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 September 30, 2019

[  ] 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 incorporation or organization)	(IRS Employer Identification No.)

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 every Interactive Data File required to be submitted 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 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       

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MBWM	The Nasdaq Stock Market LLC

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 November 1, 2019, there were 16,336,221 shares of common stock outstanding.

MERCANTILE BANK CORPORATION

INDEX

PART I.	Financial Information	Page No.
	Item 1.    Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) – September 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2019 and September 30, 2018	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2019 and September 30, 2018	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and Nine Months Ended September 30, 2019 and September 30, 2018	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2019 and September 30, 2018	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	71
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	90
	Item 4. Controls and Procedures	92
PART II.	Other Information
	Item 1. Legal Proceedings	93
	Item 1A. Risk Factors	93
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	93
	Item 3. Defaults Upon Senior Securities	93
	Item 4. Mine Safety Disclosures	93
	Item 5. Other Information	93
	Item 6. Exhibits	94
	Signatures	95

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	84,275,000		$	64,872,000
Interest-earning deposits		144,263,000			10,482,000
Total cash and cash equivalents		228,538,000			75,354,000
Securities available for sale		345,533,000			337,366,000
Federal Home Loan Bank stock		18,002,000			16,022,000
Loans		2,933,013,000			2,753,085,000
Allowance for loan losses		(24,414,000	)		(22,380,000	)
Loans, net		2,908,599,000			2,730,705,000
Premises and equipment, net		54,585,000			48,321,000
Bank owned life insurance		67,993,000			69,647,000
Goodwill		49,473,000			49,473,000
Core deposit intangible, net		4,237,000			5,561,000
Other assets		33,420,000			31,458,000
Total assets	$	3,710,380,000		$	3,363,907,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	967,189,000		$	889,784,000
Interest-bearing		1,799,902,000			1,573,924,000
Total deposits		2,767,091,000			2,463,708,000
Securities sold under agreements to repurchase		103,990,000			103,519,000
Federal Home Loan Bank advances		364,000,000			350,000,000
Subordinated debentures		46,710,000			46,199,000
Accrued interest and other liabilities		21,389,000			25,232,000
Total liabilities		3,303,180,000			2,988,658,000
Commitments and contingent liabilities (Note 8)
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; 16,332,660 shares issued and outstanding at September 30, 2019 and 16,534,256 shares issued and outstanding at December 31, 2018		304,065,000			308,005,000
Retained earnings		98,876,000			75,483,000
Accumulated other comprehensive gain/(loss)		4,259,000			(8,239,000	)
Total shareholders’ equity		407,200,000			375,249,000
Total liabilities and shareholders’ equity	$	3,710,380,000		$	3,363,907,000

See accompanying notes to condensed consolidated financial statements.

1

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended Sept 30, 2019		Three Months Ended Sept 30, 2018		Nine Months Ended Sept 30, 2019		Nine Months Ended Sept 30, 2018
Interest income
Loans, including fees	$	37,005,000	$	32,918,000	$	109,559,000	$	97,087,000
Securities, taxable		2,104,000		1,718,000		5,930,000		4,938,000
Securities, tax-exempt		556,000		537,000		1,657,000		1,690,000
Other interest-earning assets		651,000		313,000		1,627,000		1,071,000
Total interest income		40,316,000		35,486,000		118,773,000		104,786,000
Interest expense
Deposits		5,573,000		3,574,000		15,906,000		9,921,000
Short-term borrowings		71,000		63,000		244,000		181,000
Federal Home Loan Bank advances		2,257,000		1,201,000		6,751,000		3,134,000
Subordinated debentures and other borrowings		810,000		808,000		2,506,000		2,286,000
Total interest expense		8,711,000		5,646,000		25,407,000		15,522,000
Net interest income		31,605,000		29,840,000		93,366,000		89,264,000
Provision for loan losses		700,000		400,000		2,450,000		1,100,000
Net interest income after provision for loan losses		30,905,000		29,440,000		90,916,000		88,164,000
Noninterest income
Services charges on deposit and sweep accounts		1,185,000		1,127,000		3,406,000		3,259,000
Credit and debit card income		1,547,000		1,378,000		4,397,000		3,955,000
Mortgage banking income		2,889,000		1,235,000		5,291,000		3,115,000
Earnings on bank owned life insurance		330,000		318,000		3,567,000		969,000
Payroll services income		367,000		328,000		1,227,000		1,128,000
Other income		358,000		322,000		1,755,000		1,213,000
Total noninterest income		6,676,000		4,708,000		19,643,000		13,639,000
Noninterest expense
Salaries and benefits		13,680,000		12,932,000		39,982,000		38,027,000
Occupancy		1,697,000		1,648,000		5,089,000		5,049,000
Furniture and equipment depreciation, rent and maintenance		629,000		659,000		1,885,000		1,789,000
Data processing costs		2,342,000		2,150,000		6,854,000		6,415,000
Other expense		3,679,000		4,261,000		12,134,000		12,931,000
Total noninterest expenses		22,027,000		21,650,000		65,944,000		64,211,000
Income before federal income tax expense		15,554,000		12,498,000		44,615,000		37,592,000
Federal income tax expense		2,954,000		2,375,000		8,476,000		7,142,000
Net income	$	12,600,000	$	10,123,000	$	36,139,000	$	30,450,000
Basic earnings per share	$	0.77	$	0.61	$	2.20	$	1.83
Diluted earnings per share	$	0.77	$	0.61	$	2.20	$	1.83
Cash dividends per share	$	0.27	$	0.24	$	0.79	$	0.68
Average basic shares outstanding		16,390,203		16,611,411		16,415,843		16,602,701
Average diluted shares outstanding		16,393,078		16,619,295		16,420,845		16,610,544

