accounting principles generally accepted in the United States of America are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting policies, see Note 1 of the Notes to our Consolidated Financial Statements included on pages F-42 through F-50 in our Form 10-K for the fiscal year ended December 31, 2017 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

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MERCANTILE BANK CORPORATION

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is maintained at a level we believe is adequate to absorb probable incurred losses identified and inherent in the originated loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Loan losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results.

The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Impairment is evaluated on an individual loan basis. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The timing of obtaining outside appraisals varies, generally depending on the nature and complexity of the property being evaluated, general breadth of activity within the marketplace and the age of the most recent appraisal. For collateral dependent impaired loans, in most cases we obtain and use the “as is” value as indicated in the appraisal report, adjusting for any expected selling costs. In certain circumstances, we may internally update outside appraisals based on recent information impacting a particular or similar property, or due to identifiable trends (e.g., recent sales of similar properties) within our markets. The expected future cash flows exclude potential cash flows from certain guarantors. To the extent these guarantors provide repayments, a recovery would be recorded upon receipt. Loans are evaluated for impairment when payments are delayed, typically 30 days or more, or when serious deficiencies are identified within the credit relationship. Our policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. We put loans into nonaccrual status when the full collection of principal and interest is not expected.

Income Tax Accounting: Current income tax assets and liabilities are established for the amount of taxes payable or refundable for the current year. In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income tax laws for which the outcome may be uncertain. We periodically review and evaluate the status of our tax positions and make adjustments as necessary. Deferred income tax assets and liabilities are also established for the future tax consequences of events that have been recognized in our financial statements or tax returns. A deferred income tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences that can be carried forward (used) in future years. The valuation of our net deferred income tax asset is considered critical as it requires us to make estimates based on provisions of the enacted tax laws. The assessment of the realizability of the net deferred income tax asset involves the use of estimates, assumptions, interpretations and judgments concerning accounting pronouncements, federal and state tax codes and the extent of future taxable income. There can be no assurance that future events, such as court decisions, positions of federal and state tax authorities, and the extent of future taxable income will not differ from our current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

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Accounting guidance requires that we assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, we consider both positive and negative evidence and analyze changes in near-term market conditions as well as other factors which may impact future operating results. Significant weight is given to evidence that can be objectively verified.

Securities and Other Financial Instruments: Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities classified as available for sale are reported at their fair value. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other than temporary losses, management considers: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Fair values for securities available for sale are obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the current fair value of securities is recorded as a valuation adjustment and reported in other comprehensive income.

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage prepayment speeds, the remaining life of the mortgage pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from serving each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

Goodwill: Generally accepted accounting principles require us to determine the fair value of all of the assets and liabilities of an acquired entity, and record their fair value on the date of acquisition. We employ a variety of means in determination of the fair value, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculation of the value. In other cases, where the value is not easily determined, we consult with outside parties to determine the fair value of the asset or liability. Once valuations have been adjusted, the net difference between the price paid for the acquired company and the value of its balance sheet is recorded as goodwill.

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed if conditions in the market place or changes in the company’s organizational structure occur. We use a discounted income approach and a market valuation model, which compares the inherent value of our company to valuations of recent transactions in the market place to determine if our goodwill has been impaired.

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Financial Overview

We reported net income of $10.9 million, or $0.66 per diluted share, for the first quarter of 2018, compared to $7.6 million, or $0.46 per diluted share, during the first quarter of 2017. The successful collection of certain problem commercial loan relationships during the first quarter of 2018 increased reported net income by approximately $1.7 million, or $0.10 per diluted share, while a bank owned life insurance benefit claim during the first quarter of 2017 increased reported net income by approximately $1.1 million, or $0.06 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.16, or about 40%, during the current-year first quarter compared to the prior-year first quarter.

Net income during the first quarter of 2018 also benefited from a reduction in our federal corporate income tax rate, which was lowered from 35% to 21% effective January 1, 2018 as a result of the enactment of the Tax Cuts and Jobs Act. Our effective federal income tax rate during the first quarter of 2018 was approximately 19%, compared to almost 31% during the first quarter of 2017.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling only 0.23% of total loans as of March 31, 2018. Gross loan charge-offs totaled $0.6 million during the first quarter of 2018, while recoveries of prior period loan charge-offs totaled $1.1 million, providing for net loan recoveries of $0.5 million, or 0.08% of average total loans on an annualized basis. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries.

New commercial term loan originations totaled approximately $111 million during the first quarter of 2018. Net loans declined $7.3 million during the first quarter of 2018, reflecting the impact of scheduled monthly payments as well as expected and unexpected commercial loan payoffs. The new loan pipeline remains strong, and at March 31, 2018, we had over $133 million in unfunded loan commitments on commercial construction and development projects that are in the construction phase. We believe our loan portfolio remains well diversified, with commercial real estate non-owner occupied loans comprising 31%, commercial and industrial loans equaling 29%, commercial real estate owner occupied loans comprising 21% and residential mortgage and consumer loans aggregating 14% of total loans at March 31, 2018. As a percent of total commercial loans, commercial and industrial loans and commercial real estate owner occupied loans combined equaled 58% at March 31, 2018.

We believe our funding structure also remains well diversified. As of March 31, 2018, noninterest-bearing checking accounts comprised 29%, interest-bearing checking and securities sold under agreements to repurchase (“sweep accounts”) combined for 17%, savings deposits and money market accounts aggregated to 29% and local time deposits accounted for 14% of total funds. Wholesale funds, comprised of brokered deposits and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances, represented the remaining 11% of total funds.

Financial Condition

Our total assets increased $7.2 million during the first three months of 2018, and totaled $3.29 billion as of March 31, 2018. Total loans decreased $7.3 million, while securities available for sale grew $1.2 million and cash and cash equivalents increased $11.1 million. Noninterest-bearing deposits and sweep accounts declined $36.2 million and $13.9 million, respectively, during the first three months of 2018, generally reflecting federal income tax and bonus payments from certain of our commercial customers during the initial few weeks of the quarter. Interest-bearing deposits increased $53.9 million during the first quarter of 2018, primarily reflecting deposits to money market deposit accounts from several of our existing customers.

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Commercial loans decreased $10.5 million during the first three months of 2018, and at March 31, 2018 totaled $2.19 billion, or 86.0% of the loan portfolio. As of December 31, 2017, the commercial loan portfolio comprised 86.1% of total loans. During the first three months of 2018, new commercial term loans to existing and new borrowers totaled $111 million; however, we experienced an abnormally high level of pay-offs, including approximately $21 million from borrowers on our watch list and another $21 million from borrowers who sold the underlying collateral or their businesses. During the first quarter of 2018, commercial and industrial loans decreased $13.9 million and multi-family and residential rental loans declined $5.5 million, while owner occupied commercial real estate (“CRE”) loans increased $4.8 million, non-owner occupied CRE loans grew $2.5 million, and vacant land, land development and residential construction loans were up $1.6 million. As a percent of total commercial loans, commercial and industrial loans and commercial real estate owner occupied loans combined equaled 58.0% as of March 31, 2018, compared to 58.1% at December 31, 2017.

We are very pleased with the approximately $1.7 billion in new commercial term loan fundings since the beginning of 2015, including about $111 million during the first three months of 2018. As of March 31, 2018, availability on existing construction and development loans totaled over $133 million, with most of those funds expected to be drawn over the next 12 to 18 months. Our current pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including approximately $238 million in new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial lenders also report substantial additional opportunities they are currently discussing with existing and potentially new borrowers.

We continue to experience commercial loan principal paydowns and payoffs. While a portion of the principal paydowns and payoffs received have been welcomed, such as on stressed loan relationships, we have also experienced instances where well-performing relationships have been refinanced at other financial institutions or non-bank entities, and other situations where the borrower has sold the underlying asset. In many of those instances where the loans were refinanced elsewhere, we believed the terms and conditions of the new lending arrangements were too aggressive, generally reflecting the very competitive banking environment in our markets. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit has remained relatively steady.

Residential mortgage loans increased $10.4 million during the first quarter of 2018, totaling $265 million, or 10.4% of total loans, as of March 31, 2018. Despite increasing residential mortgage interest rates and the negative impact of a shortage of housing inventory in our markets, most notably in West Michigan, we were able to originate $40.9 million in residential mortgage loans during the first three months of 2018, which was almost 7% higher than originations during the first three months of 2017. We sold $19.8 million of the residential mortgage loans originated during the first quarter of 2018, or about 48%, generally comprised of longer-term fixed rate residential mortgage loans. The remaining portion was added to our balance sheet, in large part comprised of adjustable rate residential mortgage loans. Despite the headwinds of higher rates and a shortage of housing inventory, we are pleased with the success of our strategic initiative to grow our residential mortgage banking operation over the past couple of years, and are optimistic that origination volumes will continue to grow in future periods. As of March 31, 2018, the level of residential mortgage loan pre-qualifications was very near an all-time high. Other consumer-related loans declined $7.2 million during the first quarter of 2018, and at March 31, 2018 totaled $93.2 million, or 3.6% of total loans. Other consumer-related loans comprised 3.9% of total loans as of December 31, 2017. We expect this loan portfolio segment to decline in future periods as scheduled principal payments exceed origination volumes.

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The following table summarizes our loan portfolio over the past twelve months:

	3/31/18		12/31/17		9/30/17		6/30/17		3/31/17
Commercial:
Commercial & Industrial	$	739,805,000	$	753,764,000	$	776,563,000	$	780,816,000	$	757,220,000
Land Development & Construction		31,438,000		29,873,000		28,575,000		29,027,000		31,924,000
Owner Occupied Commercial RE		531,152,000		526,328,000		485,347,000		491,633,000		452,382,000
Non-Owner Occupied Commercial RE		794,206,000		791,685,000		805,167,000		783,036,000		768,565,000
Multi-Family & Residential Rental		96,428,000		101,918,000		119,170,000		114,081,000		113,257,000
Total Commercial		2,193,029,000		2,203,568,000		2,214,822,000		2,198,593,000		2,123,348,000
Retail:
1-4 Family Mortgages		264,996,000		254,559,000		236,074,000		220,697,000		205,849,000
Home Equity & Other Consumer Loans		93,179,000		100,425,000		103,376,000		107,991,000		112,117,000
		358,175,000		354,984,000		339,450,000		328,688,000		317,966,000
Total	$	2,551,204,000	$	2,558,552,000	$	2,554,272,000	$	2,527,281,000	$	2,441,314,000

Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on impaired loans, as well as on foreclosed and repossessed assets, are reviewed periodically; however, we have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming assets, comprised of nonaccrual loans, loans past due 90 days or more and accruing interest and foreclosed properties, totaled $8.1 million (0.3% of total assets) as of March 31, 2018, compared to $9.4 million (0.3% of total assets) as of December 31, 2017. Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with the manageable and steady level of watch list credits and what we believe are strong credit administration practices, we remain pleased with the overall quality of the loan portfolio.

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The following tables provide a breakdown of nonperforming assets by collateral type:

NONPERFORMING LOANS

	3/31/18		12/31/17		9/30/17		6/30/17		3/31/17
Residential Real Estate:
Land Development	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		3,269,000		3,381,000		3,403,000		3,192,000		2,787,000
		3,269,000		3,381,000		3,403,000		3,192,000		2,787,000
Commercial Real Estate:
Land Development		0		35,000		50,000		65,000		80,000
Construction		0		0		0		0		0
Owner Occupied		1,831,000		2,241,000		2,583,000		1,052,000		911,000
Non-Owner Occupied		0		0		46,000		47,000		421,000
		1,831,000		2,276,000		2,679,000		1,164,000		1,412,000
Non-Real Estate:
Commercial Assets		620,000		1,444,000		2,126,000		2,081,000		3,076,000
Consumer Assets		22,000		42,000		23,000		13,000		17,000
		642,000		1,486,000		2,149,000		2,094,000		3,093,000
Total	$	5,742,000	$	7,143,000	$	8,231,000	$	6,450,000	$	7,292,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS

	3/31/18		12/31/17		9/30/17		6/30/17		3/31/17
Residential Real Estate:
Land Development	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		302,000		193,000		245,000		175,000		185,000
		302,000		193,000		245,000		175,000		185,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		2,082,000		2,031,000		2,044,000		261,000		310,000
Non-Owner Occupied		0		36,000		38,000		353,000		0
		2,082,000		2,067,000		2,082,000		614,000		310,000
Non-Real Estate:
Commercial Assets		0		0		0		0		0
Consumer Assets		0		0		0		0		0
		0		0		0		0		0
Total	$	2,384,000	$	2,260,000	$	2,327,000	$	789,000	$	495,000

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The following tables provide a reconciliation of nonperforming assets:

NONPERFORMING LOANS RECONCILIATION

	1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
	2018			2017			2017			2017			2017
Beginning balance	$	7,143,000		$	8,231,000		$	6,450,000		$	7,292,000		$	5,939,000
Additions, net of transfers to ORE		928,000			354,000			3,081,000			1,279,000			2,890,000
Returns to performing status		(175,000	)		0			(120,000	)		0			(113,000	)
Principal payments		(1,557,000	)		(687,000	)		(1,089,000	)		(1,168,000	)		(1,289,000	)
Loan charge-offs		(597,000	)		(755,000	)		(91,000	)		(953,000	)		(135,000	)
Total	$	5,742,000		$	7,143,000		$	8,231,000		$	6,450,000		$	7,292,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS RECONCILIATION

	1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
	2018			2017			2017			2017			2017
Beginning balance	$	2,260,000		$	2,327,000		$	789,000		$	495,000		$	469,000
Additions		527,000			48,000			1,918,000			511,000			97,000
Sale proceeds		(299,000	)		(101,000	)		(373,000	)		(147,000	)		(56,000	)
Valuation write-downs		(104,000	)		(14,000	)		(7,000	)		(70,000	)		(15,000	)
Total	$	2,384,000		$	2,260,000		$	2,327,000		$	789,000		$	495,000

During the first quarter of 2018, loan charge-offs totaled $0.6 million while recoveries of prior period charge-offs equaled $1.1 million, providing for net loan recoveries of $0.5 million, or an annualized 0.08% of average total loans. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries.

In each accounting period, we adjust the allowance to the amount we believe is necessary to maintain the allowance at an adequate level. Through the loan review and credit departments, we establish portions of the allowance based on specifically identifiable problem loans. The evaluation of the allowance is further based on, but not limited to, consideration of the internally prepared allowance analysis, loan loss migration analysis, composition of the loan portfolio, third party analysis of the loan administration processes and portfolio, and general economic conditions.

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The allowance analysis applies reserve allocation factors to non-impaired outstanding loan balances, the result of which is combined with specific reserves to calculate an overall allowance dollar amount. For non-impaired commercial loans, reserve allocation factors are based on the loan ratings as determined by our standardized grade paradigms and by loan purpose. Our commercial loan portfolio is segregated into five classes: 1) commercial and industrial loans; 2) vacant land, land development and residential construction loans; 3) owner occupied real estate loans; 4) non-owner occupied real estate loans; and 5) multi-family and residential rental property loans. The reserve allocation factors are primarily based on the historical trends of net loan charge-offs through a migration analysis whereby net loan losses are tracked via assigned grades over various time periods, with adjustments made for environmental factors reflecting the current status of, or recent changes in, items such as: lending policies and procedures; economic conditions; nature and volume of the loan portfolio; experience, ability and depth of management and lending staff; volume and severity of past due, nonaccrual and adversely classified loans; effectiveness of the loan review program; value of underlying collateral; loan concentrations; and other external factors such as competition and regulatory environment. Adjustments for specific lending relationships, particularly impaired loans, are made on a case-by-case basis. Non-impaired retail loan reserve allocations are determined in a similar fashion as those for non-impaired commercial loans, except that retail loans are segmented by type of credit and not a grading system. We regularly review the allowance analysis and make needed adjustments based upon identifiable trends and experience.

A migration analysis is completed quarterly to assist us in determining appropriate reserve allocation factors for non-impaired commercial loans. Our migration analysis takes into account various time periods, with most weight placed on the time frame from December 31, 2010 through March 31, 2018. We believe this time period represents an appropriate range of economic conditions, and that it provides for an appropriate basis in determining reserve allocation factors given current economic conditions and the general consensus of economic conditions in the near future.

Although the migration analysis provides a historical accounting of our net loan losses, it is not able to fully account for environmental factors that will also very likely impact the collectability of our commercial loans as of any quarter-end date. Therefore, we incorporate the environmental factors as adjustments to the historical data. Environmental factors include both internal and external items. We believe the most significant internal environmental factor is our credit culture and the relative aggressiveness in assigning and revising commercial loan risk ratings, with the most significant external environmental factor being the assessment of the current economic environment and the resulting implications on our commercial loan portfolio.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

The allowance for originated loans equaled $19.1 million, or 0.9% of total originated loans outstanding, at both March 31, 2018 and December 31, 2017. We also had an allowance for acquired loans, which equaled $0.9 million and $0.4 million as of March 31, 2018 and December 31, 2017, respectively. The allowance equaled 348% of nonperforming loans as of March 31, 2018, compared to 273% as of December 31, 2017. The increase in this ratio during the first quarter primarily reflects a $1.4 million decrease in nonperforming loans.

As of March 31, 2018, the allowance for originated loans was comprised of $18.2 million in general reserves relating to non-impaired loans, $0.5 million in specific reserve allocations relating to nonaccrual loans, and $0.4 million in specific reserves on other loans, primarily accruing loans designated as troubled debt restructurings. Troubled debt restructurings totaled $11.8 million at March 31, 2018, consisting of $1.9 million that are on nonaccrual status and $9.9 million that are on accrual status. The latter, while considered and accounted for as impaired loans in accordance with accounting guidelines, are not included in our nonperforming loan totals. Impaired loans with an aggregate carrying value of $0.7 million as of March 31, 2018 had been subject to previous partial charge-offs aggregating $1.0 million. Those partial charge-offs were primarily recorded in 2017 and 2011. As of March 31, 2018, there were no specific reserves allocated to impaired loans that had been subject to a previous partial charge-off.

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The following table provides a breakdown of our originated and acquired loans categorized as troubled debt restructurings:

	3/31/18		12/31/17		9/30/17		6/30/17		3/31/17
Performing	$	9,876,000	$	6,128,000	$	9,350,000	$	9,982,000	$	11,497,000
Nonperforming		1,920,000		2,434,000		2,603,000		975,000		731,000
Total	$	11,796,000	$	8,562,000	$	11,953,000	$	10,957,000	$	12,228,000

Although we believe the allowance is adequate to absorb loan losses in our originated loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance.

Securities available for sale increased $1.2 million during the first three months of 2018, totaling $337 million as of March 31, 2018. Purchases during the first three months of 2018, consisting primarily of U.S. Government agency bonds ($8.5 million) and U.S. Government agency issued or guaranteed mortgage-backed securities ($4.6 million), totaled $13.3 million. Proceeds from matured and called municipal bonds during the first three months of 2018 totaled $2.2 million, with another $2.4 million from principal paydowns on mortgage-backed securities. At March 31, 2018, the portfolio was primarily comprised of U.S. Government agency bonds (51%), municipal bonds (36%) and U.S. Government agency issued or guaranteed mortgage-backed securities (12%). All of our securities are currently designated as available for sale, and are therefore stated at fair value. The fair value of securities designated as available for sale at March 31, 2018 totaled $337 million, including a net unrealized loss of $13.3 million. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect purchases during the remainder of 2018 to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at about 11% of total assets.

FHLBI stock totaled $11.0 million as of March 31, 2018, unchanged from the balance at December 31, 2017. Our investment in FHLBI stock is necessary to engage in their advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines.

Interest-earning balances, primarily consisting of excess funds deposited at the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate sensitivity. During the first three months of 2018, the average balance of these funds equaled $124 million, or 4.1% of average earning assets. We expect these funds to average a more desired level of 1% to 2% of average earning assets in future quarters.

Net premises and equipment equaled $46.3 million at March 31, 2018, an increase of $0.3 million during the first three months of 2018; the increase was attributable to net purchases of $1.4 million, which more than offset the transfer of a former branch into other real estate owned in the amount of $0.3 million and depreciation expense of $0.8 million. Foreclosed and repossessed assets equaled $2.4 million as of March 31, 2018, up $0.1 million from year-end 2017. While we expect periodic transfers from loans to foreclosed and repossessed assets in future periods reflecting our collection efforts on some impaired lending relationships, we believe the overall strong quality of our loan portfolio will limit any overall increase in, and average balance of, this particular nonperforming asset category.

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Total deposits increased $17.7 million during the first three months of 2018, totaling $2.54 billion at March 31, 2018. Out-of-area deposits decreased $0.2 million during the first three months of 2018, and as a percent of total deposits, equaled 4.0% as of March 31, 2018, compared to 4.1% as of December 31, 2017.

Noninterest-bearing deposits and sweep accounts declined $36.2 million and $13.9 million, respectively, during the first three months of 2018, generally reflecting federal income tax and bonus payments from certain of our commercial customers during the initial few weeks of the quarter. Interest-bearing deposits increased $53.9 million during the first quarter of 2018, primarily reflecting deposits to money market deposit accounts from several of our existing customers. Money market deposit accounts and interest-bearing checking accounts grew $59.2 million and $4.4 million, respectively, during the first three months of 2018, while savings deposits decreased $1.3 million. Local time deposits declined $8.2 million, primarily consisting of non-renewed maturities from certain municipal customers, while out-of-area deposits decreased $0.2 million.

FHLBI advances were unchanged during the first three months of 2018, totaling $220 million as of March 31, 2018. The FHLBI advances are generally collateralized by a blanket lien on our residential mortgage loan portfolio and certain commercial real estate loans. Our borrowing line of credit as of March 31, 2018 totaled about $739 million, with remaining availability approximating $519 million.

Shareholders’ equity was $368 million at March 31, 2018, compared to $366 million at December 31, 2017. The $2.5 million increase during the first three months of 2018 primarily reflects the positive impact of net income totaling $10.9 million and the negative impact of cash dividends on common shares totaling $3.6 million. Also negatively impacting shareholders’ equity during the first three months of 2018 was a $5.6 million after-tax reduction in the market value of our available for sales securities portfolio, reflecting the increase in market interest rates during that time period.

Liquidity

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, maintain reserve requirements and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured and called securities, federal funds sold and interest-earning deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximizes profitability, while providing adequate liquidity.

To assist in providing needed funds, we periodically obtain monies from wholesale funding sources. Wholesale funds, primarily comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $322 million, or 11.3% of combined deposits and borrowed funds, as of March 31, 2018, compared to $323 million, or 11.3% of combined deposits and borrowed funds, as of December 31, 2017.

Sweep accounts decreased $13.9 million during the first three months of 2018, totaling $105 million as of March 31, 2018. Total balances in this product have been on a declining trend over the past few years, in large part reflecting customers closing sweep accounts and depositing the funds into stand-alone noninterest-bearing checking accounts. The balance decline during the first three months of 2018 also reflects federal income tax and bonus payments from certain of our commercial customers. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into over-night interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance, and are accounted for as secured borrowings. Information regarding our repurchase agreements as of March 31, 2018 and during the first three months of 2018 is as follows:

Outstanding balance at March 31, 2018	$	104,894,000
Weighted average interest rate at March 31, 2018		0.25	%
Maximum daily balance three months ended March 31, 2018	$	123,046,000
Average daily balance for three months ended March 31, 2018	$	108,048,000
Weighted average interest rate for three months ended March 31, 2018		0.22	%

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MERCANTILE BANK CORPORATION

As a member of FHLBI, we have access to FHLBI advance borrowing programs. FHLBI advances were unchanged during the first three months of 2018. As of March 31, 2018, FHLBI advances totaled $220 million, and based on available collateral we could borrow an additional $519 million.

We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an established unsecured federal funds purchased line of credit. We did not access this line of credit during the first three months of 2018. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $121 million during the first three months of 2018. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $19.5 million as of March 31, 2018. We did not utilize this line of credit during the first three months of 2018 or at any time during the previous nine fiscal years, and do not plan to access this line of credit in future periods.

The following table reflects, as of March 31, 2018, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

	One Year		One to		Three to		Over
	or Less		Three Years		Five Years		Five Years		Total
Deposits without a stated maturity	$	2,034,886,000	$	0	$	0	$	0	$	2,034,886,000
Time deposits		263,276,000		169,630,000		72,261,000		0		505,167,000
Short-term borrowings		104,894,000		0		0		0		104,894,000
Federal Home Loan Bank advances		30,000,000		70,000,000		80,000,000		40,000,000		220,000,000
Subordinated debentures		0		0		0		45,688,000		45,688,000
Other borrowed money		0		0		0		3,243,000		3,243,000
Property leases		327,000		506,000		294,000		204,000		1,331,000

In addition to normal loan funding and deposit flow, we must maintain liquidity to meet the demands of certain unfunded loan commitments and standby letters of credit. As of March 31, 2018, we had a total of $1.04 billion in unfunded loan commitments and $23.6 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $800 million were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $238 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels, and include such data in our overall liquidity management.

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. While we believe it is unlikely that a funding crisis of any significant degree is likely to materialize, we have developed a comprehensive contingency funding plan that provides a framework for meeting liquidity disruptions.

Capital Resources

Shareholders’ equity was $368 million at March 31, 2018, compared to $366 million at December 31, 2017. The $2.5 million increase during the first three months of 2018 primarily reflects the positive impact of net income totaling $10.9 million and the negative impact of cash dividends on common shares totaling $3.6 million. Also negatively impacting shareholders’ equity during the first three months of 2018 was a $5.6 million after-tax reduction in the market value of our available for sales securities portfolio, reflecting the increase in market interest rates during that time period.

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 approximately 956,000 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 the first three months of 2018. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made during in future periods under the authorized plan, which would also likely be funded from cash dividends paid to us from our bank.

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MERCANTILE BANK CORPORATION

We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. 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 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 March 31, 2018, 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.

As of March 31, 2018, our bank’s total risk-based capital ratio was 12.9%, compared to 12.6% at December 31, 2017. Our bank’s total regulatory capital increased $8.0 million during the first three months of 2018, in large part reflecting the net impact of net income totaling $12.2 million and cash dividends paid to us aggregating $4.0 million. Our bank’s total risk-based capital ratio was also impacted by a $10.9 million reduction in total risk-weighted assets, primarily resulting from a reduction in total commercial loans. As of March 31, 2018, our bank’s total regulatory capital equaled $379 million, or approximately $86 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of March 31, 2018 and December 31, 2017 are disclosed in Note 12 of the Notes to Condensed Consolidated Financial Statements.

Results of Operations

We recorded net income of $10.9 million, or $0.66 per basic and diluted share, for the first quarter of 2018, compared to net income of $7.6 million, or $0.46 per basic and diluted share, for the first quarter of 2017. The successful collection of certain problem commercial loan relationships during the first quarter of 2018 increased reported net income by approximately $1.7 million, or $0.10 per diluted share, while a bank owned life insurance death benefits claim during the first quarter of 2017 increased reported net income by approximately $1.1 million, or $0.06 per diluted share; excluding the impacts of these transactions, diluted earnings per share increased $0.16, or 40.0%, during the current-year first quarter compared to the prior-year first quarter.

Net income during the first three months of 2018 also benefited from a reduction in our federal corporate income tax rate, which was lowered from 35% to 21% on January 1, 2018, as a result of the enactment of the Tax Cuts and Jobs Act; our effective tax rate during the first quarter of 2018 was 19.0%, down from 30.7% during the prior-year first quarter.

The improved net income in the first quarter of 2018 compared to the prior-year first quarter primarily resulted from increased net interest income, which more than offset lower noninterest income and higher overhead costs. The increased net interest income resulted from an improved net interest margin and a higher level of earning assets. Noninterest income during the first quarter of 2017 was elevated mainly as a result of the bank owned life insurance death benefits claim. Excluding this transaction, noninterest income during the current-year first quarter was down slightly compared to the respective 2017 period, primarily reflecting decreased mortgage banking activity income, which more than offset increases in credit and debit card income, service charges on accounts, and payroll processing fees. The increased noninterest expense mainly reflects higher salary and occupancy costs.

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MERCANTILE BANK CORPORATION

Interest income during the first quarter of 2018 was $35.0 million, an increase of $6.3 million, or 21.9%, from the $28.7 million earned during the first quarter of 2017. The growth in interest income resulted from a higher yield on average earning assets and an increase in average earning assets. The yield on average earning assets was 4.70% during the first quarter of 2018, compared to 4.20% during the first quarter of 2017. The increased yield on average earning assets primarily resulted from a higher yield on loans, which equaled 5.14% and 4.54% during the first quarters of 2018 and 2017, respectively. The increased yield on loans mainly stemmed from a higher yield on commercial loans, which equaled 5.23% and 4.49% in the current-year first quarter and prior-year first quarter, respectively. The increased yield on commercial loans primarily resulted from higher interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) raising the targeted federal funds by 25 basis points in each of March, June, and December of 2017 and again in March of 2018, and successful commercial loan collection efforts. The collection of interest on certain nonperforming commercial loans that paid in full positively impacted the yield on commercial loans by approximately 40 basis points during the first quarter of 2018. Purchased credit-impaired (“PCI”) loan accretion and payments received on PCI commercial real estate-pooled loans, which are both reported as interest income, totaled $2.1 million during the first three months of 2018, compared to $0.6 million during the respective 2017 period. The positive impact of the increased yield on loans on the yield on average earning assets during the current-year first quarter was somewhat mitigated by a change in earning asset mix. Average higher-yielding loans represented 84.4% of average earning assets during the first quarter of 2018, down from 85.6% during the first quarter of 2017, while average lower-yielding interest-earning deposits represented 4.1% and 2.2% of average earning assets during the respective periods. Average earning assets equaled $3.02 billion during the current-year first quarter, up $233 million, or 8.4%, from the level of $2.79 billion during the prior-year first quarter; average loans were up $162 million, average interest-earning deposits were up $62.3 million, and average securities were up $8.9 million during the first three months of 2018 compared to the respective 2017 period.

Interest expense during the first quarter of 2018 was $4.8 million, an increase of $1.6 million, or 49.7%, from the $3.2 million expensed during the first quarter of 2017. The increase in interest expense is attributable to a higher weighted average cost of interest-bearing liabilities, which equaled 0.94% in the current-year first quarter compared to 0.68% in the prior-year first quarter, and an increase in interest-bearing liabilities. The increase in the weighted average cost of interest-bearing liabilities reflects higher costs of certain non-time deposit accounts, certificates of deposit, and borrowed funds. The cost of interest-bearing non-time deposit accounts increased from 0.12% during the first quarter of 2017 to 0.46% during the first quarter of 2018, primarily reflecting one large depositor transferring funds from time deposits into a money market account product at rates higher than the average rate on the money market product at the time of transfer and the offering of a high balance money market account product with a higher rate, both of which occurred during the second quarter of 2017. The cost of time deposits increased from 1.18% during the prior-year first quarter to 1.39% during the current-year first quarter, mainly reflecting higher rates paid on local certificates of deposit, public unit certificates of deposit $100,000 and over, and brokered certificates of deposit $100,000 and over; the increased rates primarily reflect the rising interest rate environment. The cost of borrowed funds increased from 1.53% during the first three months of 2017 to 1.83% during the respective 2018 period, mainly reflecting higher costs of FHLBI advances and subordinated debentures and a change in borrowing mix. The cost of FHLBI advances increased from 1.49% during the first quarter of 2017 to 1.72% during the first quarter of 2018; longer-term advances totaling $90 million were obtained during the last ten months of 2017 to meet loan funding and interest rate risk management needs. The cost of subordinated debentures was 5.87% during the current-year first quarter, up from 5.34% during the respective 2017 period due to increased Libor rates stemming from the rising interest rate environment. Average higher-costing FHLBI advances represented 58.4% of average borrowed funds during the first quarter of 2018, up from 49.7% during the first quarter of 2017, while average lower-costing sweep accounts represented 28.7% and 36.6% of average borrowed funds during the respective periods. Average interest-bearing liabilities were $2.07 billion during the first three months of 2018, up $172 million, or 9.1%, from the $1.89 billion average during the first three months of 2017.

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Net interest income during the first quarter of 2018 was $30.2 million, an increase of $4.7 million, or 18.4%, from the $25.5 million earned during the first quarter of 2017. The increase in net interest income was due to a higher net interest margin and an increase in average earning assets. The net interest margin increased from 3.73% in the first quarter of 2017 to 4.06% in the current-year first quarter due to a higher yield on average earning assets, which more than offset an increased cost of funds. The increase in the yield on average earning assets from 4.20% during the first quarter of 2017 to 4.70% during the first quarter of 2018 mainly resulted from a higher yield on commercial loans. The increased yield on commercial loans primarily resulted from higher interest rates on variable-rate loans stemming from the aforementioned FOMC rate hikes and successful collection efforts. Based upon the forecast of our interest rate risk measurement system, we expect any further FOMC rate hikes to positively impact our net interest margin. The collection of interest on certain nonperforming commercial loans that paid in full positively impacted the yield on earning assets during the first three months of 2018 by approximately 29 basis points, while a higher-than-desired level of interest-earning deposits negatively impacted the yield by approximately 8 basis points. Excluding the impacts of these factors, the net interest margin equaled approximately 3.85% during the first quarter of 2018. The cost of funds equaled 0.64% during the first quarter of 2018, up from 0.47% during the prior-year first quarter primarily due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds.

The following table sets forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the first quarters of 2018 and 2017. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the period presented. Tax-exempt securities interest income and yield for the first quarters of 2018 and 2017 have been computed on a tax equivalent basis using a marginal tax rate of 21% and 35%, respectively. Securities interest income was increased by $75,000 and $167,000 in the first quarters of 2018 and 2017, respectively, for this non-GAAP, but industry standard, adjustment. This adjustment equated to a one basis point increase in our net interest margin during the first quarter of 2018, and a two basis point increase in our net interest margin during the first quarter of 2017.

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	Quarters ended March 31,
	2 0 1 8								2 0 1 7
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	2,552,070		$	32,315		5.14	%	$	2,390,030		$	26,733		4.54	%
Investment securities		348,431			2,271		2.61			339,537			1,995		2.35
Other interest-earning assets		123,633			470		1.52			61,376			143		0.81
Total interest - earning assets		3,024,134			35,056		4.70			2,790,943			28,871		4.20
Allowance for loan losses		(20,212	)							(18,176	)
Other assets		245,872								244,104
Total assets	$	3,249,794							$	3,016,871
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	1,690,135		$	3,085		0.74	%	$	1,542,078		$	1,868		0.49	%
Short-term borrowings		108,048			57		0.22			129,022			51		0.16
Federal Home Loan Bank advances		220,000			945		1.72			175,333			655		1.49
Other borrowings		48,841			695		5.69			48,258			621		5.15
Total interest-bearing liabilities		2,067,024			4,782		0.94			1,894,691			3,195		0.68
Noninterest-bearing deposits		805,214								766,031
Other liabilities		12,035								12,805
Shareholders’ equity		365,521								343,344
Total liabilities and shareholders’ equity	$	3,249,794							$	3,016,871
Net interest income				$	30,274							$	25,676
Net interest rate spread							3.76	%							3.52	%
Net interest spread on average assets							3.77	%							3.45	%
Net interest margin on earning assets							4.06	%							3.73	%

No provision expense was recorded during the first quarter of 2018, compared to a provision expense of $0.6 million recorded during the first quarter of 2017. In light of net loan recoveries being recorded and the lack of net loan growth during the current-year first quarter, no provision expense was made. The provision expense recorded during the 2017 period primarily reflected ongoing loan growth. Net loan recoveries were $0.5 million during the first three months of 2018, compared to net loan charge-offs of $0.3 million during the respective 2017 period. The allowance for originated loans, as a percentage of total originated loans, was 0.9% as of both March 31, 2018, and March 31, 2017. Our allowances for originated loans and acquired loans totaled $19.1 million and $0.9 million, respectively, as of March 31, 2018.

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MERCANTILE BANK CORPORATION

Noninterest income during the first quarter of 2018 was $4.4 million, compared to $5.9 million during the prior-year first quarter. Noninterest income during the first quarter of 2017 included a bank owned life insurance death benefits claim of $1.4 million. Excluding the impact of this transaction, noninterest income declined $0.1 million during the current-year first quarter compared to the respective 2017 period. The decrease in noninterest income primarily reflected a lower level of mortgage banking activity income, which more than offset increased credit and debit card income, service charges on accounts, and payroll processing fees. Mortgage banking activity income during the first three months of 2018 was negatively impacted by a shortage of housing inventory in our markets and rising residential mortgage loan interest rates. In light of the current strong residential mortgage pipeline and level of pre-qualifications, we believe that future purchase activity from increased turnover and the addition of new housing stock in our markets will more than offset lower refinance activity stemming from the rising interest rate environment, resulting in mortgage banking activity income growth in future periods.

Noninterest expense during the first quarter of 2018 was $21.1 million, an increase of $1.4 million, or 6.9%, from the $19.7 million expensed during the first quarter of 2017. The higher level of expense primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases, the hiring of additional staff, a larger bonus accrual, and higher stock-based compensation expense. Increased occupancy costs, mainly stemming from expansion initiatives and higher maintenance expenses, also contributed to the increased level of noninterest expense.

During the first quarter of 2018, we recorded income before federal income tax of $13.4 million and a federal income tax expense of $2.5 million. During the first quarter of 2017, we recorded income before federal income tax of $11.0 million and a federal income tax expense of $3.4 million. The lower level of federal income tax expense primarily reflects a reduced corporate income tax rate stemming from the enactment of the Tax Cuts and Jobs Act; the rate was lowered from 35% to 21% effective January 1, 2018. Our effective tax rate was 19.0% during the first three months of 2018, compared to 30.7% during the respective 2017 period. 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. We have only limited agricultural-related loan assets and therefore have no significant exposure to changes in commodity prices. Any impact that changes in foreign exchange rates and commodity prices would have on interest rates is assumed to be insignificant. Interest rate risk is the exposure of our financial condition to adverse movements in interest rates. We derive our income primarily from the excess of interest collected on our interest-earning assets over the interest paid on our interest-bearing liabilities. The rates of interest we earn on our assets and owe on our liabilities generally are established contractually for a period of time. Since market interest rates change over time, we are exposed to lower profitability if we cannot adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to our earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to our safety and soundness.

Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. Our interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems and internal control procedures are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, we assess the existing and potential future effects of changes in interest rates on our financial condition, including capital adequacy, earnings, liquidity and asset quality.

We use two interest rate risk measurement techniques. The first, which is commonly referred to as GAP analysis, measures the difference between the dollar amounts of interest sensitive assets and liabilities that will be refinanced or repriced during a given time period. A significant repricing gap could result in a negative impact to our net interest margin during periods of changing market interest rates.

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MERCANTILE BANK CORPORATION

The following table depicts our GAP position as of March 31, 2018:

	Within			Three to			One to			After
	Three			Twelve			Five			Five
	Months			Months			Years			Years			Total
Assets:
Commercial loans (1)	$	1,169,231,000		$	56,643,000		$	639,537,000		$	314,539,000		$	2,179,950,000
Residential real estate loans		61,991,000			14,933,000			127,970,000			134,827,000			339,721,000
Consumer loans		1,598,000			1,069,000			24,139,000			4,727,000			31,533,000
Securities (2)		31,893,000			14,046,000			88,904,000			213,181,000			348,024,000
Other interest-earning assets		161,879,000			750,000			1,250,000			0			163,879,000
Allowance for loan losses		0			0			0			0			(19,974,000	)
Other assets		0			0			0			0			250,767,000
Total assets		1,426,592,000			87,441,000			881,800,000			667,274,000		$	3,293,900,000
Liabilities:
Interest-bearing checking		392,134,000			0			0			0			392,134,000
Savings deposits		326,247,000			0			0			0			326,247,000
Money market accounts		486,318,000			0			0			0			486,318,000
Time deposits under $100,000		12,134,000			54,378,000			89,541,000			0			156,053,000
Time deposits $100,000 & over		71,840,000			124,924,000			152,350,000			0			349,114,000
Short-term borrowings		104,894,000			0			0			0			104,894,000
Federal Home Loan Bank advances		20,000,000			10,000,000			150,000,000			40,000,000			220,000,000
Other borrowed money		48,930,000			0			0			0			48,930,000
Noninterest-bearing checking		0			0			0			0			830,187,000
Other liabilities		0			0			0			0			11,683,000
Total liabilities		1,462,497,000			189,302,000			391,891,000			40,000,000			2,925,560,000
Shareholders' equity		0			0			0			0			368,340,000
Total liabilities & shareholders' equity		1,462,497,000			189,302,000			391,891,000			40,000,000		$	3,293,900,000
Net asset (liability) GAP	$	(35,905,000	)	$	(101,861,000	)	$	489,909,000		$	627,274,000
Cumulative GAP	$	(35,905,000	)	$	(137,766,000	)	$	352,143,000		$	979,417,000
Percent of cumulative GAP to total assets		(1.1	)%		(4.2	)%		10.7	%		29.7	%

⁽¹⁾ Floating rate loans that are currently at interest rate floors are treated as fixed rate loans and are reflected using maturity date and not repricing frequency.

⁽²⁾ Mortgage-backed securities are categorized by average life calculations based upon prepayment trends as of March 31, 2018.

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MERCANTILE BANK CORPORATION

The second interest rate risk measurement we use is commonly referred to as net interest income simulation analysis. We believe that this methodology provides a more accurate measurement of interest rate risk than the GAP analysis, and therefore, it serves as our primary interest rate risk measurement technique. The simulation model assesses the direction and magnitude of variations in net interest income resulting from potential changes in market interest rates.

Key assumptions in the model include prepayment speeds on various loan and investment assets; cash flows and maturities of interest sensitive assets and liabilities; and changes in market conditions impacting loan and deposit volume and pricing. These assumptions are inherently uncertain, subject to fluctuation and revision in a dynamic environment; therefore, the model cannot precisely estimate net interest income or exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions and our strategies, among other factors.

We conducted multiple simulations as of March 31, 2018, in which it was assumed that changes in market interest rates occurred ranging from up 400 basis points to down 400 basis points in equal quarterly instalments over the next twelve months. The following table reflects the suggested impact on net interest income over the next twelve months in comparison to estimated net interest income based on our balance sheet structure, including the balances and interest rates associated with our specific loans, securities, deposits and borrowed funds, as of March 31, 2018. The resulting estimates are well within our policy parameters established to manage and monitor interest rate risk.

	Dollar Change			Percent Change
	In Net			In Net
Interest Rate Scenario	Interest Income			Interest Income
Interest rates down 400 basis points	$	(18,580,000	)		(16.6%	)
Interest rates down 300 basis points		(15,400,000	)		(13.7	)
Interest rates down 200 basis points		(11,290,000	)		(10.1	)
Interest rates down 100 basis points		(5,930,000	)		(5.3	)
No change in interest rates		(420,000	)		(0.4	)
Interest rates up 100 basis points		1,740,000			1.5
Interest rates up 200 basis points		3,880,000			3.5
Interest rates up 300 basis points		6,050,000			5.4
Interest rates up 400 basis points		8,200,000			7.3

The resulting estimates have been significantly impacted by the current interest rate and economic environments, as adjustments have been made to critical model inputs with regards to traditional interest rate relationships. This is especially important as it relates to floating rate commercial loans, which comprise a sizable portion of our balance sheet.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; level of nonperforming assets; economic and competitive conditions; potential changes in lending, investing, and deposit gathering strategies; client preferences; and other factors.

Item 4. Controls and Procedures

As of March 31, 2018, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2018.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

81

MERCANTILE BANK CORPORATION

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in various legal proceedings that are incidental to our business. In our opinion, we are not a party to any current legal proceedings that are material to our financial condition, either individually or in the aggregate.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K for the year ended December 31, 2017, and incorporated therein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

We made no unregistered sales of equity securities during the quarter ended March 31, 2018.

Issuer Purchases of Equity Securities

We announced on January 30, 2015 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. No shares of our common stock were repurchased during the first quarter of 2018.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares or Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs
January 1 - 31		0	$	NA		0	$	15,505,000
February 1 - 28		0		NA		0		15,505,000
March 1 - 31		0		NA		0		15,505,000
Total		0	$	NA		0	$	15,505,000

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

82

MERCANTILE BANK CORPORATION

Item 6. Exhibits

Exhibit No.	EXHIBIT DESCRIPTION
2.1	Agreement and Plan of Merger dated August 14, 2013, incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed August 15, 2013
2.2	First Amendment to Merger Agreement dated February 20, 2014, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed February 21, 2014
3.1	Our Articles of Incorporation are incorporated by reference to Exhibit 3.1 of our Form 10-Q for the quarter ended June 30, 2009
3.2	Our Amended and Restated Bylaws dated as of January 16, 2003 are incorporated by reference to Exhibit 3.2 of our Registration Statement on Form S-3 (Commission File No. 333-103376) that became effective on February 21, 2003
31	Rule 13a-14(a) Certifications
32.1	Section 1350 Chief Executive Officer Certification
32.2	Section 1350 Chief Financial Officer Certification
101	The following financial information from Mercantile’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

83

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 7, 2018.