See accompanying notes to condensed consolidated financial statements.

2

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended Sept 30, 2019			Three Months Ended Sept 30, 2018			Nine Months Ended Sept 30, 2019			Nine Months Ended Sept 30, 2018
Net income	$	12,600,000		$	10,123,000		$	36,139,000		$	30,450,000
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale		1,809,000			(3,125,000	)		15,821,000			(10,699,000	)
Fair value of interest rate swap		0			0			0			2,000
Total other comprehensive income (loss)		1,809,000			(3,125,000	)		15,821,000			(10,697,000	)
Tax effect of unrealized holding gains (losses) on securities available for sale		(380,000	)		656,000			(3,323,000	)		2,205,000
Tax effect of fair value of interest rate swap		0			0			0			(1,000	)
Total tax effect of other comprehensive income		(380,000	)		656,000			(3,323,000	)		2,204,000
Other comprehensive income (loss), net of tax		1,429,000			(2,469,000	)		12,498,000			(8,493,000	)
Comprehensive income	$	14,029,000		$	7,654,000		$	48,637,000		$	21,957,000

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, June 30, 2019	$	0	$	306,669		$	90,618		$	2,830	$	400,117
Employee stock purchase plan (402 shares)				13								13
Dividend reinvestment plan (5,445 shares)				180								180
Stock-based compensation expense				711								711
Share repurchase program (111,893 shares)				(3,508	)							(3,508	)
Cash dividends ($0.27 per common share)							(4,342	)				(4,342	)
Net income for the three months ended September 30, 2019							12,600					12,600
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect										1,429		1,429
Balances, September 30, 2019	$	0	$	304,065		$	98,876		$	4,259	$	407,200

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, 2019	$	0	$	308,005		$	75,483		$	(8,239	)	$	375,249
Employee stock purchase plan (1,201 shares)				39									39
Dividend reinvestment plan (16,392 shares)				541									541
Stock option exercises (2,500 shares)				16									16
Stock grants to directors for retainer fees (11,905 shares)				375									375
Stock-based compensation expense				2,199									2,199
Share repurchase program (231,013 shares)				(7,110	)								(7,110	)
Cash dividends ($0.79 per common share)							(12,746	)					(12,746	)
Net income for the nine months ended September 30, 2019							36,139						36,139
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect										12,498			12,498
Balances, September 30, 2019	$	0	$	304,065		$	98,876		$	4,259		$	407,200

See accompanying notes to condensed consolidated financial statements.

5

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, June 30, 2018	$	0	$	311,720	$	74,084		$	(10,885	)	$	374,919
Employee stock purchase plan (414 shares)				14								14
Dividend reinvestment plan (4,952 shares)				172								172
Stock option exercises (1,800 shares)				11								11
Stock-based compensation expense				627								627
Cash dividends ($0.24 per common share)						(3,932	)					(3,932	)
Net income for the three months ended September 30, 2018						10,123						10,123
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									(2,469	)		(2,469	)
Balances, September 30, 2018	$	0	$	312,544	$	80,275		$	(13,354	)	$	379,465

See accompanying notes to condensed consolidated financial statements.

6

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, 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 (1,169 shares)				40								40
Dividend reinvestment plan (14,015 shares)				500								500
Stock option exercises (8,800 shares)				66								66
Stock grants to directors for retainer fees (11,171 shares)				403								403
Stock-based compensation expense				1,763								1,763
Cash dividends ($0.68 per common share)						(11,134	)					(11,134	)
Net income for the nine months ended September 30, 2018						30,450						30,450
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									(8,494	)		(8,494	)
Change in fair value of interest rate swap, net of tax effect									1			1
Balances, September 30, 2018	$	0	$	312,544	$	80,275		$	(13,354	)	$	379,465

See accompanying notes to condensed consolidated financial statements.