MERCANTILE BANK CORPORATION
By:	/s/ Robert B. Kaminski, Jr.
Robert B. Kaminski, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By:	/s/ Charles E. Christmas
Charles E. Christmas
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

84

EX-31

EXHIBIT 31

RULE 13a-14(a) CERTIFICATIONS

I, Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile Bank Corporation, certify that:

1.        I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)        Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)        Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  May 7, 2018	/s/ Robert B. Kaminski, Jr.
	Robert B. Kaminski, Jr.
	President and Chief Executive Officer

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of Mercantile Bank Corporation, certify that:

1.        I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)        Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)        Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  May 7, 2018	/s/ Charles E. Christmas
	Charles E. Christmas.
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended March 31, 2018 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

I, Robert B. Kaminski, Jr., President and Chief Executive Officer of the Issuer, certify that to my knowledge:

(i)     the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)     the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: May 7, 2018

/s/ Robert B. Kaminski, Jr.

Robert B. Kaminski, Jr.

President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended March 31, 2018 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of the Issuer, certify that to my knowledge:

(i)     the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)     the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: May 7, 2018

/s/ Charles E. Christmas                                                                 

Charles E. Christmas

Executive Vice President, Chief Financial Officer and Treasurer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
Document Information [Line Items]
Entity Registrant Name	MERCANTILE BANK CORPORATION
Entity Central Index Key	0001042729
Trading Symbol	mbwm
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		16,598,027
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 47,278,000	$ 55,127,000
Interest-earning deposits	163,879,000	144,974,000
Total cash and cash equivalents	211,157,000	200,101,000
Securities available for sale	336,988,000	335,744,000
Federal Home Loan Bank stock	11,036,000	11,036,000
Loans	2,551,204,000	2,558,552,000
Allowance for loan losses	(19,974,000)	(19,501,000)
Loans, net	2,531,230,000	2,539,051,000
Premises and equipment, net	46,300,000	46,034,000
Bank owned life insurance	69,010,000	68,689,000
Goodwill	49,473,000	49,473,000
Core deposit intangible	7,044,000	7,600,000
Other assets	31,662,000	28,976,000
Total assets	3,293,900,000	3,286,704,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing	830,187,000	866,380,000
Interest-bearing	1,709,866,000	1,655,985,000
Total deposits	2,540,053,000	2,522,365,000
Securities sold under agreements to repurchase	104,894,000	118,748,000
Federal Home Loan Bank advances	220,000,000	220,000,000
Subordinated debentures	45,688,000	45,517,000
Accrued interest and other liabilities	14,925,000	14,204,000
Total liabilities	2,925,560,000	2,920,834,000
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued	0	0
Common stock, no par value; 40,000,000 shares authorized; 16,598,466 shares outstanding at March 31, 2018 and 16,592,125 shares outstanding at December 31, 2017	310,601,000	309,772,000
Retained earnings	68,241,000	61,001,000
Accumulated other comprehensive income (loss)	(10,502,000)	(4,903,000)
Total shareholders’ equity	368,340,000	365,870,000
Total liabilities and shareholders’ equity	$ 3,293,900,000	$ 3,286,704,000

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Mar. 31, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares outstanding (in shares)	16,598,466	16,592,125

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Interest income
Loans, including fees	$ 32,315,000	$ 26,733,000
Securities, taxable	1,602,000	1,278,000
Securities, tax-exempt	594,000	550,000
Other interest-earning assets	470,000	143,000
Total interest income	34,981,000	28,704,000
Interest expense
Deposits	3,085,000	1,868,000
Short-term borrowings	57,000	51,000
Federal Home Loan Bank advances	945,000	655,000
Subordinated debentures and other borrowings	695,000	621,000
Total interest expense	4,782,000	3,195,000
Net interest income	30,199,000	25,509,000
Provision for loan losses	0	600,000
Net interest income after provision for loan losses	30,199,000	24,909,000
Noninterest income:
Earnings on bank owned life insurance	331,000	1,738,000
Other income	870,000	866,000
Total noninterest income	4,381,000	5,851,000
Noninterest expense
Salaries and benefits	12,337,000	11,272,000
Occupancy	1,772,000	1,554,000
Furniture and equipment depreciation, rent and maintenance	548,000	535,000
Data processing costs	2,128,000	2,011,000
Other expense	4,362,000	4,404,000
Total noninterest expenses	21,147,000	19,776,000
Income before federal income tax expense	13,433,000	10,984,000
Federal income tax expense	2,552,000	3,369,000
Net income	$ 10,881,000	$ 7,615,000
Basic earnings per share (in dollars per share)	$ 0.66	$ 0.46
Diluted earnings per share (in dollars per share)	0.66	0.46
Cash dividends per common share (in dollars per share)	$ 0.22	$ 0.18
Average basic shares outstanding (in shares)	16,595,115	16,434,647
Average diluted shares outstanding (in shares)	16,604,325	16,449,210
Deposit Account [Member]
Noninterest income:
Noninterest income	$ 1,053,000	$ 1,018,000
Credit and Debit Card [Member]
Noninterest income:
Noninterest income	1,243,000	1,106,000
Mortgage Banking [Member]
Noninterest income:
Noninterest income	$ 884,000	$ 1,123,000

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Net income	$ 10,881,000	$ 7,615,000
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(7,142,000)	980,000
Fair value of interest rate swap	2,000	42,000
Total other comprehensive income (loss)	(7,140,000)	1,022,000
Tax effect of unrealized holding gains (losses) on securities available for sale	1,500,000	(343,000)
Tax effect of fair value of interest rate swap	(1,000)	(15,000)
Total tax effect of other comprehensive income	1,499,000	(358,000)
Other comprehensive income (loss), net of tax effect	(5,641,000)	664,000
Comprehensive income	$ 5,240,000	$ 8,279,000

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances at Dec. 31, 2016	$ 0	$ 305,488,000	$ 40,904,000	$ (5,581,000)	$ 340,811,000
Employee stock purchase plan		12,000			12,000
Dividend reinvestment plan		1,145,000			1,145,000
Stock option exercises		248,000			248,000
Stock grant for director fees		2,000			2,000
Stock-based compensation expense		476,000			476,000
Cash dividends			(2,923,000)		(2,923,000)
Net income			7,615,000		7,615,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				637,000	637,000
Change in fair value of interest rate swap, net of tax effect				27,000	27,000
Balances at Mar. 31, 2017	0	307,371,000	45,596,000	(4,917,000)	348,050,000
Balances at Dec. 31, 2017	0	309,772,000	61,001,000	(4,903,000)	365,870,000
Reclassification of equity securities related to ASU 2016-01 adoption at Dec. 31, 2017			(42,000)	42,000	0
Employee stock purchase plan		14,000			14,000
Dividend reinvestment plan		164,000			164,000
Stock option exercises		54,000			54,000
Stock-based compensation expense		597,000			597,000
Cash dividends			(3,599,000)		(3,599,000)
Net income			10,881,000		10,881,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(5,642,000)	(5,642,000)
Change in fair value of interest rate swap, net of tax effect				1,000	1,000
Balances at Mar. 31, 2018	$ 0	$ 310,601,000	$ 68,241,000	$ (10,502,000)	$ 368,340,000

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash dividends per common share (in dollars per share)	$ 0.22	$ 0.18
Retained Earnings [Member]
Cash dividends per common share (in dollars per share)	$ 0.22	$ 0.18
Common Stock [Member]
Employee stock purchase plan (in shares)	426	338
Dividend reinvestment plan (in shares)	4,624	35,319
Stock option exercises (in shares)	7,000	20,000
Stock grants to directors (in shares)		62

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities
Net income	$ 10,881,000	$ 7,615,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization	2,483,000	2,548,000
Accretion of acquired loans	(357,000)	(483,000)
Provision for loan losses	0	600,000
Stock-based compensation expense	597,000	476,000
Stock grants to directors for retainer fees	0	2,000
Proceeds from sales of mortgage loans held for sale	21,010,000	19,317,000
Origination of mortgage loans held for sale	(19,585,000)	(19,342,000)
Net gain from sales of mortgage loans held for sale	(736,000)	(867,000)
Net gain from sales and valuation write-downs of foreclosed assets	(105,000)	(43,000)
Net loss from sales and valuation write-downs of former bank premises	99,000	15,000
Net loss from sales and write-downs of fixed assets	53,000	40,000
Earnings on bank owned life insurance	(331,000)	(1,738,000)
Net change in:
Accrued interest receivable	(820,000)	(828,000)
Other assets	(866,000)	(321,000)
Accrued interest and other liabilities	722,000	980,000
Net cash from operating activities	13,045,000	7,971,000
Cash flows from investing activities
Loan originations and payments, net	7,257,000	(61,701,000)
Purchases of securities available for sale	(13,303,000)	(14,701,000)
Proceeds from maturities, calls and repayments of securities available for sale	4,609,000	10,858,000
Purchases of Federal Home Loan Bank stock	0	(1,210,000)
Proceeds from sales of foreclosed assets	410,000	99,000
Proceeds from bank owned life insurance cash value release and death benefits	0	2,720,000
Net purchases of premises and equipment	(1,429,000)	(1,138,000)
Net cash for investing activities	(2,456,000)	(65,073,000)
Cash flows from financing activities
Net decrease in time deposits	(8,412,000)	(55,203,000)
Net increase (decrease) in all other deposits	26,100,000	(41,766,000)
Net decrease in securities sold under agreements to repurchase	(13,854,000)	(5,031,000)
Maturities of Federal Home Loan Bank advances	0	(10,000,000)
Proceeds from Federal Home Loan Bank advances	0	40,000,000
Proceeds from stock option exercises	54,000	248,000
Employee stock purchase plan	14,000	12,000
Dividend reinvestment plan	164,000	1,145,000
Payment of cash dividends to common shareholders	(3,599,000)	(2,923,000)
Net cash from (for) financing activities	467,000	(73,518,000)
Net change in cash and cash equivalents	11,056,000	(130,620,000)
Cash and cash equivalents at beginning of period	200,101,000	183,596,000
Cash and cash equivalents at end of period	211,157,000	52,976,000
Supplemental disclosures of cash flows information
Interest	4,529,000	3,322,000
Federal income tax	0	0
Noncash financing and investing activities:
Transfers from loans to foreclosed assets	232,000	97,000
Transfers from bank premises to other real estate owned	$ 296,000	$ 0

XML

Note 1 - Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1.

    

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

: The unaudited financial statements for the

three

months ended

March 31, 2018

include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s

two

subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form

10

-Q and Item

303

(b) of Regulation S-K and do

not

include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements

not

misleading and for a fair presentation of the results of operations for such periods. The results for the period ended

March 31, 2018

should

not

be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form

10

-K for the year ended

December 

31,

2017.

We have

five

separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are

not

consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share

: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately

236,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March 31, 2018.

In addition, stock options for approximately

17,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March 31, 2018.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

months ended

March 31, 2018.

Approximately

225,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March 31, 2017.

In addition, stock options for approximately

34,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March 31, 2017.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

months ended

March 31, 2017.

Securities

: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than

not

that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do

not

meet the aforementioned criteria, the amount of impairment is split into

two

components as follows:

1

) OTTI related to credit loss, which must be recognized in the income statement, and

2

) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans

: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is

90

days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged-off

no

later than when they are

120

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but

not

received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale

: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of

March 31, 2018

and

December 31, 2017,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$2.6

million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are

not

designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately

$611

million as of

March 31, 2018.

Mortgage Banking Activities

: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings

: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would

not

otherwise consider. A troubled debt restructuring

may

involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings

may

have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these

two

measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

Allowance for Loan Losses

: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives

: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do

not

use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does

not

apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is

no

longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is

no

longer appropriate or intended.

Goodwill and Core Deposit Intangible

: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill

may

not

be recoverable. We

may

elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, or if we elect

not

to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a

two

-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In

2016

and

2017,

we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than

not

our fair value was greater than its carrying amount; therefore,

no

further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a

ten

-year period using the sum-of-the-years-digits methodology.

Revenue from Contracts with Customers

: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic

606,

“Revenue from Contracts with Customers”

(“Topic

606”

). Under Topic

606,

we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has

not

been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are

not

within the scope of Topic

606.

We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Condensed Consolidated Statements of Income was

not

necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic

606

that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Adoption of New Accounting Standards:

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers

. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires

five

basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We adopted this ASU effective

January 1, 2018

using the modified retrospective approach.

Adoption of ASU

2014

-

09

did

not

have a material impact on our consolidated financial statements and related disclosures as the primary sources of revenues are derived from interest and dividends earned on loans, securities and other financial instruments that are

not

within the scope of the new standard. Our revenue recognition pattern for revenue streams within the scope of the new standard, including but

not

limited to service charges on deposit accounts, credit and debit card interchange fees and payroll service income, did

not

change significantly from prior practice. The modified retrospective method requires application of ASU

2014

-

09

to uncompleted contracts at the date of adoption; however, periods prior to the date of adoption have

not

been retrospectively revised as the impact of the new standard on uncompleted contracts as the date of adoption was

not

material, and therefore a cumulative effective adjustment to opening retained earnings was

not

deemed necessary.

In

January 2016,

the FASB issued ASU

2016

-

01,

Recognition and Measurement of Financial Assets and Financial Liabilities

. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. Our adoption of this ASU effective

January 1, 2018

did

not

have a material effect on our financial position or results of operations. The adoption of this guidance resulted in an insignificant cumulative-effect adjustment that decreased retained earnings, with offsetting-related adjustments to deferred taxes and AOCI. In addition, the fair value of loans has been estimated using an exit price notion as disclosed in Note

10.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after

December 15, 2018.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is

not

expected to have a material effect on our financial position or results of operations.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Measurement of Credit Losses on Financial Instruments

. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are

not

measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is

not

limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after

December 15, 2019,

and early adoption is permitted for interim and annual reporting periods beginning after

December 15, 2018.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective (i.e., modified retrospective approach). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements. We have selected a software vendor for applying this new ASU, and have initiated the process to establish a framework which we plan to implement later in

2018.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

Classification of Certain Cash Receipts and Cash Payments

. This ASU made

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after

December 15, 2017.

The new standard required adoption on a retrospective basis unless it was impractical to apply, in which case it was required to apply the amendments prospectively as of the earliest date practicable. Adoption of this ASU did

not

have a material effect on our financial position or results of operations.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

. This ASU requires the premium to be amortized to the earliest call date. The amendments do

not

require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after

December 15, 2018,

and early adoption is permitted. The provisions of this ASU will

not

have an impact on our financial position or results of operations as we have always amortized premiums to the earliest call date.

In

August 2017,

the FASB issued ASU

2017

-

12,

Targeted Improvements to Accounting for Hedging Activities

. The ASU changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. The ASU also eases certain documentation and assessment requirements and modifies the accounting components excluded from the assessment of hedge effectiveness. This ASU is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

February 2018,

the FASB issued ASU

2018

-

02,

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

. This ASU requires reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical

35%

corporate income tax rate and the newly enacted

21%

corporate income tax rate. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws of rates be included in income from continuing operations is

not

affected. This ASU is effective for fiscal years beginning after

December 15, 2018.

Early adoption is permitted. We early adopted this ASU effective

December 31, 2017,

which resulted in the reclassification of

$0.9

million from accumulated other comprehensive income to retained earnings at year-end

2017.

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Note 2 - Securities

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

2.

    

SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018
U.S. Government agency debt obligations	$	184,422,000	$	4,000	$	(11,257,000	)	$	173,169,000
Mortgage-backed securities		41,104,000		278,000		(1,031,000	)		40,351,000
Municipal general obligation bonds		118,881,000		404,000		(1,625,000	)		117,660,000
Municipal revenue bonds		3,910,000		6,000		(73,000	)		3,843,000
Other investments		2,018,000		0		(53,000	)		1,965,000
	$	350,335,000	$	692,000	$	(14,039,000	)	$	336,988,000
December 31, 2017
U.S. Government agency debt obligations	$	175,953,000	$	99,000	$	(6,352,000	)	$	169,700,000
Mortgage-backed securities		38,967,000		335,000		(510,000	)		38,792,000
Municipal general obligation bonds		121,040,000		891,000		(638,000	)		121,293,000
Municipal revenue bonds		3,978,000		30,000		(30,000	)		3,978,000
Other investments		2,010,000		0		(29,000	)		1,981,000
	$	341,948,000	$	1,355,000	$	(7,559,000	)	$	335,744,000

Securities with unrealized losses at

March 31, 2018

and

December 31, 2017,

aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2018
U.S. Government agency debt obligations	$	44,594,000	$	1,464,000	$	126,600,000	$	9,793,000	$	171,194,000	$	11,257,000
Mortgage-backed securities		14,519,000		479,000		18,867,000		552,000		33,386,000		1,031,000
Municipal general obligation bonds		43,826,000		615,000		43,537,000		1,010,000		87,363,000		1,625,000
Municipal revenue bonds		1,499,000		16,000		1,159,000		57,000		2,658,000		73,000
Other investments		1,518,000		53,000		0		0		1,518,000		53,000
	$	105,956,000	$	2,627,000	$	190,163,000	$	11,412,000	$	296,119,000	$	14,039,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2017
U.S. Government agency debt obligations	$	35,677,000	$	434,000	$	115,374,000	$	5,918,000	$	151,051,000	$	6,352,000
Mortgage-backed securities		10,179,000		156,000		21,084,000		354,000		31,263,000		510,000
Municipal general obligation bonds		12,807,000		114,000		54,703,000		524,000		67,510,000		638,000
Municipal revenue bonds		0		0		1,187,000		30,000		1,187,000		30,000
Other investments		1,510,000		29,000		0		0		1,510,000		29,000
	$	60,173,000	$	733,000	$	192,348,000	$	6,826,000	$	252,521,000	$	7,559,000

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than

not

that we will be required to sell the security before recovery and if we do

not

expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we

may

consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At

March 31, 2018,

394

debt securities and

one

mutual fund with fair values totaling

$296

million have unrealized losses aggregating

$14.0

million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do

not

intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than

not

that we will

not

be required to sell our debt securities before recovery of the cost basis,

no

unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at

March 31, 2018,

by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities

may

differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Securities

not

due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2018		1.86	$	28,193,000	$	28,181,000
Due in 2019 through 2023		2.12		65,051,000		64,576,000
Due in 2024 through 2028		2.52		99,189,000		94,685,000
Due in 2029 and beyond		2.95		114,780,000		107,230,000
Mortgage-backed securities		2.33		41,104,000		40,351,000
Other investments		2.84		2,018,000		1,965,000
Total available for sale securities		2.51	$	350,335,000	$	336,988,000

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of

$112

million at

March 31, 2018

and

December 31, 2017,

with estimated market values of

$111

million and

$112

million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of

$10.8

million and

$12.9

million at

March 31, 2018

and

December 31, 2017,

respectively, with estimated market values of

$10.7

million and

$13.0

million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did

not

exceed

10%

of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements was

$105

million and

$119

million at

March 31, 2018

and

December 31, 2017,

respectively. Investments in Federal Home Loan Bank stock are restricted and

may

only be resold or redeemed by the issuer.

XML

Note 3 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3.

    

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is

not

accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with

no

carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will

not

be collected. Acquired loans restructured after acquisition are

not

considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools.

The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable

may

increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are

not

re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

Our total loans at

March 31, 2018

were

$2.55

billion compared to

$2.56

billion at

December 31, 2017,

a decrease of

$7.3

million, or

0.3%.

The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at

March 31, 2018

and

December 31, 2017,

and the percentage change in loans from the end of

2017

to the end of the

first

quarter of

2018,

are as follows:

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	675,188,000		30.8	%	$	680,805,000		31.3	%		(0.8	%)
Vacant land, land development, and residential construction		25,514,000		1.2			23,682,000		1.1			7.7
Real estate – owner occupied		468,777,000		21.4			456,065,000		21.0			2.8
Real estate – non-owner occupied		715,725,000		32.6			708,824,000		32.7			1.0
Real estate – multi-family and residential rental		61,762,000		2.8			64,852,000		3.0			(4.8	)
Total commercial		1,946,966,000		88.8			1,934,228,000		89.1			0.7
Retail:
Home equity and other		65,604,000		3.0			69,675,000		3.2			(5.8	)
1-4 family mortgages		179,281,000		8.2			166,054,000		7.7			8.0
Total retail		244,885,000		11.2			235,729,000		10.9			3.9
Total originated loans	$	2,191,851,000		100.0	%	$	2,169,957,000		100.0	%		1.0	%

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	64,617,000		18.0	%	$	72,959,000		18.8	%		(11.4	%)
Vacant land, land development, and residential construction		5,924,000		1.6			6,191,000		1.6			(4.3	)
Real estate – owner occupied		62,375,000		17.5			70,263,000		18.1			(11.2	)
Real estate – non-owner occupied		78,481,000		21.8			82,861,000		21.3			(5.3	)
Real estate – multi-family and residential rental		34,666,000		9.6			37,066,000		9.5			(6.5	)
Total commercial		246,063,000		68.5			269,340,000		69.3			(8.6	)
Retail:
Home equity and other		27,575,000		7.7			30,750,000		7.9			(10.3	)
1-4 family mortgages		85,715,000		23.8			88,505,000		22.8			(3.2	)
Total retail		113,290,000		31.5			119,255,000		30.7			(5.0	)
Total acquired loans	$	359,353,000		100.0	%	$	388,595,000		100.0	%		(7.5	%)

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	739,805,000		29.0	%	$	753,764,000		29.4	%		(1.9	%)
Vacant land, land development, and residential construction		31,438,000		1.2			29,873,000		1.2			5.2
Real estate – owner occupied		531,152,000		20.8			526,328,000		20.6			0.9
Real estate – non-owner occupied		794,206,000		31.2			791,685,000		30.9			0.3
Real estate – multi-family and residential rental		96,428,000		3.8			101,918,000		4.0			(5.4	)
Total commercial		2,193,029,000		86.0			2,203,568,000		86.1			(0.5	)
Retail:
Home equity and other		93,179,000		3.6			100,425,000		3.9			(7.2	)
1-4 family mortgages		264,996,000		10.4			254,559,000		10.0			4.1
Total retail		358,175,000		14.0			354,984,000		13.9			0.9
Total loans	$	2,551,204,000		100.0	%	$	2,558,552,000		100.0	%		(0.3	%)

The total contractually required payments due on and carrying value of acquired impaired loans were

$9.2

million and

$5.0

million, respectively, as of

March 31, 2018.

The total contractually required payments due on and carrying value of acquired impaired loans were

$11.9

million and

$5.2

million, respectively, as of

December 31, 2017.

Changes in the accretable yield for acquired impaired loans for the

three

months ended

March 31, 2018

and

March 31, 2017

were as follows:

Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(131,000	)
Net reclassification from nonaccretable to accretable		86,000
Reductions (1)		(40,000	)
Balance at March 31, 2018	$	1,319,000
Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000

(

1

) Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

Nonperforming originated loans as of

March 31, 2018

and

December 31, 2017

were as follows:

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,763,000		3,672,000
Total nonperforming originated loans	$	2,763,000	$	3,672,000

Nonperforming acquired loans as of

March 31, 2018

and

December 31, 2017

were as follows:

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,979,000		3,471,000
Total nonperforming acquired loans	$	2,979,000	$	3,471,000

The recorded principal balance of all nonperforming loans was as follows:

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	619,000	$	1,444,000
Vacant land, land development, and residential construction		0		35,000
Real estate – owner occupied		1,831,000		2,241,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		154,000		178,000
Total commercial		2,604,000		3,898,000
Retail:
Home equity and other		512,000		577,000
1-4 family mortgages		2,626,000		2,668,000
Total retail		3,138,000		3,245,000
Total nonperforming loans	$	5,742,000	$	7,143,000

Acquired impaired loans are

not

reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

An age analysis of past due loans is as follows as of

March 31, 2018:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	1,350,000	$	929,000	$	0	$	2,279,000	$	672,909,000	$	675,188,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		25,514,000		25,514,000		0
Real estate – owner occupied		0		0		251,000		251,000		468,526,000		468,777,000		0
Real estate – non-owner occupied		0		0		0		0		715,725,000		715,725,000		0
Real estate – multi-family and residential rental		0		0		0		0		61,762,000		61,762,000		0
Total commercial		1,350,000		929,000		251,000		2,530,000		1,944,436,000		1,946,966,000		0
Retail:
Home equity and other		65,000		0		0		65,000		65,539,000		65,604,000		0
1-4 family mortgages		0		246,000		220,000		466,000		178,815,000		179,281,000		0
Total retail		65,000		246,000		220,000		531,000		244,354,000		244,885,000		0
Total past due loans	$	1,415,000	$	1,175,000	$	471,000	$	3,061,000	$	2,188,790,000	$	2,191,851,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	113,000	$	113,000	$	64,504,000	$	64,617,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		5,924,000		5,924,000		0
Real estate – owner occupied		0		156,000		243,000		399,000		61,976,000		62,375,000		0
Real estate – non-owner occupied		0		0		0		0		78,481,000		78,481,000		0
Real estate – multi-family and residential rental		27,000		0		9,000		36,000		34,630,000		34,666,000		0
Total commercial		27,000		156,000		365,000		548,000		245,515,000		246,063,000		0
Retail:
Home equity and other		163,000		44,000		42,000		249,000		27,326,000		27,575,000		0
1-4 family mortgages		645,000		231,000		475,000		1,351,000		84,364,000		85,715,000		0
Total retail		808,000		275,000		517,000		1,600,000		111,690,000		113,290,000		0
Total past due loans	$	835,000	$	431,000	$	882,000	$	2,148,000	$	357,205,000	$	359,353,000	$	0

An age analysis of past due loans is as follows as of

December 31, 2017:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	178,000	$	178,000	$	680,627,000	$	680,805,000	$	0
Vacant land, land development, and residential construction		0		0		35,000		35,000		23,647,000		23,682,000		0
Real estate – owner occupied		0		0		1,244,000		1,244,000		454,821,000		456,065,000		0
Real estate – non-owner occupied		0		0		0		0		708,824,000		708,824,000		0
Real estate – multi-family and residential rental		0		0		0		0		64,852,000		64,852,000		0
Total commercial		0		0		1,457,000		1,457,000		1,932,771,000		1,934,228,000		0
Retail:
Home equity and other		647,000		11,000		86,000		744,000		68,931,000		69,675,000		0
1-4 family mortgages		0		0		250,000		250,000		165,804,000		166,054,000		0
Total retail		647,000		11,000		336,000		994,000		234,735,000		235,729,000		0
Total past due loans	$	647,000	$	11,000	$	1,793,000	$	2,451,000	$	2,167,506,000	$	2,169,957,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	40,000	$	0	$	114,000	$	154,000	$	72,805,000	$	72,959,000	$	0
Vacant land, land development, and residential construction		14,000		0		0		14,000		6,177,000		6,191,000		0
Real estate – owner occupied		634,000		0		271,000		905,000		69,358,000		70,263,000		0
Real estate – non-owner occupied		0		0		0		0		82,861,000		82,861,000		0
Real estate – multi-family and residential rental		0		0		108,000		108,000		36,958,000		37,066,000		0
Total commercial		688,000		0		493,000		1,181,000		268,159,000		269,340,000		0
Retail:
Home equity and other		408,000		52,000		154,000		614,000		30,136,000		30,750,000		0
1-4 family mortgages		690,000		333,000		661,000		1,684,000		86,821,000		88,505,000		0
Total retail		1,098,000		385,000		815,000		2,298,000		116,957,000		119,255,000		0
Total past due loans	$	1,786,000	$	385,000	$	1,308,000	$	3,479,000	$	385,116,000	$	388,595,000	$	0

Impaired originated loans as of

March 31, 2018,

and average originated impaired loans for the

three

months ended

March 31, 2018,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	234,000	$	234,000		$	206,000
Vacant land, land development and residential construction		0		0			17,000
Real estate – owner occupied		2,937,000		2,875,000			2,164,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		337,000		337,000			343,000
Total commercial		3,508,000		3,446,000			2,730,000
Retail:
Home equity and other		768,000		751,000			716,000
1-4 family mortgages		1,106,000		419,000			437,000
Total retail		1,874,000		1,170,000			1,153,000
Total with no related allowance recorded	$	5,382,000	$	4,616,000		$	3,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,623,000	$	2,133,000	$	304,000	$	2,561,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,717,000		1,674,000		226,000		1,532,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		145,000		145,000		17,000		72,000
Total commercial		4,485,000		3,952,000		547,000		4,165,000
Retail:
Home equity and other		508,000		498,000		258,000		823,000
1-4 family mortgages		412,000		354,000		58,000		232,000
Total retail		920,000		852,000		316,000		1,055,000
Total with an allowance recorded	$	5,405,000	$	4,804,000	$	863,000	$	5,220,000
Total impaired loans:
Commercial	$	7,993,000	$	7,398,000	$	547,000	$	6,895,000
Retail		2,794,000		2,022,000		316,000		2,208,000
Total impaired loans	$	10,787,000	$	9,420,000	$	863,000	$	9,103,000

Impaired acquired loans as of

March 31, 2018,

and average impaired acquired loans for the

three

months ended

March 31, 2018,

were as follows: 

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	743,000	$	733,000		$	877,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,110,000		715,000			687,000
Real estate – non-owner occupied		232,000		232,000			235,000
Real estate – multi-family and residential rental		62,000		44,000			131,000
Total commercial		2,147,000		1,724,000			1,930,000
Retail:
Home equity and other		690,000		649,000			578,000
1-4 family mortgages		2,586,000		2,007,000			2,080,000
Total retail		3,276,000		2,656,000			2,658,000
Total with no related allowance recorded	$	5,423,000	$	4,380,000		$	4,588,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,597,000		1,597,000		307,000		799,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		1,597,000		1,597,000		307,000		799,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		0
Total retail		0		0		0		0
Total with an allowance recorded	$	1,597,000	$	1,597,000	$	307,000	$	799,000
Total impaired loans:
Commercial	$	3,744,000	$	3,321,000	$	307,000	$	2,729,000
Retail		3,276,000		2,656,000		0		2,658,000
Total impaired loans	$	7,020,000	$	5,977,000	$	307,000	$	5,387,000

Impaired originated loans as of

December 31, 2017,

and average impaired originated loans for the

three

months ended

March 31, 2017,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	765,000	$	178,000		$	1,589,000
Vacant land, land development and residential construction		454,000		35,000			88,000
Real estate – owner occupied		1,528,000		1,452,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		349,000		349,000			197,000
Total commercial		3,096,000		2,014,000			1,987,000
Retail:
Home equity and other		693,000		680,000			247,000
1-4 family mortgages		1,126,000		456,000			649,000
Total retail		1,819,000		1,136,000			896,000
Total with no related allowance recorded	$	4,915,000	$	3,150,000		$	2,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,038,000	$	2,989,000	$	963,000	$	2,690,000
Vacant land, land development and residential construction		0		0		0		749,000
Real estate – owner occupied		1,409,000		1,391,000		239,000		1,144,000
Real estate – non-owner occupied		0		0		0		4,745,000
Real estate – multi-family and residential rental		0		0		0		751,000
Total commercial		4,447,000		4,380,000		1,202,000		10,079,000
Retail:
Home equity and other		1,225,000		1,147,000		652,000		697,000
1-4 family mortgages		165,000		110,000		13,000		137,000
Total retail		1,390,000		1,257,000		665,000		834,000
Total with an allowance recorded	$	5,837,000	$	5,637,000	$	1,867,000	$	10,913,000
Total impaired loans:
Commercial	$	7,543,000	$	6,394,000	$	1,202,000	$	12,066,000
Retail		3,209,000		2,393,000		665,000		1,730,000
Total impaired loans	$	10,752,000	$	8,787,000	$	1,867,000	$	13,796,000

Impaired acquired loans as of

December 31, 2017,

and average impaired acquired loans for the

three

months ended

March 31, 2017,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,039,000	$	1,021,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,027,000		659,000			1,151,000
Real estate – non-owner occupied		238,000		237,000			751,000
Real estate – multi-family and residential rental		237,000		218,000			160,000
Total commercial		2,541,000		2,135,000			2,954,000
Retail:
Home equity and other		694,000		507,000			336,000
1-4 family mortgages		2,703,000		2,153,000			1,662,000
Total retail		3,397,000		2,660,000			1,998,000
Total with no related allowance recorded	$	5,938,000	$	4,795,000		$	4,952,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		0		0		0		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		0		0		0		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		172,000
Total retail		0		0		0		172,000
Total with an allowance recorded	$	0	$	0	$	0	$	239,000
Total impaired loans:
Commercial	$	2,541,000	$	2,135,000	$	0	$	3,021,000
Retail		3,397,000		2,660,000		0		2,170,000
Total impaired loans	$	5,938,000	$	4,795,000	$	0	$	5,191,000

Impaired loans for which

no

allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled

$0.3

million and

$0.2

million during the

first

quarters of

2018

and

2017,

respectively.

No

interest income was recognized on nonaccrual loans during either the

first

quarter of

2018

or

2017.

Lost interest income on nonaccrual loans totaled

$0.1

million during both the

first

quarter of

2018

and the respective

2017

period.

Credit Quality Indicators.

We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a

ten

grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of

March 31, 2018:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	468,826,000	$	17,645,000	$	313,933,000	$	564,093,000	$	39,571,000
Grades 5 – 7		187,118,000		7,767,000		140,088,000		151,632,000		21,709,000
Grades 8 – 9		19,244,000		102,000		14,756,000		0		482,000
Total commercial	$	675,188,000	$	25,514,000	$	468,777,000	$	715,725,000	$	61,762,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	65,604,000	$	179,281,000

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	39,543,000	$	1,412,000	$	28,823,000	$	54,951,000	$	17,376,000
Grades 5 – 7		24,591,000		4,512,000		30,940,000		23,448,000		17,132,000
Grades 8 – 9		483,000		0		2,612,000		82,000		158,000
Total commercial	$	64,617,000	$	5,924,000	$	62,375,000	$	78,481,000	$	34,666,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	27,575,000	$	85,715,000

Credit quality indicators were as follows as of

December 31, 2017:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	469,537,000	$	15,090,000	$	326,700,000	$	559,388,000	$	42,951,000
Grades 5 – 7		189,851,000		8,557,000		123,024,000		149,135,000		21,552,000
Grades 8 – 9		21,417,000		35,000		6,341,000		301,000		349,000
Total commercial	$	680,805,000	$	23,682,000	$	456,065,000	$	708,824,000	$	64,852,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,675,000	$	166,054,000

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	46,263,000	$	1,446,000	$	28,706,000	$	52,674,000	$	17,499,000
Grades 5 – 7		25,654,000		4,745,000		39,565,000		30,102,000		19,212,000
Grades 8 – 9		1,042,000		0		1,992,000		85,000		355,000
Total commercial	$	72,959,000	$	6,191,000	$	70,263,000	$	82,861,000	$	37,066,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	30,750,000	$	88,505,000

All commercial loans are graded using the following criteria:
Grade 1.	Excellent credit rating that contain very little, if any, risk of loss.
Grade 2.	Strong sources of repayment and have low repayment risk.
Grade 3.	Good sources of repayment and have limited repayment risk.
Grade 4.	Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.
Grade 5.	Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.
Grade 6.	Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management).
Grade 7.	Defined weaknesses or negative trends that merit close monitoring through Watch List status.
Grade 8.	Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status.
Grade 9.	Vital weaknesses exist where collection of principal is highly questionable.
Grade 10.	Considered uncollectable and of such little value that continuance as an asset is not warranted.
The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments.  We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value.  The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments.  We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the

three

months ended

March 31, 2018

are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	16,456,000		$	2,584,000		$	93,000	$	19,133,000
Provision for loan losses		(341,000	)		(563,000	)		122,000		(782,000	)
Charge-offs		(258,000	)		(135,000	)		0		(393,000	)
Recoveries		1,008,000			115,000			0		1,123,000
Ending balance	$	16,865,000		$	2,001,000		$	215,000	$	19,081,000
Ending balance: individually evaluated for impairment	$	547,000		$	316,000		$	0	$	863,000
Ending balance: collectively evaluated for impairment	$	16,318,000		$	1,685,000		$	215,000	$	18,218,000
Total loans:
Ending balance	$	1,946,966,000		$	244,885,000				$	2,191,851,000
Ending balance: individually evaluated for impairment	$	7,398,000		$	2,022,000				$	9,420,000
Ending balance: collectively evaluated for impairment	$	1,939,568,000		$	242,863,000				$	2,182,431,000

Activity in the allowance for loan losses for acquired loans during the

three

months ended

March 31, 2018

is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		314,000			468,000			0		782,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			4,000			0		4,000
Ending balance	$	359,000		$	534,000		$	0	$	893,000

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the

twelve

months ended

December 31, 2017

are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		1,148,000			1,360,000			133,000			2,641,000
Charge-offs		(2,292,000	)		(891,000	)		0			(3,183,000	)
Recoveries		1,574,000			233,000			0			1,807,000
Ending balance	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Ending balance: individually evaluated for impairment	$	1,202,000		$	665,000		$	0		$	1,867,000
Ending balance: collectively evaluated for impairment	$	15,254,000		$	1,919,000		$	93,000		$	17,266,000
Total loans:
Ending balance	$	1,934,228,000		$	235,729,000					$	2,169,957,000
Ending balance: individually evaluated for impairment	$	6,394,000		$	2,393,000					$	8,787,000
Ending balance: collectively evaluated for impairment	$	1,927,834,000		$	233,336,000					$	2,161,170,000

Activity in the allowance for loan losses for acquired loans during the

twelve

months ended

December 31, 2017

is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000		$	0	$	93,000
Provision for loan losses		210,000			99,000			0		309,000
Charge-offs		(12,000	)		(40,000	)		0		(52,000	)
Recoveries		18,000			0			0		18,000
Ending balance	$	291,000		$	77,000		$	0	$	368,000

In accordance with acquisition accounting rules, acquired loans were recorded at fair value at the merger date and the prior allowance was eliminated.

Loans modified as troubled debt restructurings during the

three

months ended

March 31, 2018

were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		3	$	107,000	$	96,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		4		3,865,000		3,854,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		7		3,972,000		3,950,000
Retail:
Home equity and other		1		50,000		50,000
1-4 family mortgages		0		0		0
Total originated retail		1		50,000		50,000
Total originated loans		8	$	4,022,000	$	4,000,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		1,597,000		1,597,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		3		1,597,000		1,597,000
Retail:
Home equity and other		6		118,000		119,000
1-4 family mortgages		0		0		0
Total acquired retail		6		118,000		119,000
Total acquired loans		9	$	1,715,000	$	1,716,000

Loans modified as troubled debt restructurings during the

three

months ended

March 31, 2017

were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

The following originated loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March 31, 2018 (

amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		1		251,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		251,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	251,000

The following acquired loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March 31, 2018 (

amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	113,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		113,000
Retail:
Home equity and other		2		20,000
1-4 family mortgages		0		0
Total retail		2		20,000
Total		3	$	133,000

The following originated loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March 31, 2017 (

amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

The following acquired loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March 31, 2017 (

amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

March 31, 2018

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,989,000		$	383,000		$	1,599,000		$	0	$	0
Charge-Offs		(230,000	)		0			0			0		0
Payments		(882,000	)		(45,000	)		(855,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		105,000			0			3,804,000			0		0
Ending Balance	$	1,982,000		$	338,000		$	4,548,000		$	0	$	0

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(8,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		50,000			0
Ending Balance	$	1,169,000		$	144,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

March 31, 2018

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,001,000		$	0	$	427,000		$	237,000		$	41,000
Charge-Offs		(275,000	)		0		0			0			0
Payments		(10,000	)		0		(17,000	)		(5,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		1,597,000			0			0
Ending Balance	$	716,000		$	0	$	2,007,000		$	232,000		$	36,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(15,000	)		0
Payments		(1,000	)		(9,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		119,000			0
Ending Balance	$	240,000		$	384,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

March 31, 2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

March 31, 2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

The allowance related to loans categorized as troubled debt restructurings was as follows: 

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	85,000	$	107,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		375,000		141,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		460,000		248,000
Retail:
Home equity and other		215,000		196,000
1-4 family mortgages		21,000		0
Total retail		236,000		196,000
Total related allowance	$	696,000	$	444,000

In general, our policy dictates that a renewal or modification of an

8

- or

9

-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated

8

contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated

9

reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal; we believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe

8

- or

9

-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

XML

Note 4 - Premises and Equipment, Net

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

    

PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	March 31,		December 31,
	2018		2017
Land and improvements	$	17,938,000	$	18,046,000
Buildings		41,751,000		41,179,000
Furniture and equipment		17,858,000		17,398,000
		77,547,000		76,623,000
Less: accumulated depreciation		31,247,000		30,589,000
Premises and equipment, net	$	46,300,000	$	46,034,000

Depreciation expense totaled

$0.8

million and

$0.7

million during the

first

quarters of

2018

and

2017,

respectively.

XML

Note 5 - Deposits

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

5.

    

DEPOSITS

Our total deposits at

March 31, 2018

totaled

$2.54

billion, an increase of

$17.7

million, or

0.7%,

from

December 

31,

2017.

The components of our outstanding balances at

March 31, 2018

and

December 31, 2017,

and percentage change in deposits from the end of

2017

to the end of the

first

quarter of

2018,

are as follows:

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	830,187,000		32.7	%	$	866,380,000		34.3	%		(4.2	%)
Interest-bearing checking		392,134,000		15.4			387,758,000		15.4			1.1
Money market		486,318,000		19.1			427,119,000		16.9			13.9
Savings		326,247,000		12.9			327,530,000		13.0			(0.4	)
Time, under $100,000		156,053,000		6.2			152,294,000		6.0			2.5
Time, $100,000 and over		246,703,000		9.7			258,626,000		10.3			(4.6	)
Total local deposits		2,437,642,000		96.0			2,419,707,000		95.9			0.7
Out-of-area time, under $100,000		0	NA				0	NA			NA
Out-of-area time, $100,000 and over		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total out-of-area deposits		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total deposits	$	2,540,053,000		100.0	%	$	2,522,365,000		100.0	%		0.7	%

Time deposits of more than

$250,000

totaled

$252

million and

$266

million at

March 31, 2018

and

December 31, 2017,

respectively.

XML

Note 6 - Securities Sold Under Agreements to Repurchase

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]

6.

    

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Three Months Ended			Twelve Months Ended
	March 31, 2018			December 31, 2017
Outstanding balance at end of period	$	104,894,000		$	118,748,000
Average interest rate at end of period		0.25	%		0.16	%
Average daily balance during the period	$	108,048,000		$	116,587,000
Average interest rate during the period		0.22	%		0.16	%
Maximum daily balance during the period	$	123,046,000		$	142,459,000

Repurchase agreements generally have original maturities of less than

one

year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Federal Home Loan Bank Advances, Disclosure [Text Block]

7.

    

FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled

$220

million at

March 31, 2018

and

December 31, 2017,

and mature at varying dates from

May 2018

through

April 2024,

with fixed rates of interest from

1.04%

to

2.39%

and averaging

1.72%

.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. The advances are collateralized by residential mortgage loans,

first

mortgage liens on multi-family residential property loans,

first

mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of

March 31, 2018

totaled about

$739

million, with remaining availability based on collateral approximating

$519

million.

Maturities of currently outstanding FHLBI advances are as follows:

2018	$	20,000,000
2019		40,000,000
2020		30,000,000
2021		40,000,000
2022		40,000,000
Thereafter		50,000,000

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Note 8 - Commitments and Off-Balance Sheet Risk

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

8.

    

COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there is

no

violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a

third

party. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and is generally recorded as a liability. There was

no

reserve or liability balance for these instruments as of

March 31, 2018

and

December 31, 2017.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at

March 31, 2018

and

December 31, 2017

follows:

	March 31,		December 31,
	2018		2017
Commercial unused lines of credit	$	678,832,000	$	682,202,000
Unused lines of credit secured by 1 – 4 family residential properties		60,930,000		61,606,000
Credit card unused lines of credit		42,693,000		39,807,000
Other consumer unused lines of credit		17,788,000		17,629,000
Commitments to make loans		238,437,000		184,923,000
Standby letters of credit		23,592,000		26,030,000
	$	1,062,272,000	$	1,012,197,000

XML

Note 9 - Hedging Activities

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

9.

    

HEDGING ACTIVITIES

Our interest rate risk policy includes guidelines for measuring and monitoring interest rate risk. Within these guidelines, parameters have been established for maximum fluctuations in net interest income. Possible fluctuations are measured and monitored using net interest income simulation. Our policy provides for the use of certain derivative instruments and hedging activities to aid in managing interest rate risk to within the policy parameters.

In

February 2012,

we entered into an interest rate swap agreement with a correspondent bank to hedge the floating rate on the subordinated debentures issued to Mercantile Bank Capital Trust I; the interest rate swap agreement became effective in

January 2013

and matured in

January 2018.

The

$32.0

million of subordinated debentures have a rate equal to the

90

-Day Libor Rate plus a fixed spread of

218

basis points, and are subject to repricing quarterly. The interest rate swap agreement provided for us to pay our correspondent bank a fixed rate, while our correspondent bank paid us the

90

-Day Libor Rate on a

$32.0

million notional amount. The quarterly re-set dates for the floating rate on the interest rate swap agreement were the same as the re-set dates for the floating rate on the subordinated debentures. The interest rate swap agreement was accounted for under hedge accounting guidelines; therefore, monthly fluctuations in the present value of the interest rate swap agreement, net of tax effect, were recorded in other comprehensive income. As of

December 31, 2017,

the fair value of the interest rate swap agreement was recorded as a liability in the amount of less than

$0.1

million.

Effective

January 26, 2016,

the notional amount of the interest rate swap agreement was reduced from

$32.0

million down to

$21.0

million, reflecting the

$11.0

million repurchase of the associated trust preferred securities on that date. We reclassified out of accumulated other comprehensive income and recorded interest expense of approximately

$0.2

million in

January 2016

as part of the transaction, reflecting the market value (i.e., present value of expected future cash flows) of the interest rate swap on that date of the

$11.0

million portion.

XML

Note 10 - Fair Values of Financial Instruments

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

10.

  

FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of

March 31, 2018

and

December 31, 2017 (

dollars in thousands):

	Level in	March 31, 2018				December 31, 2017
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy	Values		Values		Values		Values
Financial assets:
Cash	Level 1	$	11,148	$	11,148	$	11,565	$	11,565
Cash equivalents	Level 2		200,009		200,009		188,536		188,536
Securities available for sale	(1)		336,988		336,988		335,744		335,744
FHLBI stock	(2)		11,036		11,036		11,036		11,036
Loans, net	Level 3		2,529,366		2,528,622		2,536,498		2,520,063
Loans held for sale	Level 2		1,864		1,864		2,553		2,553
Mortgage servicing rights	Level 2		4,899		8,223		5,106		8,373
Accrued interest receivable	Level 2		9,590		9,590		8,770		8,770
Financial liabilities:
Deposits	Level 2		2,540,053		2,361,212		2,522,365		2,368,188
Repurchase agreements	Level 2		104,894		104,894		118,748		118,748
FHLBI advances	Level 2		220,000		214,172		220,000		217,130
Subordinated debentures	Level 2		45,688		46,280		45,517		45,732
Accrued interest payable	Level 2		2,172		2,172		1,919		1,919
Interest rate swap	(1)		0		0		2		2

( 1 ) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

( 2 ) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if

no

such information is available, on the rate and term of the security and information about the issuer. Fair value for loans as of

March 31, 2018

is based on an exit price model as required by ASU

2016

-

01,

taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. As of

December 31, 2017,

the fair value of floating rate loans was primarily based on carrying value, while fair value of other loans was estimated using discounted cash flow analysis using interest rates the being offered for loans with similar terms to borrowers of similar credit quality. Fair value for deposits accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The fair values of subordinated debentures and FHLBI advances are based on current rates for similar financing. The fair value of the interest rate swap was determined primarily utilizing market-consensus forecasted yield curves. The fair value of off-balance sheet items is estimated to be nominal.

XML

Note 11 - Fair Values

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

11.

 

FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is

not

adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is

not

a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs

may

be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level

1:

Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level

2:

Significant other observable inputs other than Level

1

prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are

not

active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level

3:

Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale.

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are

not

available, fair values are measured using independent pricing models. Level

2

securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, municipal general obligation and revenue bonds and mutual funds. Level

3

securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information that becomes known to us necessitates an impairment. There was

no

such impairment as of

March 31, 2018

or

December 31, 2017.

We have

no

Level

1

securities available for sale.

Derivatives

. The interest rate swap is measured at fair value on a recurring basis. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves, and accordingly, the interest rate swap agreement is classified as Level

2.

Mortgage loans held for sale

. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of

March 31, 2018

and

December 31, 2017,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$2.6

million, respectively.

Loans

. We do

not

record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off.

Foreclosed Assets.

At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of

March 31, 2018

are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	173,169,000	$	0	$	173,169,000	$	0
Mortgage-backed securities		40,351,000		0		40,351,000		0
Municipal general obligation bonds		117,660,000		0		112,469,000		5,191,000
Municipal revenue bonds		3,843,000		0		3,843,000		0
Other investments		1,965,000		0		1,965,000		0
Total	$	336,988,000	$	0	$	331,797,000	$	5,191,000

There were

no

transfers in or out of Level

1,

Level

2

or Level

3

during the

first

three

months of

2018.

The balances of assets and liabilities measured at fair value on a recurring basis as of

December 31, 2017

are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	169,700,000		$	0	$	169,700,000		$	0
Mortgage-backed securities		38,792,000			0		38,792,000			0
Municipal general obligation bonds		121,293,000			0		116,102,000			5,191,000
Municipal revenue bonds		3,978,000			0		3,978,000			0
Other investments		1,981,000			0		1,981,000			0
Interest rate swap		(2,000	)		0		(2,000	)		0
Total	$	335,742,000		$	0	$	330,551,000		$	5,191,000

There were

no

transfers in or out of Level

1,

Level

2

or Level

3

during

2017.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of

March 31, 2018

are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	4,498,000	$	0	$	0	$	4,498,000
Foreclosed assets		2,384,000		0		0		2,384,000
Total	$	6,882,000	$	0	$	0	$	6,882,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of

December 31, 2017

are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	5,836,000	$	0	$	0	$	5,836,000
Foreclosed assets		2,260,000		0		0		2,260,000
Total	$	8,096,000	$	0	$	0	$	8,096,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We

may

also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we

may

discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a

15%

to

25%

discount factor for commercial-related properties, and a

25%

to

50%

discount factor for residential-related properties. In a vast majority of cases, we assign a

10%

discount factor for estimated selling costs.

XML

Note 12 - Regulatory Matters

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

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, 2018

and

December 31, 2017,

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, 2018

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, 2018
Total capital (to risk weighted assets)
Consolidated	$	387,520		13.2	%	$	234,830		8.0	%	$	NA		NA
Bank		379,370		12.9			234,646		8.0			293,307		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		367,546		12.5			176,123		6.0			NA		NA
Bank		359,396		12.3			175,984		6.0			234,646		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		323,932		11.0			132,092		4.5			NA		NA
Bank		359,396		12.3			131,988		4.5			190,650		6.5
Tier 1 capital (to average assets)
Consolidated		367,546		11.5			127,794		4.0			NA		NA
Bank		359,396		11.3			127,712		4.0			159,640		5.0

(Continued)

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.

   

REGULATORY MATTERS

(Continued)

											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, 2017
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 tier 1 (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

Our consolidated capital levels as of

March 31, 2018

and

December 31, 2017

include

$43.6

million and

$43.4

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 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, 2018

and

December 31, 2017,

all

$43.6

million and

$43.4

million, respectively, of the trust preferred securities were included in our consolidated Tier

1

capital.

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 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

March 31, 2018,

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.

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 11, 2018,

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

$0.22

per share that was paid on

March 21, 2018

to shareholders of record as of

March 9, 2018.

On

April 12, 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

June 20, 2018

to shareholders of record as of

June 8, 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 the

first

three

months of

2018.

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.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

: The unaudited financial statements for the

three

months ended

March 31, 2018

include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s

two

subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form

10

-Q and Item

303

(b) of Regulation S-K and do

not

include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements

not

misleading and for a fair presentation of the results of operations for such periods. The results for the period ended

March 31, 2018

should

not

be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form

10

-K for the year ended

December 

31,

2017.

We have

five

separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are

not

consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately

236,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March 31, 2018.

In addition, stock options for approximately

17,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March 31, 2018.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

months ended

March 31, 2018.

Approximately

225,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March 31, 2017.

In addition, stock options for approximately

34,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March 31, 2017.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

months ended

March 31, 2017.

Marketable Securities, Policy [Policy Text Block]

Securities

: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than

not

that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do

not

meet the aforementioned criteria, the amount of impairment is split into

two

components as follows:

1

) OTTI related to credit loss, which must be recognized in the income statement, and

2

) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Finance, Loan and Lease Receivables, Held-for-investment, Policy [Policy Text Block]

Loans

: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is

90

days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged-off

no

later than when they are

120

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but

not

received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Finance, Loan and Lease Receivables, Held-for-sale, Policy [Policy Text Block]

Loans Held for Sale

: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of

March 31, 2018

and

December 31, 2017,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$2.6

million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are

not

designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately

$611

million as of

March 31, 2018.

Loans and Leases Receivable, Mortgage Banking Activities, Policy [Policy Text Block]

Mortgage Banking Activities

: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Loans and Leases Receivable, Troubled Debt Restructuring Policy [Policy Text Block]

Troubled Debt Restructurings

: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would

not

otherwise consider. A troubled debt restructuring

may

involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings

may

have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these

two

measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for Loan Losses

: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives, Policy [Policy Text Block]

Derivatives

: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do

not

use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does

not

apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is

no

longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is

no

longer appropriate or intended.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Core Deposit Intangible

: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill

may

not

be recoverable. We

may

elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, or if we elect

not

to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a

two

-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In

2016

and

2017,

we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than

not

our fair value was greater than its carrying amount; therefore,

no

further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a

ten

-year period using the sum-of-the-years-digits methodology.

Revenue from Contract with Customer [Policy Text Block]

Revenue from Contracts with Customers

: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic

606,

“Revenue from Contracts with Customers”

(“Topic

606”

). Under Topic

606,

we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has

not

been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are

not

within the scope of Topic

606.

We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Condensed Consolidated Statements of Income was

not

necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic

606

that significantly affects the determination of the amount and timing of revenue from contracts with customers.

New Accounting Pronouncements, Policy [Policy Text Block]

Adoption of New Accounting Standards:

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers

. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires

five

basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We adopted this ASU effective

January 1, 2018

using the modified retrospective approach.

Adoption of ASU

2014

-

09

did

not

have a material impact on our consolidated financial statements and related disclosures as the primary sources of revenues are derived from interest and dividends earned on loans, securities and other financial instruments that are

not

within the scope of the new standard. Our revenue recognition pattern for revenue streams within the scope of the new standard, including but

not

limited to service charges on deposit accounts, credit and debit card interchange fees and payroll service income, did

not

change significantly from prior practice. The modified retrospective method requires application of ASU

2014

-

09

to uncompleted contracts at the date of adoption; however, periods prior to the date of adoption have

not

been retrospectively revised as the impact of the new standard on uncompleted contracts as the date of adoption was

not

material, and therefore a cumulative effective adjustment to opening retained earnings was

not

deemed necessary.

In

January 2016,

the FASB issued ASU

2016

-

01,

Recognition and Measurement of Financial Assets and Financial Liabilities

. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. Our adoption of this ASU effective

January 1, 2018

did

not

have a material effect on our financial position or results of operations. The adoption of this guidance resulted in an insignificant cumulative-effect adjustment that decreased retained earnings, with offsetting-related adjustments to deferred taxes and AOCI. In addition, the fair value of loans has been estimated using an exit price notion as disclosed in Note

10.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after

December 15, 2018.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is

not

expected to have a material effect on our financial position or results of operations.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Measurement of Credit Losses on Financial Instruments

. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are

not

measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is

not

limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after

December 15, 2019,

and early adoption is permitted for interim and annual reporting periods beginning after

December 15, 2018.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective (i.e., modified retrospective approach). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements. We have selected a software vendor for applying this new ASU, and have initiated the process to establish a framework which we plan to implement later in

2018.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

Classification of Certain Cash Receipts and Cash Payments

. This ASU made

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after

December 15, 2017.

The new standard required adoption on a retrospective basis unless it was impractical to apply, in which case it was required to apply the amendments prospectively as of the earliest date practicable. Adoption of this ASU did

not

have a material effect on our financial position or results of operations.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

. This ASU requires the premium to be amortized to the earliest call date. The amendments do

not

require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after

December 15, 2018,

and early adoption is permitted. The provisions of this ASU will

not

have an impact on our financial position or results of operations as we have always amortized premiums to the earliest call date.

In

August 2017,

the FASB issued ASU

2017

-

12,

Targeted Improvements to Accounting for Hedging Activities

. The ASU changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. The ASU also eases certain documentation and assessment requirements and modifies the accounting components excluded from the assessment of hedge effectiveness. This ASU is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

February 2018,

the FASB issued ASU

2018

-

02,

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

. This ASU requires reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical

35%

corporate income tax rate and the newly enacted

21%

corporate income tax rate. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws of rates be included in income from continuing operations is

not

affected. This ASU is effective for fiscal years beginning after

December 15, 2018.

Early adoption is permitted. We early adopted this ASU effective

December 31, 2017,

which resulted in the reclassification of

$0.9

million from accumulated other comprehensive income to retained earnings at year-end

2017.

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Note 2 - Securities (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Available-for-sale Securities [Table Text Block]

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018
U.S. Government agency debt obligations	$	184,422,000	$	4,000	$	(11,257,000	)	$	173,169,000
Mortgage-backed securities		41,104,000		278,000		(1,031,000	)		40,351,000
Municipal general obligation bonds		118,881,000		404,000		(1,625,000	)		117,660,000
Municipal revenue bonds		3,910,000		6,000		(73,000	)		3,843,000
Other investments		2,018,000		0		(53,000	)		1,965,000
	$	350,335,000	$	692,000	$	(14,039,000	)	$	336,988,000
December 31, 2017
U.S. Government agency debt obligations	$	175,953,000	$	99,000	$	(6,352,000	)	$	169,700,000
Mortgage-backed securities		38,967,000		335,000		(510,000	)		38,792,000
Municipal general obligation bonds		121,040,000		891,000		(638,000	)		121,293,000
Municipal revenue bonds		3,978,000		30,000		(30,000	)		3,978,000
Other investments		2,010,000		0		(29,000	)		1,981,000
	$	341,948,000	$	1,355,000	$	(7,559,000	)	$	335,744,000

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Table Text Block]

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2018
U.S. Government agency debt obligations	$	44,594,000	$	1,464,000	$	126,600,000	$	9,793,000	$	171,194,000	$	11,257,000
Mortgage-backed securities		14,519,000		479,000		18,867,000		552,000		33,386,000		1,031,000
Municipal general obligation bonds		43,826,000		615,000		43,537,000		1,010,000		87,363,000		1,625,000
Municipal revenue bonds		1,499,000		16,000		1,159,000		57,000		2,658,000		73,000
Other investments		1,518,000		53,000		0		0		1,518,000		53,000
	$	105,956,000	$	2,627,000	$	190,163,000	$	11,412,000	$	296,119,000	$	14,039,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2017
U.S. Government agency debt obligations	$	35,677,000	$	434,000	$	115,374,000	$	5,918,000	$	151,051,000	$	6,352,000
Mortgage-backed securities		10,179,000		156,000		21,084,000		354,000		31,263,000		510,000
Municipal general obligation bonds		12,807,000		114,000		54,703,000		524,000		67,510,000		638,000
Municipal revenue bonds		0		0		1,187,000		30,000		1,187,000		30,000
Other investments		1,510,000		29,000		0		0		1,510,000		29,000
	$	60,173,000	$	733,000	$	192,348,000	$	6,826,000	$	252,521,000	$	7,559,000

Investments Classified by Contractual Maturity Date [Table Text Block]

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2018		1.86	$	28,193,000	$	28,181,000
Due in 2019 through 2023		2.12		65,051,000		64,576,000
Due in 2024 through 2028		2.52		99,189,000		94,685,000
Due in 2029 and beyond		2.95		114,780,000		107,230,000
Mortgage-backed securities		2.33		41,104,000		40,351,000
Other investments		2.84		2,018,000		1,965,000
Total available for sale securities		2.51	$	350,335,000	$	336,988,000

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Note 3 - Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	675,188,000		30.8	%	$	680,805,000		31.3	%		(0.8	%)
Vacant land, land development, and residential construction		25,514,000		1.2			23,682,000		1.1			7.7
Real estate – owner occupied		468,777,000		21.4			456,065,000		21.0			2.8
Real estate – non-owner occupied		715,725,000		32.6			708,824,000		32.7			1.0
Real estate – multi-family and residential rental		61,762,000		2.8			64,852,000		3.0			(4.8	)
Total commercial		1,946,966,000		88.8			1,934,228,000		89.1			0.7
Retail:
Home equity and other		65,604,000		3.0			69,675,000		3.2			(5.8	)
1-4 family mortgages		179,281,000		8.2			166,054,000		7.7			8.0
Total retail		244,885,000		11.2			235,729,000		10.9			3.9
Total originated loans	$	2,191,851,000		100.0	%	$	2,169,957,000		100.0	%		1.0	%

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	64,617,000		18.0	%	$	72,959,000		18.8	%		(11.4	%)
Vacant land, land development, and residential construction		5,924,000		1.6			6,191,000		1.6			(4.3	)
Real estate – owner occupied		62,375,000		17.5			70,263,000		18.1			(11.2	)
Real estate – non-owner occupied		78,481,000		21.8			82,861,000		21.3			(5.3	)
Real estate – multi-family and residential rental		34,666,000		9.6			37,066,000		9.5			(6.5	)
Total commercial		246,063,000		68.5			269,340,000		69.3			(8.6	)
Retail:
Home equity and other		27,575,000		7.7			30,750,000		7.9			(10.3	)
1-4 family mortgages		85,715,000		23.8			88,505,000		22.8			(3.2	)
Total retail		113,290,000		31.5			119,255,000		30.7			(5.0	)
Total acquired loans	$	359,353,000		100.0	%	$	388,595,000		100.0	%		(7.5	%)

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	739,805,000		29.0	%	$	753,764,000		29.4	%		(1.9	%)
Vacant land, land development, and residential construction		31,438,000		1.2			29,873,000		1.2			5.2
Real estate – owner occupied		531,152,000		20.8			526,328,000		20.6			0.9
Real estate – non-owner occupied		794,206,000		31.2			791,685,000		30.9			0.3
Real estate – multi-family and residential rental		96,428,000		3.8			101,918,000		4.0			(5.4	)
Total commercial		2,193,029,000		86.0			2,203,568,000		86.1			(0.5	)
Retail:
Home equity and other		93,179,000		3.6			100,425,000		3.9			(7.2	)
1-4 family mortgages		264,996,000		10.4			254,559,000		10.0			4.1
Total retail		358,175,000		14.0			354,984,000		13.9			0.9
Total loans	$	2,551,204,000		100.0	%	$	2,558,552,000		100.0	%		(0.3	%)

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Accretable Yield Movement [Table Text Block]

Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(131,000	)
Net reclassification from nonaccretable to accretable		86,000
Reductions (1)		(40,000	)
Balance at March 31, 2018	$	1,319,000
Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,763,000		3,672,000
Total nonperforming originated loans	$	2,763,000	$	3,672,000

	March 31,		December 31,
	2018		2017
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,979,000		3,471,000
Total nonperforming acquired loans	$	2,979,000	$	3,471,000

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	619,000	$	1,444,000
Vacant land, land development, and residential construction		0		35,000
Real estate – owner occupied		1,831,000		2,241,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		154,000		178,000
Total commercial		2,604,000		3,898,000
Retail:
Home equity and other		512,000		577,000
1-4 family mortgages		2,626,000		2,668,000
Total retail		3,138,000		3,245,000
Total nonperforming loans	$	5,742,000	$	7,143,000

Past Due Financing Receivables [Table Text Block]

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	1,350,000	$	929,000	$	0	$	2,279,000	$	672,909,000	$	675,188,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		25,514,000		25,514,000		0
Real estate – owner occupied		0		0		251,000		251,000		468,526,000		468,777,000		0
Real estate – non-owner occupied		0		0		0		0		715,725,000		715,725,000		0
Real estate – multi-family and residential rental		0		0		0		0		61,762,000		61,762,000		0
Total commercial		1,350,000		929,000		251,000		2,530,000		1,944,436,000		1,946,966,000		0
Retail:
Home equity and other		65,000		0		0		65,000		65,539,000		65,604,000		0
1-4 family mortgages		0		246,000		220,000		466,000		178,815,000		179,281,000		0
Total retail		65,000		246,000		220,000		531,000		244,354,000		244,885,000		0
Total past due loans	$	1,415,000	$	1,175,000	$	471,000	$	3,061,000	$	2,188,790,000	$	2,191,851,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	113,000	$	113,000	$	64,504,000	$	64,617,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		5,924,000		5,924,000		0
Real estate – owner occupied		0		156,000		243,000		399,000		61,976,000		62,375,000		0
Real estate – non-owner occupied		0		0		0		0		78,481,000		78,481,000		0
Real estate – multi-family and residential rental		27,000		0		9,000		36,000		34,630,000		34,666,000		0
Total commercial		27,000		156,000		365,000		548,000		245,515,000		246,063,000		0
Retail:
Home equity and other		163,000		44,000		42,000		249,000		27,326,000		27,575,000		0
1-4 family mortgages		645,000		231,000		475,000		1,351,000		84,364,000		85,715,000		0
Total retail		808,000		275,000		517,000		1,600,000		111,690,000		113,290,000		0
Total past due loans	$	835,000	$	431,000	$	882,000	$	2,148,000	$	357,205,000	$	359,353,000	$	0

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	178,000	$	178,000	$	680,627,000	$	680,805,000	$	0
Vacant land, land development, and residential construction		0		0		35,000		35,000		23,647,000		23,682,000		0
Real estate – owner occupied		0		0		1,244,000		1,244,000		454,821,000		456,065,000		0
Real estate – non-owner occupied		0		0		0		0		708,824,000		708,824,000		0
Real estate – multi-family and residential rental		0		0		0		0		64,852,000		64,852,000		0
Total commercial		0		0		1,457,000		1,457,000		1,932,771,000		1,934,228,000		0
Retail:
Home equity and other		647,000		11,000		86,000		744,000		68,931,000		69,675,000		0
1-4 family mortgages		0		0		250,000		250,000		165,804,000		166,054,000		0
Total retail		647,000		11,000		336,000		994,000		234,735,000		235,729,000		0
Total past due loans	$	647,000	$	11,000	$	1,793,000	$	2,451,000	$	2,167,506,000	$	2,169,957,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	40,000	$	0	$	114,000	$	154,000	$	72,805,000	$	72,959,000	$	0
Vacant land, land development, and residential construction		14,000		0		0		14,000		6,177,000		6,191,000		0
Real estate – owner occupied		634,000		0		271,000		905,000		69,358,000		70,263,000		0
Real estate – non-owner occupied		0		0		0		0		82,861,000		82,861,000		0
Real estate – multi-family and residential rental		0		0		108,000		108,000		36,958,000		37,066,000		0
Total commercial		688,000		0		493,000		1,181,000		268,159,000		269,340,000		0
Retail:
Home equity and other		408,000		52,000		154,000		614,000		30,136,000		30,750,000		0
1-4 family mortgages		690,000		333,000		661,000		1,684,000		86,821,000		88,505,000		0
Total retail		1,098,000		385,000		815,000		2,298,000		116,957,000		119,255,000		0
Total past due loans	$	1,786,000	$	385,000	$	1,308,000	$	3,479,000	$	385,116,000	$	388,595,000	$	0

Impaired Financing Receivables [Table Text Block]

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	234,000	$	234,000		$	206,000
Vacant land, land development and residential construction		0		0			17,000
Real estate – owner occupied		2,937,000		2,875,000			2,164,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		337,000		337,000			343,000
Total commercial		3,508,000		3,446,000			2,730,000
Retail:
Home equity and other		768,000		751,000			716,000
1-4 family mortgages		1,106,000		419,000			437,000
Total retail		1,874,000		1,170,000			1,153,000
Total with no related allowance recorded	$	5,382,000	$	4,616,000		$	3,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,623,000	$	2,133,000	$	304,000	$	2,561,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,717,000		1,674,000		226,000		1,532,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		145,000		145,000		17,000		72,000
Total commercial		4,485,000		3,952,000		547,000		4,165,000
Retail:
Home equity and other		508,000		498,000		258,000		823,000
1-4 family mortgages		412,000		354,000		58,000		232,000
Total retail		920,000		852,000		316,000		1,055,000
Total with an allowance recorded	$	5,405,000	$	4,804,000	$	863,000	$	5,220,000
Total impaired loans:
Commercial	$	7,993,000	$	7,398,000	$	547,000	$	6,895,000
Retail		2,794,000		2,022,000		316,000		2,208,000
Total impaired loans	$	10,787,000	$	9,420,000	$	863,000	$	9,103,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	743,000	$	733,000		$	877,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,110,000		715,000			687,000
Real estate – non-owner occupied		232,000		232,000			235,000
Real estate – multi-family and residential rental		62,000		44,000			131,000
Total commercial		2,147,000		1,724,000			1,930,000
Retail:
Home equity and other		690,000		649,000			578,000
1-4 family mortgages		2,586,000		2,007,000			2,080,000
Total retail		3,276,000		2,656,000			2,658,000
Total with no related allowance recorded	$	5,423,000	$	4,380,000		$	4,588,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		1,597,000		1,597,000		307,000		799,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		1,597,000		1,597,000		307,000		799,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		0
Total retail		0		0		0		0
Total with an allowance recorded	$	1,597,000	$	1,597,000	$	307,000	$	799,000
Total impaired loans:
Commercial	$	3,744,000	$	3,321,000	$	307,000	$	2,729,000
Retail		3,276,000		2,656,000		0		2,658,000
Total impaired loans	$	7,020,000	$	5,977,000	$	307,000	$	5,387,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	765,000	$	178,000		$	1,589,000
Vacant land, land development and residential construction		454,000		35,000			88,000
Real estate – owner occupied		1,528,000		1,452,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		349,000		349,000			197,000
Total commercial		3,096,000		2,014,000			1,987,000
Retail:
Home equity and other		693,000		680,000			247,000
1-4 family mortgages		1,126,000		456,000			649,000
Total retail		1,819,000		1,136,000			896,000
Total with no related allowance recorded	$	4,915,000	$	3,150,000		$	2,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,038,000	$	2,989,000	$	963,000	$	2,690,000
Vacant land, land development and residential construction		0		0		0		749,000
Real estate – owner occupied		1,409,000		1,391,000		239,000		1,144,000
Real estate – non-owner occupied		0		0		0		4,745,000
Real estate – multi-family and residential rental		0		0		0		751,000
Total commercial		4,447,000		4,380,000		1,202,000		10,079,000
Retail:
Home equity and other		1,225,000		1,147,000		652,000		697,000
1-4 family mortgages		165,000		110,000		13,000		137,000
Total retail		1,390,000		1,257,000		665,000		834,000
Total with an allowance recorded	$	5,837,000	$	5,637,000	$	1,867,000	$	10,913,000
Total impaired loans:
Commercial	$	7,543,000	$	6,394,000	$	1,202,000	$	12,066,000
Retail		3,209,000		2,393,000		665,000		1,730,000
Total impaired loans	$	10,752,000	$	8,787,000	$	1,867,000	$	13,796,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,039,000	$	1,021,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,027,000		659,000			1,151,000
Real estate – non-owner occupied		238,000		237,000			751,000
Real estate – multi-family and residential rental		237,000		218,000			160,000
Total commercial		2,541,000		2,135,000			2,954,000
Retail:
Home equity and other		694,000		507,000			336,000
1-4 family mortgages		2,703,000		2,153,000			1,662,000
Total retail		3,397,000		2,660,000			1,998,000
Total with no related allowance recorded	$	5,938,000	$	4,795,000		$	4,952,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		0		0		0		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		0		0		0		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		0		0		0		172,000
Total retail		0		0		0		172,000
Total with an allowance recorded	$	0	$	0	$	0	$	239,000
Total impaired loans:
Commercial	$	2,541,000	$	2,135,000	$	0	$	3,021,000
Retail		3,397,000		2,660,000		0		2,170,000
Total impaired loans	$	5,938,000	$	4,795,000	$	0	$	5,191,000

Financing Receivable Credit Quality Indicators [Table Text Block]

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	468,826,000	$	17,645,000	$	313,933,000	$	564,093,000	$	39,571,000
Grades 5 – 7		187,118,000		7,767,000		140,088,000		151,632,000		21,709,000
Grades 8 – 9		19,244,000		102,000		14,756,000		0		482,000
Total commercial	$	675,188,000	$	25,514,000	$	468,777,000	$	715,725,000	$	61,762,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	39,543,000	$	1,412,000	$	28,823,000	$	54,951,000	$	17,376,000
Grades 5 – 7		24,591,000		4,512,000		30,940,000		23,448,000		17,132,000
Grades 8 – 9		483,000		0		2,612,000		82,000		158,000
Total commercial	$	64,617,000	$	5,924,000	$	62,375,000	$	78,481,000	$	34,666,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	469,537,000	$	15,090,000	$	326,700,000	$	559,388,000	$	42,951,000
Grades 5 – 7		189,851,000		8,557,000		123,024,000		149,135,000		21,552,000
Grades 8 – 9		21,417,000		35,000		6,341,000		301,000		349,000
Total commercial	$	680,805,000	$	23,682,000	$	456,065,000	$	708,824,000	$	64,852,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	46,263,000	$	1,446,000	$	28,706,000	$	52,674,000	$	17,499,000
Grades 5 – 7		25,654,000		4,745,000		39,565,000		30,102,000		19,212,000
Grades 8 – 9		1,042,000		0		1,992,000		85,000		355,000
Total commercial	$	72,959,000	$	6,191,000	$	70,263,000	$	82,861,000	$	37,066,000

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	16,456,000		$	2,584,000		$	93,000	$	19,133,000
Provision for loan losses		(341,000	)		(563,000	)		122,000		(782,000	)
Charge-offs		(258,000	)		(135,000	)		0		(393,000	)
Recoveries		1,008,000			115,000			0		1,123,000
Ending balance	$	16,865,000		$	2,001,000		$	215,000	$	19,081,000
Ending balance: individually evaluated for impairment	$	547,000		$	316,000		$	0	$	863,000
Ending balance: collectively evaluated for impairment	$	16,318,000		$	1,685,000		$	215,000	$	18,218,000
Total loans:
Ending balance	$	1,946,966,000		$	244,885,000				$	2,191,851,000
Ending balance: individually evaluated for impairment	$	7,398,000		$	2,022,000				$	9,420,000
Ending balance: collectively evaluated for impairment	$	1,939,568,000		$	242,863,000				$	2,182,431,000

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		314,000			468,000			0		782,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			4,000			0		4,000
Ending balance	$	359,000		$	534,000		$	0	$	893,000

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		1,148,000			1,360,000			133,000			2,641,000
Charge-offs		(2,292,000	)		(891,000	)		0			(3,183,000	)
Recoveries		1,574,000			233,000			0			1,807,000
Ending balance	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Ending balance: individually evaluated for impairment	$	1,202,000		$	665,000		$	0		$	1,867,000
Ending balance: collectively evaluated for impairment	$	15,254,000		$	1,919,000		$	93,000		$	17,266,000
Total loans:
Ending balance	$	1,934,228,000		$	235,729,000					$	2,169,957,000
Ending balance: individually evaluated for impairment	$	6,394,000		$	2,393,000					$	8,787,000
Ending balance: collectively evaluated for impairment	$	1,927,834,000		$	233,336,000					$	2,161,170,000

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000		$	0	$	93,000
Provision for loan losses		210,000			99,000			0		309,000
Charge-offs		(12,000	)		(40,000	)		0		(52,000	)
Recoveries		18,000			0			0		18,000
Ending balance	$	291,000		$	77,000		$	0	$	368,000

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		3	$	107,000	$	96,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		4		3,865,000		3,854,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		7		3,972,000		3,950,000
Retail:
Home equity and other		1		50,000		50,000
1-4 family mortgages		0		0		0
Total originated retail		1		50,000		50,000
Total originated loans		8	$	4,022,000	$	4,000,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		1,597,000		1,597,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		3		1,597,000		1,597,000
Retail:
Home equity and other		6		118,000		119,000
1-4 family mortgages		0		0		0
Total acquired retail		6		118,000		119,000
Total acquired loans		9	$	1,715,000	$	1,716,000

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

Troubled Debt Restructurings on Financing Receivables with in Previous Twelve Months that Became Over Thirty Days Past Due [Table Text Block]

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		1		251,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		251,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	251,000

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	113,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		113,000
Retail:
Home equity and other		2		20,000
1-4 family mortgages		0		0
Total retail		2		20,000
Total		3	$	133,000

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

Trouble Debt Restructuring Activity [Table Text Block]

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,989,000		$	383,000		$	1,599,000		$	0	$	0
Charge-Offs		(230,000	)		0			0			0		0
Payments		(882,000	)		(45,000	)		(855,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		105,000			0			3,804,000			0		0
Ending Balance	$	1,982,000		$	338,000		$	4,548,000		$	0	$	0

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(8,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		50,000			0
Ending Balance	$	1,169,000		$	144,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,001,000		$	0	$	427,000		$	237,000		$	41,000
Charge-Offs		(275,000	)		0		0			0			0
Payments		(10,000	)		0		(17,000	)		(5,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		1,597,000			0			0
Ending Balance	$	716,000		$	0	$	2,007,000		$	232,000		$	36,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(15,000	)		0
Payments		(1,000	)		(9,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		119,000			0
Ending Balance	$	240,000		$	384,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

Allowance Related to Loans Categorized as Troubled Debt Restructurings [Table Text Block]

	March 31,		December 31,
	2018		2017
Commercial:
Commercial and industrial	$	85,000	$	107,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		375,000		141,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		460,000		248,000
Retail:
Home equity and other		215,000		196,000
1-4 family mortgages		21,000		0
Total retail		236,000		196,000
Total related allowance	$	696,000	$	444,000

Retail Portfolio Segment [Member]

Notes Tables

Financing Receivable Credit Quality Indicators [Table Text Block]

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	65,604,000	$	179,281,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	27,575,000	$	85,715,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,675,000	$	166,054,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	30,750,000	$	88,505,000

XML

Note 4 - Premises and Equipment, Net (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 31,		December 31,
	2018		2017
Land and improvements	$	17,938,000	$	18,046,000
Buildings		41,751,000		41,179,000
Furniture and equipment		17,858,000		17,398,000
		77,547,000		76,623,000
Less: accumulated depreciation		31,247,000		30,589,000
Premises and equipment, net	$	46,300,000	$	46,034,000

XML

Note 5 - Deposits (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Summary of Deposits and Percentage Change in Deposits [Table Text Block]

											Percent
	March 31, 2018					December 31, 2017					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	830,187,000		32.7	%	$	866,380,000		34.3	%		(4.2	%)
Interest-bearing checking		392,134,000		15.4			387,758,000		15.4			1.1
Money market		486,318,000		19.1			427,119,000		16.9			13.9
Savings		326,247,000		12.9			327,530,000		13.0			(0.4	)
Time, under $100,000		156,053,000		6.2			152,294,000		6.0			2.5
Time, $100,000 and over		246,703,000		9.7			258,626,000		10.3			(4.6	)
Total local deposits		2,437,642,000		96.0			2,419,707,000		95.9			0.7
Out-of-area time, under $100,000		0	NA				0	NA			NA
Out-of-area time, $100,000 and over		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total out-of-area deposits		102,411,000		4.0			102,658,000		4.1			(0.2	)
Total deposits	$	2,540,053,000		100.0	%	$	2,522,365,000		100.0	%		0.7	%

XML

Note 6 - Securities Sold Under Agreements to Repurchase (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Repurchase Agreements [Table Text Block]

	Three Months Ended			Twelve Months Ended
	March 31, 2018			December 31, 2017
Outstanding balance at end of period	$	104,894,000		$	118,748,000
Average interest rate at end of period		0.25	%		0.16	%
Average daily balance during the period	$	108,048,000		$	116,587,000
Average interest rate during the period		0.22	%		0.16	%
Maximum daily balance during the period	$	123,046,000		$	142,459,000

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Maturities of Currently Outstanding FHLB Advances [Table Text Block]

2018	$	20,000,000
2019		40,000,000
2020		30,000,000
2021		40,000,000
2022		40,000,000
Thereafter		50,000,000

XML

Note 8 - Commitments and Off-Balance Sheet Risk (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Summary of Contractual Amounts of Financial Instruments With Off Balance Sheet Risk [Table Text Block]

	March 31,		December 31,
	2018		2017
Commercial unused lines of credit	$	678,832,000	$	682,202,000
Unused lines of credit secured by 1 – 4 family residential properties		60,930,000		61,606,000
Credit card unused lines of credit		42,693,000		39,807,000
Other consumer unused lines of credit		17,788,000		17,629,000
Commitments to make loans		238,437,000		184,923,000
Standby letters of credit		23,592,000		26,030,000
	$	1,062,272,000	$	1,012,197,000

XML

Note 10 - Fair Values of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Level in	March 31, 2018				December 31, 2017
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy	Values		Values		Values		Values
Financial assets:
Cash	Level 1	$	11,148	$	11,148	$	11,565	$	11,565
Cash equivalents	Level 2		200,009		200,009		188,536		188,536
Securities available for sale	(1)		336,988		336,988		335,744		335,744
FHLBI stock	(2)		11,036		11,036		11,036		11,036
Loans, net	Level 3		2,529,366		2,528,622		2,536,498		2,520,063
Loans held for sale	Level 2		1,864		1,864		2,553		2,553
Mortgage servicing rights	Level 2		4,899		8,223		5,106		8,373
Accrued interest receivable	Level 2		9,590		9,590		8,770		8,770
Financial liabilities:
Deposits	Level 2		2,540,053		2,361,212		2,522,365		2,368,188
Repurchase agreements	Level 2		104,894		104,894		118,748		118,748
FHLBI advances	Level 2		220,000		214,172		220,000		217,130
Subordinated debentures	Level 2		45,688		46,280		45,517		45,732
Accrued interest payable	Level 2		2,172		2,172		1,919		1,919
Interest rate swap	(1)		0		0		2		2

XML

Note 11 - Fair Values (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	173,169,000	$	0	$	173,169,000	$	0
Mortgage-backed securities		40,351,000		0		40,351,000		0
Municipal general obligation bonds		117,660,000		0		112,469,000		5,191,000
Municipal revenue bonds		3,843,000		0		3,843,000		0
Other investments		1,965,000		0		1,965,000		0
Total	$	336,988,000	$	0	$	331,797,000	$	5,191,000

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	169,700,000		$	0	$	169,700,000		$	0
Mortgage-backed securities		38,792,000			0		38,792,000			0
Municipal general obligation bonds		121,293,000			0		116,102,000			5,191,000
Municipal revenue bonds		3,978,000			0		3,978,000			0
Other investments		1,981,000			0		1,981,000			0
Interest rate swap		(2,000	)		0		(2,000	)		0
Total	$	335,742,000		$	0	$	330,551,000		$	5,191,000

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	4,498,000	$	0	$	0	$	4,498,000
Foreclosed assets		2,384,000		0		0		2,384,000
Total	$	6,882,000	$	0	$	0	$	6,882,000

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	5,836,000	$	0	$	0	$	5,836,000
Foreclosed assets		2,260,000		0		0		2,260,000
Total	$	8,096,000	$	0	$	0	$	8,096,000

XML

Note 12 - Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

											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, 2018
Total capital (to risk weighted assets)
Consolidated	$	387,520		13.2	%	$	234,830		8.0	%	$	NA		NA
Bank		379,370		12.9			234,646		8.0			293,307		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		367,546		12.5			176,123		6.0			NA		NA
Bank		359,396		12.3			175,984		6.0			234,646		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		323,932		11.0			132,092		4.5			NA		NA
Bank		359,396		12.3			131,988		4.5			190,650		6.5
Tier 1 capital (to average assets)
Consolidated		367,546		11.5			127,794		4.0			NA		NA
Bank		359,396		11.3			127,712		4.0			159,640		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, 2017
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 tier 1 (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

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Note 1 - Significant Accounting Policies (Details Textual) $ in Millions	3 Months Ended		12 Months Ended
	Mar. 31, 2018 USD ($) shares	Mar. 31, 2017 shares	Dec. 31, 2018	Dec. 31, 2017 USD ($)
Number of Unconsolidated Business Trusts Formed to Issue Trust Preferred Securities	5
Interest Income on Commercial and Mortgage Loans Discontinued Period	90 days
Maximum Delinquency Period for Consumer and Credit Card Loans to be Charged Off	120 days
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage | $	$ 1.9			$ 2.6
Servicing Asset, Total | $	$ 611.0
Adjustments for New Accounting Principle, Early Adoption [Member]
Reclassification from AOCI to Retained Earnings, Current Period | $				$ 0.9
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%
Core Deposits [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	10 years
Restricted Stock [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights | shares	236,000	225,000
Employee Stock Option [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights | shares	17,000	34,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | shares	7,000	7,000

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Note 2 - Securities (Details Textual)	3 Months Ended
	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Total	$ 296,119,000	$ 252,521,000
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss, Total	14,039,000	7,559,000
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held, Ending Balance	0
Debt Securities, Available-for-sale, Amortized Cost, Total	350,335,000	341,948,000
Debt Securities, Available-for-sale, Total	336,988,000	335,744,000
State of Michigan and All Its Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	112,000,000	112,000,000
Debt Securities, Available-for-sale, Total	111,000,000	112,000,000
All Other States and Their Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	10,800,000	12,900,000
Debt Securities, Available-for-sale, Total	$ 10,700,000	13,000,000
Securities Other Than US Government Agencies and the State of Michigan and Political Subdivisions [Member] | Stockholders' Equity, Total [Member] | Securities Issued Concentration Risk [Member]
Concentration Risk, Percentage	10.00%
US Government Agency Debt Obligations and Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Restricted	$ 105,000,000	$ 119,000,000
Debt Securities [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	394
Mutual Funds [Member]
Equity Securities, Number of Positions	1

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Note 2 - Securities - Available-for-sale Securities (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale, Amortized Cost, Total	$ 350,335,000	$ 341,948,000
Gross Unrealized Gains	692,000	1,355,000
Gross Unrealized Losses	(14,039,000)	(7,559,000)
Fair Value	336,988,000	335,744,000
US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	184,422,000	175,953,000
Gross Unrealized Gains	4,000	99,000
Gross Unrealized Losses	(11,257,000)	(6,352,000)
Fair Value	173,169,000	169,700,000
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	41,104,000	38,967,000
Gross Unrealized Gains	278,000	335,000
Gross Unrealized Losses	(1,031,000)	(510,000)
Fair Value	40,351,000	38,792,000
Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	118,881,000	121,040,000
Gross Unrealized Gains	404,000	891,000
Gross Unrealized Losses	(1,625,000)	(638,000)
Fair Value	117,660,000	121,293,000
Municipal Revenue Bonds [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	3,910,000	3,978,000
Gross Unrealized Gains	6,000	30,000
Gross Unrealized Losses	(73,000)	(30,000)
Fair Value	3,843,000	3,978,000
Other Debt and Equity Securities [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	2,018,000	2,010,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(53,000)	(29,000)
Fair Value	$ 1,965,000	$ 1,981,000

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Note 2 - Securities - Securities in a Continuous Loss Position (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Securities available for sale, continuous unrealized loss position, less than 12 months	$ 105,956,000	$ 60,173,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	2,627,000	733,000
Securities available for sale, continuous unrealized loss position, 12 months or more	190,163,000	192,348,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	11,412,000	6,826,000
Securities available for sale, continuous unrealized loss position	296,119,000	252,521,000
Securities available for sale, continuous unrealized loss position, unrealized loss	14,039,000	7,559,000
US Government Agencies Debt Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	44,594,000	35,677,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	1,464,000	434,000
Securities available for sale, continuous unrealized loss position, 12 months or more	126,600,000	115,374,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	9,793,000	5,918,000
Securities available for sale, continuous unrealized loss position	171,194,000	151,051,000
Securities available for sale, continuous unrealized loss position, unrealized loss	11,257,000	6,352,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	14,519,000	10,179,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	479,000	156,000
Securities available for sale, continuous unrealized loss position, 12 months or more	18,867,000	21,084,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	552,000	354,000
Securities available for sale, continuous unrealized loss position	33,386,000	31,263,000
Securities available for sale, continuous unrealized loss position, unrealized loss	1,031,000	510,000
Municipal General Obligation Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	43,826,000	12,807,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	615,000	114,000
Securities available for sale, continuous unrealized loss position, 12 months or more	43,537,000	54,703,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	1,010,000	524,000
Securities available for sale, continuous unrealized loss position	87,363,000	67,510,000
Securities available for sale, continuous unrealized loss position, unrealized loss	1,625,000	638,000
Municipal Revenue Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	1,499,000	0
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	16,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more	1,159,000	1,187,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	57,000	30,000
Securities available for sale, continuous unrealized loss position	2,658,000	1,187,000
Securities available for sale, continuous unrealized loss position, unrealized loss	73,000	30,000
Other Debt and Equity Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	1,518,000	1,510,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	53,000	29,000
Securities available for sale, continuous unrealized loss position, 12 months or more	0	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	0	0
Securities available for sale, continuous unrealized loss position	1,518,000	1,510,000
Securities available for sale, continuous unrealized loss position, unrealized loss	$ 53,000	$ 29,000

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Note 2 - Securities - Debt Securities by Maturity (Details)	Mar. 31, 2018 USD ($)
Due in 2018	1.86%
Due in 2018	$ 28,193,000
Due in 2018	$ 28,181,000
Due in 2019 through 2023	2.12%
Due in 2019 through 2023	$ 65,051,000
Due in 2019 through 2023	$ 64,576,000
Due in 2024 through 2028	2.52%
Due in 2024 through 2028	$ 99,189,000
Due in 2024 through 2028	$ 94,685,000
Due in 2029 and beyond	2.95%
Due in 2029 and beyond	$ 114,780,000
Due in 2029 and beyond	$ 107,230,000
Total available for sale securities	2.51%
Total available for sale securities	$ 350,335,000
Total available for sale securities	$ 336,988,000
Collateralized Mortgage Backed Securities [Member]
No single maturity, weighted average yield	2.33%
No single maturity, amortized cost	$ 41,104,000
No single maturity, fair value	$ 40,351,000
Other Debt and Equity Securities [Member]
No single maturity, weighted average yield	2.84%
No single maturity, amortized cost	$ 2,018,000
No single maturity, fair value	$ 1,965,000

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Note 3 - Loans and Allowance for Loan Losses (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Loans and Leases Receivable, Net of Deferred Income, Total	$ 2,551,204,000		$ 2,558,552,000
Loans and Leases Receivable Period Increase (Decrease)	$ (7,300,000)
Loans and Leases Receivable, Percentage Period Increase (Decrease)	0.30%
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Outstanding Balance, Total	$ 9,200,000		11,900,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net	5,000,000		$ 5,200,000
Impaired Financing Receivable, Interest Income, Accrual Method, Total	300,000	$ 200,000
Loans and Leases Receivable Nonaccrual Loans Interest Income Recognized	0	0
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	$ 100,000	$ 100,000
Minimum Number of Days Past Due at Period End For Loans Modified as Troubled Debt Restructurings	30 days

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Note 3 - Loans and Allowance for Loan Losses - Components of Loan Portfolio (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Loans	$ 2,551,204,000	$ 2,558,552,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	(0.30%)
Commercial Portfolio Segment [Member]
Loans	$ 2,193,029,000	$ 2,203,568,000
Percent of portfolio	86.00%	86.10%
Period increase (decrease)	(0.50%)
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 739,805,000	$ 753,764,000
Percent of portfolio	29.00%	29.40%
Period increase (decrease)	(1.90%)
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 31,438,000	$ 29,873,000
Percent of portfolio	1.20%	1.20%
Period increase (decrease)	5.20%
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 531,152,000	$ 526,328,000
Percent of portfolio	20.80%	20.60%
Period increase (decrease)	0.90%
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 794,206,000	$ 791,685,000
Percent of portfolio	31.20%	30.90%
Period increase (decrease)	0.30%
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 96,428,000	$ 101,918,000
Percent of portfolio	3.80%	4.00%
Period increase (decrease)	(5.40%)
Retail Portfolio Segment [Member]
Loans	$ 358,175,000	$ 354,984,000
Percent of portfolio	14.00%	13.90%
Period increase (decrease)	0.90%
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 93,179,000	$ 100,425,000
Percent of portfolio	3.60%	3.90%
Period increase (decrease)	(7.20%)
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 264,996,000	$ 254,559,000
Percent of portfolio	10.40%	10.00%
Period increase (decrease)	4.10%
Originated Loan [Member]
Loans	$ 2,191,851,000	$ 2,169,957,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	1.00%
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 1,946,966,000	$ 1,934,228,000
Percent of portfolio	88.80%	89.10%
Period increase (decrease)	0.70%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 675,188,000	$ 680,805,000
Percent of portfolio	30.80%	31.30%
Period increase (decrease)	(0.80%)
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 25,514,000	$ 23,682,000
Percent of portfolio	1.20%	1.10%
Period increase (decrease)	7.70%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 468,777,000	$ 456,065,000
Percent of portfolio	21.40%	21.00%
Period increase (decrease)	2.80%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 715,725,000	$ 708,824,000
Percent of portfolio	32.60%	32.70%
Period increase (decrease)	1.00%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 61,762,000	$ 64,852,000
Percent of portfolio	2.80%	3.00%
Period increase (decrease)	(4.80%)
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 244,885,000	$ 235,729,000
Percent of portfolio	11.20%	10.90%
Period increase (decrease)	3.90%
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 65,604,000	$ 69,675,000
Percent of portfolio	3.00%	3.20%
Period increase (decrease)	(5.80%)
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 179,281,000	$ 166,054,000
Percent of portfolio	8.20%	7.70%
Period increase (decrease)	8.00%
Acquired Loan [Member]
Loans	$ 359,353,000	$ 388,595,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	(7.50%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 246,063,000	$ 269,340,000
Percent of portfolio	68.50%	69.30%
Period increase (decrease)	(8.60%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 64,617,000	$ 72,959,000
Percent of portfolio	18.00%	18.80%
Period increase (decrease)	(11.40%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 5,924,000	$ 6,191,000
Percent of portfolio	1.60%	1.60%
Period increase (decrease)	(4.30%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 62,375,000	$ 70,263,000
Percent of portfolio	17.50%	18.10%
Period increase (decrease)	(11.20%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 78,481,000	$ 82,861,000
Percent of portfolio	21.80%	21.30%
Period increase (decrease)	(5.30%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 34,666,000	$ 37,066,000
Percent of portfolio	9.60%	9.50%
Period increase (decrease)	(6.50%)
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 113,290,000	$ 119,255,000
Percent of portfolio	31.50%	30.70%
Period increase (decrease)	(5.00%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 27,575,000	$ 30,750,000
Percent of portfolio	7.70%	7.90%
Period increase (decrease)	(10.30%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 85,715,000	$ 88,505,000
Percent of portfolio	23.80%	22.80%
Period increase (decrease)	(3.20%)

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Note 3 - Loans and Allowance for Loan Losses - Acquired Impaired Loans Accretable Yield (Details) - USD ($)		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Balance at beginning of period		$ 1,404,000	$ 1,726,000
Additions		0	1,000
Accretion income		(131,000)	(147,000)
Net reclassification from nonaccretable to accretable		86,000	63,000
Reductions (1)	[1]	(40,000)	(179,000)
Balance at end of period		$ 1,319,000	$ 1,464,000

[1] Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

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Note 3 - Loans and Allowance for Loan Losses - Nonperforming Loans (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Originated Loan [Member]
Loans past due 90 days or more still accruing interest	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonperforming Financial Instruments [Member]
Total nonperforming	5,742,000	7,143,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Total nonperforming	2,604,000	3,898,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Total nonperforming	619,000	1,444,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Total nonperforming	0	35,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Total nonperforming	1,831,000	2,241,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Total nonperforming	0	0
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Total nonperforming	154,000	178,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member]
Total nonperforming	3,138,000	3,245,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Total nonperforming	512,000	577,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Total nonperforming	2,626,000	2,668,000
Nonperforming Financial Instruments [Member] | Originated Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	2,763,000	3,672,000
Total nonperforming	2,763,000	3,672,000
Nonperforming Financial Instruments [Member] | Acquired Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	2,979,000	3,471,000
Total nonperforming	$ 2,979,000	$ 3,471,000

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Note 3 - Loans and Allowance for Loan Losses - Age Analysis of Past Due Loans (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Loans	$ 2,551,204,000	$ 2,558,552,000
Originated Loan [Member]
Past due loans	3,061,000	2,451,000
Current loans	2,188,790,000	2,167,506,000
Loans	2,191,851,000	2,169,957,000
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member]
Past due loans	2,148,000	3,479,000
Current loans	357,205,000	385,116,000
Loans	359,353,000	388,595,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member]
Loans	2,193,029,000	2,203,568,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	739,805,000	753,764,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	31,438,000	29,873,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	531,152,000	526,328,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	794,206,000	791,685,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	96,428,000	101,918,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	2,530,000	1,457,000
Current loans	1,944,436,000	1,932,771,000
Loans	1,946,966,000	1,934,228,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	2,279,000	178,000
Current loans	672,909,000	680,627,000
Loans	675,188,000	680,805,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	35,000
Current loans	25,514,000	23,647,000
Loans	25,514,000	23,682,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	251,000	1,244,000
Current loans	468,526,000	454,821,000
Loans	468,777,000	456,065,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Current loans	715,725,000	708,824,000
Loans	715,725,000	708,824,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Current loans	61,762,000	64,852,000
Loans	61,762,000	64,852,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	548,000	1,181,000
Current loans	245,515,000	268,159,000
Loans	246,063,000	269,340,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	113,000	154,000
Current loans	64,504,000	72,805,000
Loans	64,617,000	72,959,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	14,000
Current loans	5,924,000	6,177,000
Loans	5,924,000	6,191,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	399,000	905,000
Current loans	61,976,000	69,358,000
Loans	62,375,000	70,263,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Current loans	78,481,000	82,861,000
Loans	78,481,000	82,861,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	36,000	108,000
Current loans	34,630,000	36,958,000
Loans	34,666,000	37,066,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member]
Loans	358,175,000	354,984,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	93,179,000	100,425,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	264,996,000	254,559,000
Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	531,000	994,000
Current loans	244,354,000	234,735,000
Loans	244,885,000	235,729,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	65,000	744,000
Current loans	65,539,000	68,931,000
Loans	65,604,000	69,675,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	466,000	250,000
Current loans	178,815,000	165,804,000
Loans	179,281,000	166,054,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	1,600,000	2,298,000
Current loans	111,690,000	116,957,000
Loans	113,290,000	119,255,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	249,000	614,000
Current loans	27,326,000	30,136,000
Loans	27,575,000	30,750,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	1,351,000	1,684,000
Current loans	84,364,000	86,821,000
Loans	85,715,000	88,505,000
Loans past due 90 days or more still accruing interest	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Originated Loan [Member]
Past due loans	1,415,000	647,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	835,000	1,786,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	1,350,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	1,350,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	27,000	688,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	40,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	14,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	634,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	27,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	65,000	647,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	65,000	647,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	808,000	1,098,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	163,000	408,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	645,000	690,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Originated Loan [Member]
Past due loans	1,175,000	11,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	431,000	385,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	929,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	929,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	156,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	156,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	246,000	11,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	0	11,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	246,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	275,000	385,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	44,000	52,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	231,000	333,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Originated Loan [Member]
Past due loans	471,000	1,793,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	882,000	1,308,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	251,000	1,457,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	178,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	35,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	251,000	1,244,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	365,000	493,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	113,000	114,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	243,000	271,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	9,000	108,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	220,000	336,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	0	86,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	220,000	250,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	517,000	815,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	42,000	154,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	$ 475,000	$ 661,000

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Note 3 - Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Originated Loan [Member]
With no related allowance recorded, unpaid principal balance	$ 5,382,000		$ 4,915,000
With no related allowance recorded, principal balance	4,616,000		3,150,000
With no related allowance recorded, average recorded principal balance	3,883,000	$ 2,883,000
With related allowance recorded, unpaid principal balance	5,405,000		5,837,000
With related allowance recorded, principal balance	4,804,000		5,637,000
Related allowance	863,000		1,867,000
With related allowance recorded, average recorded principal balance	5,220,000	10,913,000
Total unpaid principal balance	10,787,000		10,752,000
Total principal balance	9,420,000		8,787,000
Total average recorded principal balance	9,103,000	13,796,000
Originated Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	3,508,000		3,096,000
With no related allowance recorded, principal balance	3,446,000		2,014,000
With no related allowance recorded, average recorded principal balance	2,730,000	1,987,000
With related allowance recorded, unpaid principal balance	4,485,000		4,447,000
With related allowance recorded, principal balance	3,952,000		4,380,000
Related allowance	547,000		1,202,000
With related allowance recorded, average recorded principal balance	4,165,000	10,079,000
Total unpaid principal balance	7,993,000		7,543,000
Total principal balance	7,398,000		6,394,000
Total average recorded principal balance	6,895,000	12,066,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	234,000		765,000
With no related allowance recorded, principal balance	234,000		178,000
With no related allowance recorded, average recorded principal balance	206,000	1,589,000
With related allowance recorded, unpaid principal balance	2,623,000		3,038,000
With related allowance recorded, principal balance	2,133,000		2,989,000
Related allowance	304,000		963,000
With related allowance recorded, average recorded principal balance	2,561,000	2,690,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
With no related allowance recorded, unpaid principal balance	0		454,000
With no related allowance recorded, principal balance	0		35,000
With no related allowance recorded, average recorded principal balance	17,000	88,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	749,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	2,937,000		1,528,000
With no related allowance recorded, principal balance	2,875,000		1,452,000
With no related allowance recorded, average recorded principal balance	2,164,000	113,000
With related allowance recorded, unpaid principal balance	1,717,000		1,409,000
With related allowance recorded, principal balance	1,674,000		1,391,000
Related allowance	226,000		239,000
With related allowance recorded, average recorded principal balance	1,532,000	1,144,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0
With no related allowance recorded, principal balance	0		0
With no related allowance recorded, average recorded principal balance	0	0
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	4,745,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	337,000		349,000
With no related allowance recorded, principal balance	337,000		349,000
With no related allowance recorded, average recorded principal balance	343,000	197,000
With related allowance recorded, unpaid principal balance	145,000		0
With related allowance recorded, principal balance	145,000		0
Related allowance	17,000		0
With related allowance recorded, average recorded principal balance	72,000	751,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	1,874,000		1,819,000
With no related allowance recorded, principal balance	1,170,000		1,136,000
With no related allowance recorded, average recorded principal balance	1,153,000	896,000
With related allowance recorded, unpaid principal balance	920,000		1,390,000
With related allowance recorded, principal balance	852,000		1,257,000
Related allowance	316,000		665,000
With related allowance recorded, average recorded principal balance	1,055,000	834,000
Total unpaid principal balance	2,794,000		3,209,000
Total principal balance	2,022,000		2,393,000
Total average recorded principal balance	2,208,000	1,730,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	768,000		693,000
With no related allowance recorded, principal balance	751,000		680,000
With no related allowance recorded, average recorded principal balance	716,000	247,000
With related allowance recorded, unpaid principal balance	508,000		1,225,000
With related allowance recorded, principal balance	498,000		1,147,000
Related allowance	258,000		652,000
With related allowance recorded, average recorded principal balance	823,000	697,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	1,106,000		1,126,000
With no related allowance recorded, principal balance	419,000		456,000
With no related allowance recorded, average recorded principal balance	437,000	649,000
With related allowance recorded, unpaid principal balance	412,000		165,000
With related allowance recorded, principal balance	354,000		110,000
Related allowance	58,000		13,000
With related allowance recorded, average recorded principal balance	232,000	137,000
Acquired Loan [Member]
With no related allowance recorded, unpaid principal balance	5,423,000		5,938,000
With no related allowance recorded, principal balance	4,380,000		4,795,000
With no related allowance recorded, average recorded principal balance	4,588,000	4,952,000
With related allowance recorded, unpaid principal balance	1,597,000		0
With related allowance recorded, principal balance	1,597,000		0
Related allowance	307,000		0
With related allowance recorded, average recorded principal balance	799,000	239,000
Total unpaid principal balance	7,020,000		5,938,000
Total principal balance	5,977,000		4,795,000
Total average recorded principal balance	5,387,000	5,191,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	2,147,000		2,541,000
With no related allowance recorded, principal balance	1,724,000		2,135,000
With no related allowance recorded, average recorded principal balance	1,930,000	2,954,000
With related allowance recorded, unpaid principal balance	1,597,000		0
With related allowance recorded, principal balance	1,597,000		0
Related allowance	307,000		0
With related allowance recorded, average recorded principal balance	799,000	67,000
Total unpaid principal balance	3,744,000		2,541,000
Total principal balance	3,321,000		2,135,000
Total average recorded principal balance	2,729,000	3,021,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	743,000		1,039,000
With no related allowance recorded, principal balance	733,000		1,021,000
With no related allowance recorded, average recorded principal balance	877,000	892,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	19,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0
With no related allowance recorded, principal balance	0		0
With no related allowance recorded, average recorded principal balance	0	0
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	1,110,000		1,027,000
With no related allowance recorded, principal balance	715,000		659,000
With no related allowance recorded, average recorded principal balance	687,000	1,151,000
With related allowance recorded, unpaid principal balance	1,597,000		0
With related allowance recorded, principal balance	1,597,000		0
Related allowance	307,000		0
With related allowance recorded, average recorded principal balance	799,000	48,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	232,000		238,000
With no related allowance recorded, principal balance	232,000		237,000
With no related allowance recorded, average recorded principal balance	235,000	751,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	62,000		237,000
With no related allowance recorded, principal balance	44,000		218,000
With no related allowance recorded, average recorded principal balance	131,000	160,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	3,276,000		3,397,000
With no related allowance recorded, principal balance	2,656,000		2,660,000
With no related allowance recorded, average recorded principal balance	2,658,000	1,998,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	172,000
Total unpaid principal balance	3,276,000		3,397,000
Total principal balance	2,656,000		2,660,000
Total average recorded principal balance	2,658,000	2,170,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	690,000		694,000
With no related allowance recorded, principal balance	649,000		507,000
With no related allowance recorded, average recorded principal balance	578,000	336,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	2,586,000		2,703,000
With no related allowance recorded, principal balance	2,007,000		2,153,000
With no related allowance recorded, average recorded principal balance	2,080,000	1,662,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		$ 0
With related allowance recorded, average recorded principal balance	$ 0	$ 172,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans by Credit Quality Indicators (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Loans	$ 2,551,204,000	$ 2,558,552,000
Originated Loan [Member]
Loans	2,191,851,000	2,169,957,000
Acquired Loan [Member]
Loans	359,353,000	388,595,000
Commercial Portfolio Segment [Member]
Loans	2,193,029,000	2,203,568,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Loans	1,946,966,000	1,934,228,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Loans	246,063,000	269,340,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	739,805,000	753,764,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	675,188,000	680,805,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	64,617,000	72,959,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	31,438,000	29,873,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	25,514,000	23,682,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	5,924,000	6,191,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	531,152,000	526,328,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	468,777,000	456,065,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	62,375,000	70,263,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	794,206,000	791,685,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	715,725,000	708,824,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	78,481,000	82,861,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	96,428,000	101,918,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	61,762,000	64,852,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	34,666,000	37,066,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	468,826,000	469,537,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	39,543,000	46,263,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	17,645,000	15,090,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	1,412,000	1,446,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	313,933,000	326,700,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	28,823,000	28,706,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	564,093,000	559,388,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	54,951,000	52,674,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	39,571,000	42,951,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	17,376,000	17,499,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	187,118,000	189,851,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	24,591,000	25,654,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	7,767,000	8,557,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	4,512,000	4,745,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	140,088,000	123,024,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	30,940,000	39,565,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	151,632,000	149,135,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	23,448,000	30,102,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	21,709,000	21,552,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	17,132,000	19,212,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	19,244,000	21,417,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	483,000	1,042,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	102,000	35,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	0	0
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	14,756,000	6,341,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	2,612,000	1,992,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	0	301,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	82,000	85,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	482,000	349,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	$ 158,000	$ 355,000

XML

Note 3 - Loans and Allowance for Loan Losses - Retail Credit Exposure (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Loans	$ 2,551,204,000	$ 2,558,552,000
Retail Portfolio Segment [Member]
Loans	358,175,000	354,984,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	93,179,000	100,425,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	264,996,000	254,559,000
Originated Loan [Member]
Loans	2,191,851,000	2,169,957,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	244,885,000	235,729,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	65,604,000	69,675,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	179,281,000	166,054,000
Acquired Loan [Member]
Loans	359,353,000	388,595,000
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	113,290,000	119,255,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	27,575,000	30,750,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 85,715,000	$ 88,505,000

XML

Note 3 - Loans and Allowance for Loan Losses - Activity in Allowance for Loan Losses and the Recorded Investments in Loans (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Provision for loan losses	$ 0	$ 600,000
Loans and Leases Receivable, Net of Deferred Income, Total	2,551,204,000		$ 2,558,552,000
Originated Loan [Member]
Beginning balance	19,133,000	17,868,000	17,868,000
Provision for loan losses	(782,000)		2,641,000
Charge-offs	(393,000)		(3,183,000)
Recoveries	1,123,000		1,807,000
Ending balance	19,081,000		19,133,000
Ending balance: individually evaluated for impairment	863,000		1,867,000
Ending balance: collectively evaluated for impairment	18,218,000		17,266,000
Loans and Leases Receivable, Net of Deferred Income, Total	2,191,851,000		2,169,957,000
Ending balance: individually evaluated for impairment	9,420,000		8,787,000
Ending balance: collectively evaluated for impairment	2,182,431,000		2,161,170,000
Acquired Loan [Member]
Beginning balance	368,000	93,000	93,000
Provision for loan losses	782,000		309,000
Charge-offs	(261,000)		(52,000)
Recoveries	4,000		18,000
Ending balance	893,000		368,000
Loans and Leases Receivable, Net of Deferred Income, Total	359,353,000		388,595,000
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	2,193,029,000		2,203,568,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Beginning balance	16,456,000	16,026,000	16,026,000
Provision for loan losses	(341,000)		1,148,000
Charge-offs	(258,000)		(2,292,000)
Recoveries	1,008,000		1,574,000
Ending balance	16,865,000		16,456,000
Ending balance: individually evaluated for impairment	547,000		1,202,000
Ending balance: collectively evaluated for impairment	16,318,000		15,254,000
Loans and Leases Receivable, Net of Deferred Income, Total	1,946,966,000		1,934,228,000
Ending balance: individually evaluated for impairment	7,398,000		6,394,000
Ending balance: collectively evaluated for impairment	1,939,568,000		1,927,834,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Beginning balance	291,000	75,000	75,000
Provision for loan losses	314,000		210,000
Charge-offs	(246,000)		(12,000)
Recoveries	0		18,000
Ending balance	359,000		291,000
Loans and Leases Receivable, Net of Deferred Income, Total	246,063,000		269,340,000
Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	358,175,000		354,984,000
Retail Portfolio Segment [Member] | Originated Loan [Member]
Beginning balance	2,584,000	1,882,000	1,882,000
Provision for loan losses	(563,000)		1,360,000
Charge-offs	(135,000)		(891,000)
Recoveries	115,000		233,000
Ending balance	2,001,000		2,584,000
Ending balance: individually evaluated for impairment	316,000		665,000
Ending balance: collectively evaluated for impairment	1,685,000		1,919,000
Loans and Leases Receivable, Net of Deferred Income, Total	244,885,000		235,729,000
Ending balance: individually evaluated for impairment	2,022,000		2,393,000
Ending balance: collectively evaluated for impairment	242,863,000		233,336,000
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Beginning balance	77,000	18,000	18,000
Provision for loan losses	468,000		99,000
Charge-offs	(15,000)		(40,000)
Recoveries	4,000		0
Ending balance	534,000		77,000
Loans and Leases Receivable, Net of Deferred Income, Total	113,290,000		119,255,000
Unallocated Financing Receivables [Member] | Originated Loan [Member]
Beginning balance	93,000	(40,000)	(40,000)
Provision for loan losses	122,000		133,000
Charge-offs	0		0
Recoveries	0		0
Ending balance	215,000		93,000
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	215,000		93,000
Loans and Leases Receivable, Net of Deferred Income, Total
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment
Unallocated Financing Receivables [Member] | Acquired Loan [Member]
Beginning balance	0	$ 0	0
Provision for loan losses	0		0
Charge-offs	0		0
Recoveries	0		0
Ending balance	$ 0		$ 0

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified as Troubled Debt Restructurings (Details)	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Originated Loan [Member]
Number of Contracts	8	4
Pre- Modification Recorded Principal Balance	$ 4,022,000	$ 328,000
Post- Modification Recorded Principal Balance	$ 4,000,000	$ 329,000
Acquired Loan [Member]
Number of Contracts	9	4
Pre- Modification Recorded Principal Balance	$ 1,715,000	$ 94,000
Post- Modification Recorded Principal Balance	$ 1,716,000	$ 95,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	7	0
Pre- Modification Recorded Principal Balance	$ 3,972,000	$ 0
Post- Modification Recorded Principal Balance	$ 3,950,000	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	3	0
Pre- Modification Recorded Principal Balance	$ 107,000	$ 0
Post- Modification Recorded Principal Balance	$ 96,000	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	4	0
Pre- Modification Recorded Principal Balance	$ 3,865,000	$ 0
Post- Modification Recorded Principal Balance	$ 3,854,000	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	3	1
Pre- Modification Recorded Principal Balance	$ 1,597,000	$ 31,000
Post- Modification Recorded Principal Balance	$ 1,597,000	$ 31,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	0	1
Pre- Modification Recorded Principal Balance	$ 0	$ 31,000
Post- Modification Recorded Principal Balance	$ 0	$ 31,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	3	0
Pre- Modification Recorded Principal Balance	$ 1,597,000	$ 0
Post- Modification Recorded Principal Balance	$ 1,597,000	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Retail Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	1	4
Pre- Modification Recorded Principal Balance	$ 50,000	$ 328,000
Post- Modification Recorded Principal Balance	$ 50,000	$ 329,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Number of Contracts	1	4
Pre- Modification Recorded Principal Balance	$ 50,000	$ 328,000
Post- Modification Recorded Principal Balance	$ 50,000	$ 329,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	6	3
Pre- Modification Recorded Principal Balance	$ 118,000	$ 63,000
Post- Modification Recorded Principal Balance	$ 119,000	$ 64,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Number of Contracts	6	2
Pre- Modification Recorded Principal Balance	$ 118,000	$ 6,000
Post- Modification Recorded Principal Balance	$ 119,000	$ 7,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	1
Pre- Modification Recorded Principal Balance	$ 0	$ 57,000
Post- Modification Recorded Principal Balance	$ 0	$ 57,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified As Troubled Debt Restructurings Within the Previous Twelve Months That Became Over 30 Days Past Due (Details)	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Originated Loan [Member]
Number of Contracts	1	3
Recorded Principal Balance	$ 251,000	$ 164,000
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	1	3
Recorded Principal Balance	$ 251,000	$ 164,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	0	2
Recorded Principal Balance	$ 0	$ 34,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	1	0
Recorded Principal Balance	$ 251,000	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	1
Recorded Principal Balance	$ 0	$ 130,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member]
Number of Contracts	3	1
Recorded Principal Balance	$ 133,000	$ 24,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	1	1
Recorded Principal Balance	$ 113,000	$ 24,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	1	1
Recorded Principal Balance	$ 113,000	$ 24,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	2	0
Recorded Principal Balance	$ 20,000	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	2	0
Recorded Principal Balance	$ 20,000	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0

XML

Note 3 - Loans and Allowance for Loan Losses - Activity for Troubled Debt Restructurings (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	$ 2,989,000	$ 1,503,000
Charge-Offs	(230,000)	0
Payments	(882,000)	(125,000)
Transfers to ORE	0	0
Net Additions/Deletions	105,000	159,000
Ending Balance	1,982,000	1,537,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	383,000	1,488,000
Charge-Offs	0	0
Payments	(45,000)	(529,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	338,000	959,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	1,599,000	906,000
Charge-Offs	0	0
Payments	(855,000)	(27,000)
Transfers to ORE	0	0
Net Additions/Deletions	3,804,000	0
Ending Balance	4,548,000	879,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	0	5,110,000
Charge-Offs	0	0
Payments	0	(123,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	(436,000)
Ending Balance	0	4,551,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	0	716,000
Charge-Offs	0	0
Payments	0	(113,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	(312,000)
Ending Balance	0	291,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	1,001,000	1,125,000
Charge-Offs	(275,000)	0
Payments	(10,000)	(233,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	30,000
Ending Balance	716,000	922,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	0	0
Charge-Offs	0	0
Payments	0	0
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	427,000	900,000
Charge-Offs	0	(12,000)
Payments	(17,000)	0
Transfers to ORE	0	0
Net Additions/Deletions	1,597,000	108,000
Ending Balance	2,007,000	996,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	237,000	728,000
Charge-Offs	0	0
Payments	(5,000)	(145,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	232,000	583,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	41,000	60,000
Charge-Offs	0	0
Payments	(5,000)	0
Transfers to ORE	0	0
Net Additions/Deletions	0	8,000
Ending Balance	36,000	68,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Beginning Balance	1,127,000	385,000
Charge-Offs	0	0
Payments	(8,000)	0
Transfers to ORE	0	0
Net Additions/Deletions	50,000	321,000
Ending Balance	1,169,000	706,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	146,000	157,000
Charge-Offs	0	0
Payments	(2,000)	(3,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	144,000	154,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Beginning Balance	219,000	208,000
Charge-Offs	(15,000)	0
Payments	(1,000)	(9,000)
Transfers to ORE	(82,000)	0
Net Additions/Deletions	119,000	7,000
Ending Balance	240,000	206,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	393,000	326,000
Charge-Offs	0	0
Payments	(9,000)	(4,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	54,000
Ending Balance	$ 384,000	$ 376,000

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Note 3 - Loans and Allowance for Loan Losses - Allowance Related to Troubled Debt Restructurings (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Related allowance	$ 696,000	$ 444,000
Commercial Portfolio Segment [Member]
Related allowance	460,000	248,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Related allowance	85,000	107,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Related allowance	0	0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Related allowance	375,000	141,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Related allowance	0	0
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Related allowance	0	0
Retail Portfolio Segment [Member]
Related allowance	236,000	196,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Related allowance	215,000	196,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Related allowance	$ 21,000	$ 0

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Note 4 - Premises and Equipment, Net (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Depreciation, Total	$ 0.8	$ 0.7

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Note 4 - Premises and Equipment, Net - Summary of Premises and Equipment (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Property, plant and equipment, gross	$ 77,547,000	$ 76,623,000
Less: accumulated depreciation	31,247,000	30,589,000
Premises and equipment, net	46,300,000	46,034,000
Land and Land Improvements [Member]
Property, plant and equipment, gross	17,938,000	18,046,000
Building [Member]
Property, plant and equipment, gross	41,751,000	41,179,000
Furniture and Fixtures [Member]
Property, plant and equipment, gross	$ 17,858,000	$ 17,398,000

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Note 5 - Deposits (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Deposits, Total	$ 2,540,053,000	$ 2,522,365,000
Increase (Decrease) in Deposits, Total	$ 17,700,000
Aggregate Increase (Decrease) in Percentage of Deposits	0.70%
Time Deposits, at or Above FDIC Insurance Limit	$ 252,000,000	$ 266,000,000

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Note 5 - Deposits - Summary of Deposits (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Noninterest-bearing demand	$ 830,187,000	$ 866,380,000
Noninterest-bearing demand	32.70%	34.30%
Noninterest-bearing demand	(4.20%)
Interest-bearing checking	$ 392,134,000	$ 387,758,000
Interest-bearing checking	15.40%	15.40%
Interest-bearing checking	1.10%
Money market	$ 486,318,000	$ 427,119,000
Money market	19.10%	16.90%
Money market	13.90%
Savings	$ 326,247,000	$ 327,530,000
Savings	12.90%	13.00%
Savings	(0.40%)
Local Time, under $100,000	$ 156,053,000	$ 152,294,000
Local Time, under $100,000	6.20%	6.00%
Local Time, under $100,000	2.50%
Local Time, $100,000 and over	$ 246,703,000	$ 258,626,000
Local Time, $100,000 and over	9.70%	10.30%
Local Time, $100,000 and over	(4.60%)
Total local deposits	$ 2,437,642,000	$ 2,419,707,000
Total local deposits	96.00%	95.90%
Total local deposits	0.70%
Out-of-area time, under $100,000	$ 0	$ 0
Out-of-area time, $100,000 and over	$ 102,411,000	$ 102,658,000
Out-of-area time, $100,000 and over	4.00%	4.10%
Out-of-area time, $100,000 and over	(0.20%)
Total out-of-area deposits	$ 102,411,000	$ 102,658,000
Total out-of-area deposits	4.00%	4.10%
Total out-of-area deposits	(0.20%)
Deposits, Total	$ 2,540,053,000	$ 2,522,365,000
Total deposits	100.00%	100.00%
Aggregate Increase (Decrease) in Percentage of Deposits	0.70%

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Note 6 - Securities Sold Under Agreements to Repurchase (Details Textual)	3 Months Ended
	Mar. 31, 2018
Repurchase Agreement Counterparty, Weighted Average Maturity of Agreements	1 year

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Note 6 - Securities Sold Under Agreements to Repurchase - Securities Sold Under Agreement to Repurchase (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Securities sold under agreements to repurchase	$ 104,894,000	$ 118,748,000
Average interest rate at end of period	0.25%	0.16%
Average daily balance during the period	$ 108,048,000	$ 116,587,000
Average interest rate during the period	0.22%	0.16%
Maximum daily balance during the period	$ 123,046,000	$ 142,459,000

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Note 7 - Federal Home Loan Bank of Indianapolis Advances (Details Textual) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Long-term Federal Home Loan Bank Advances, Total	$ 220,000,000	$ 220,000,000
Line of Credit Facility, Maximum Borrowing Capacity	739,000,000
Line of Credit Facility, Remaining Borrowing Capacity	519,000,000
Federal Home Loan Bank of Indianapolis [Member]
Long-term Federal Home Loan Bank Advances, Total	$ 220,000,000	$ 220,000,000
Federal Home Loan Bank of Indianapolis [Member] | Minimum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	1.04%	1.04%
Federal Home Loan Bank of Indianapolis [Member] | Maximum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	2.39%	2.39%
Federal Home Loan Bank of Indianapolis [Member] | Weighted Average [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate	1.72%	1.72%

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Note 7 - Federal Home Loan Bank of Indianapolis Advances - Maturities of Currently Outstanding FHLB Advances (Details)	Mar. 31, 2018 USD ($)
2018	$ 20,000,000
2019	40,000,000
2020	30,000,000
2021	40,000,000
2022	40,000,000
Thereafter	$ 50,000,000

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Note 8 - Commitments and Off-Balance Sheet Risk (Details Textual) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Reserve or Liability Balance for Financial Instruments With Off Balance Sheet Risk	$ 0	$ 0

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Note 8 - Commitments and Off-Balance Sheet Risk - Exposure to Credit Losses (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Contractual amounts of financial instruments with off-balance sheet risk	$ 1,062,272,000	$ 1,012,197,000
Standby Letters of Credit [Member]
Contractual amounts of financial instruments with off-balance sheet risk	23,592,000	26,030,000
Unused lines of Credit [Member] | Commercial Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	678,832,000	682,202,000
Unused lines of Credit [Member] | One to Four Family Mortgages [Member]
Contractual amounts of financial instruments with off-balance sheet risk	60,930,000	61,606,000
Unused lines of Credit [Member] | Consumer Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	42,693,000	39,807,000
Unused lines of Credit [Member] | Consumer Other Financing Receivable 1 [Member]
Contractual amounts of financial instruments with off-balance sheet risk	17,788,000	17,629,000
Loan Origination Commitments [Member]
Contractual amounts of financial instruments with off-balance sheet risk	$ 238,437,000	$ 184,923,000

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Note 9 - Hedging Activities (Details Textual) - USD ($)	1 Months Ended
	Jan. 26, 2016	Feb. 29, 2012	Mar. 31, 2018	Dec. 31, 2017	Jan. 31, 2016	Jan. 25, 2016
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Total		$ 32,000,000	$ 45,688,000	$ 45,517,000
Fair Value of Interest Rate Swap Agreement Liability				$ 100,000
Interest Expense, Debt, Total	$ 200,000
Junior Subordinated Debt [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		2.18%
Derivative, Notional Amount	21,000,000	$ 32,000,000				$ 32,000,000
Debt Instrument, Repurchased Face Amount	$ 11,000,000
Debt Instrument, Repurchase Amount					$ 11,000,000

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Note 10 - Fair Values of Financial Instruments - Fair Value Hierarchy of Financial Instruments (Details) - USD ($)		Mar. 31, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale, Total		$ 336,988,000	$ 335,744,000
Reported Value Measurement [Member]
Debt Securities, Available-for-sale, Total	[1]	336,988,000	335,744,000
FHLBI stock	[2]	11,036,000	11,036,000
Repurchase agreements		104,894,000	118,748,000
FHLBI advances		220,000,000	220,000,000
Reported Value Measurement [Member] | Interest Rate Swap [Member]
Interest rate swap	[1]	0	2,000
Estimate of Fair Value Measurement [Member]
Debt Securities, Available-for-sale, Total	[1]	336,988,000	335,744,000
FHLBI stock	[2]	11,036,000	11,036,000
Repurchase agreements		104,894,000	118,748,000
FHLBI advances		214,172,000	217,130,000
Estimate of Fair Value Measurement [Member] | Interest Rate Swap [Member]
Interest rate swap	[1]	0	2,000
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member]
Cash		11,148,000	11,565,000
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Cash		11,148,000	11,565,000
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member]
Cash equivalents		200,009,000	188,536,000
Loans held for sale		1,864,000	2,553,000
Mortgage servicing rights		4,899,000	5,106,000
Accrued interest receivable		9,590,000	8,770,000
Deposits		2,540,053,000	2,522,365,000
Subordinated debentures		45,688,000	45,517,000
Accrued interest payable		2,172,000	1,919,000
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Cash equivalents		200,009,000	188,536,000
Loans held for sale		1,864,000	2,553,000
Mortgage servicing rights		8,223,000	8,373,000
Accrued interest receivable		9,590,000	8,770,000
Deposits		2,361,212,000	2,368,188,000
Subordinated debentures		46,280,000	45,732,000
Accrued interest payable		2,172,000	1,919,000
Fair Value, Inputs, Level 3 [Member] | Reported Value Measurement [Member]
Loans, net		2,529,366,000	2,536,498,000
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Loans, net		$ 2,528,622,000	$ 2,520,063,000

[1] See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

[2] It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

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Note 11 - Fair Values (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage	$ 1,900	$ 2,600
Real Estate Dependent Loans and Foreclosed Assets Estimated Selling Costs [Member]
Fair Value Inputs, Discount Factor	10.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	15.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	50.00%
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	$ 0
Available-for-sale Securities [Member]
SEC Schedule, 12-09, Valuation Allowances and Reserves, Amount, Ending Balance	$ 0	$ 0

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Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	$ 0
Fair Value, Measurements, Recurring [Member]
Total	336,988,000	$ 335,742,000
Fair Value, Measurements, Recurring [Member] | Interest Rate Swap [Member]
Interest rate swap		(2,000)
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Interest rate swap		0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total	331,797,000	330,551,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Interest rate swap		(2,000)
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total	5,191,000	5,191,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Interest rate swap		0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale Securities, Total	173,169,000	169,700,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities, Total	173,169,000	169,700,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale Securities, Total	40,351,000	38,792,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities, Total	40,351,000	38,792,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member]
Available-for-sale Securities, Total	117,660,000	121,293,000
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities, Total	112,469,000	116,102,000
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities, Total	5,191,000	5,191,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member]
Available-for-sale Securities, Total	3,843,000	3,978,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities, Total	3,843,000	3,978,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Other Debt and Equity Securities [Member]
Available-for-sale Securities, Total	1,965,000	1,981,000
Fair Value, Measurements, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities, Total	0	0
Fair Value, Measurements, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities, Total	1,965,000	1,981,000
Fair Value, Measurements, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities, Total	$ 0	$ 0

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Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Impaired loans	$ 4,498,000	$ 5,836,000
Foreclosed assets	2,384,000	2,260,000
Total	6,882,000	8,096,000
Fair Value, Inputs, Level 1 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans	4,498,000	5,836,000
Foreclosed assets	2,384,000	2,260,000
Total	$ 6,882,000	$ 8,096,000

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Note 12 - Regulatory Matters (Details Textual) - USD ($) $ / shares in Units, $ in Millions			3 Months Ended	38 Months Ended
	Apr. 12, 2018	Jan. 11, 2018	Mar. 31, 2018	Mar. 31, 2018	Jan. 01, 2019	Dec. 31, 2017	Apr. 19, 2016	Jan. 30, 2015	Dec. 31, 2009
Preferred Securities of Subsidiary Trust			$ 43.6	$ 43.6		$ 43.4
Maximum Restricted Core Element Allowed in Tier One Capital Percent			25.00%
Maximum Level of Consolidated Aggregate Assets Allowing for Inclusion of Trust Preferred Securities in Tier One Capital									$ 15,000.0
Trust Preferred Securities Included in Tier One Capital			$ 43.6	$ 43.6		$ 43.4
Capital Conservation Buffer			2.50%	2.50%
Common Stock, Dividends, Per Share, Declared		$ 0.22
Stock Repurchase Program, Authorized Amount								$ 20.0
Stock Repurchase Program Additional Authorized Amount							$ 15.0
Stock Repurchased During Period, Shares			0	956,419
Stock Repurchased During Period, Value				$ 19.5
Treasury Stock Acquired, Average Cost Per Share				$ 20.38
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.22
Scenario, Forecast [Member]
Common Equity Tier 1 Risk Based Capital Required For Capital Adequacy to Risk Weighted Assets					7.00%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets					8.50%
Capital Required for Capital Adequacy to Risk Weighted Assets					10.50%

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Note 12 - Regulatory Matters - Actual Capital Levels and Minimum Levels (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Consolidated Entities [Member]
Total capital, amount	$ 387,520	$ 379,417
Total capital, ratio	13.20%	12.90%
Total capital minimum required for capital adequacy, amount	$ 234,830	$ 235,723
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Tier 1 capital, amount	$ 367,546	$ 359,915
Tier 1 capital, ratio	12.50%	12.20%
Tier 1 capital minimum required for capital adequacy, amount	$ 176,123	$ 176,792
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Common equity tier 1, amount	$ 323,932	$ 316,472
Common equity tier 1, ratio	11.00%	10.70%
Common equity tier 1 minimum required for capital adequacy, amount	$ 132,092	$ 132,594
Common equity tier 1 capital minimum required for capital adequacy, ratio	4.50%	4.50%
Tier 1 capital to average assets, amount	$ 367,546	$ 359,915
Tier 1 capital to average assets, ratio	11.50%	11.30%
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 127,794	$ 127,782
Tier 1 capital to average assets minimum required for capital adequacy, ratio	4.00%	4.00%
Bank [Member]
Total capital, amount	$ 379,370	$ 371,346
Total capital, ratio	12.90%	12.60%
Total capital minimum required for capital adequacy, amount	$ 234,646	$ 235,515
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Total capital to be well capitalized, amount	$ 293,307	$ 294,393
Total capital to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital, amount	$ 359,396	$ 351,844
Tier 1 capital, ratio	12.30%	12.00%
Tier 1 capital minimum required for capital adequacy, amount	$ 175,984	$ 176,636
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Tier 1 capital to be well capitalized, amount	$ 234,646	$ 235,515
Tier 1 capital to be well capitalized, ratio	8.00%	8.00%
Common equity tier 1, amount	$ 359,396	$ 351,844
Common equity tier 1, ratio	12.30%	12.00%
Common equity tier 1 minimum required for capital adequacy, amount	$ 131,988	$ 132,477
Common equity tier 1 capital minimum required for capital adequacy, ratio	4.50%	4.50%
Common equity tier 1 capital to be well capitalized, amount	$ 190,650	$ 191,356
Common equity tier 1 capital to be well capitalized, ratio	6.50%	6.50%
Tier 1 capital to average assets, amount	$ 359,396	$ 351,844
Tier 1 capital to average assets, ratio	11.30%	11.00%
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 127,712	$ 127,698
Tier 1 capital to average assets minimum required for capital adequacy, ratio	4.00%	4.00%
Tier 1 capital to average assets to be well capitalized, amount	$ 159,640	$ 159,623
Tier 1 capital to average assets to be well capitalized, ratio	5.00%	5.00%