7

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended Sept 30, 2019			Nine Months Ended Sept 30, 2018
Cash flows from operating activities
Net income	$	36,139,000		$	30,450,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		6,997,000			7,345,000
Accretion of acquired loans		(522,000	)		(1,057,000	)
Provision for loan losses		2,450,000			1,100,000
Stock-based compensation expense		2,199,000			1,763,000
Stock grants to directors for retainer fee		375,000			403,000
Proceeds from sales of mortgage loans held for sale		163,056,000			77,276,000
Origination of mortgage loans held for sale		(169,661,000	)		(73,790,000	)
Net gain from sales of mortgage loans held for sale		(5,032,000	)		(2,703,000	)
Net gain from sales and valuation write-downs of foreclosed assets		(132,000	)		(205,000	)
Net gain from sales and valuation write-downs of former bank premises		(559,000	)		(78,000	)
Net loss from sales and write-downs of fixed assets		5,000			97,000
Earnings on bank owned life insurance		(3,567,000	)		(969,000	)
Net change in:
Accrued interest receivable		(609,000	)		(1,217,000	)
Other assets		(7,163,000	)		(2,744,000	)
Accrued interest payable and other liabilities		(3,843,000	)		(779,000	)
Net cash from operating activities		20,133,000			34,892,000
Cash flows from investing activities
Loan originations and payments, net		(168,412,000	)		(138,170,000	)
Purchases of securities available for sale		(53,353,000	)		(35,729,000	)
Proceeds from maturities, calls and repayments of securities available for sale		60,617,000			31,935,000
Proceeds from sales of foreclosed assets		632,000			597,000
Proceeds from sales of former bank premises		854,000			1,964,000
Purchases of Federal Home Loan Bank stock		(1,980,000	)		(36,000	)
Purchases of bank owned life insurance		(2,500,000	)		0
Proceeds from bank owned life insurance cash value release and death benefits		7,708,000			0
Net purchases of premises and equipment		(9,109,000	)		(5,084,000	)
Net cash for investing activities		(165,543,000	)		(144,523,000	)

See accompanying notes to condensed consolidated financial statements.

8

MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Nine Months Ended Sept 30, 2019			Nine Months Ended Sept 30, 2018
Cash flows from financing activities
Net increase (decrease) in time deposits		196,035,000			(50,574,000	)
Net increase in all other deposits		107,348,000			37,019,000
Net increase (decrease) in securities sold under agreements to repurchase		471,000			(6,370,000	)
Maturities of Federal Home Loan Bank advances		(30,000,000	)		(30,000,000	)
Proceeds from Federal Home Loan Bank advances		44,000,000			50,000,000
Proceeds from stock option exercises		16,000			66,000
Employee stock purchase plan		39,000			40,000
Dividend reinvestment plan		541,000			500,000
Repurchases of common stock shares		(7,110,000	)		0
Payment of cash dividends to common shareholders		(12,746,000	)		(11,134,000	)
Net cash from (for) financing activities		298,594,000			(10,453,000	)
Net change in cash and cash equivalents		153,184,000			(120,084,000	)
Cash and cash equivalents at beginning of period		75,354,000			200,101,000
Cash and cash equivalents at end of period	$	228,538,000		$	80,017,000
Supplemental disclosures of cash flows information
Cash paid during the period for:
Interest	$	23,361,000		$	15,266,000
Federal income tax		8,875,000			7,425,000
Noncash financing and investing activities:
Transfers from loans to foreclosed assets		227,000			670,000
Transfers from bank premises to other real estate owned		0			296,000

See accompanying notes to condensed consolidated financial statements.

9

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the nine months ended September 30, 2019 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 and Mercantile Insurance Center, Inc. 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 September 30, 2019 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, 2018.

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 260,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2019. In addition, stock options for approximately 4,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2019. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2019.

Approximately 230,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2018. In addition, stock options for approximately 16,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 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 and nine months ended September 30, 2018.

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. 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.

(Continued)

10

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 impairment (“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 September 30, 2019 and December 31, 2018, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $12.8 million and $1.1 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 an interest 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 $678 million as of September 30, 2019.

(Continued) 

11

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. 

(Continued)

12

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 the derivatives and 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. 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 2017 and 2018, 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.

 (Continued)

13

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 (generally monthly) 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 February 2016, the FASB issued ASU 2016-02, Leases. This ASU (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20) 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. The adoption of this new standard as of January 1, 2019 resulted in the recording of a ROU asset and associated lease liability of approximately $1.3 million.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) 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 have completed our initial framework and developed our initial assumptions. We are now finalizing and documenting new processes and controls, challenging assumptions and outputs, refining the qualitative inputs and drafting policies and disclosures. Additionally, parallel runs will be enhanced throughout the remainder of 2019 as the processes, controls and policies are finalized by year-end 2019.

(Continued)

14

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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
September 30, 2019
U.S. Government agency debt obligations	$	195,926,000	$	3,151,000	$	(958,000	)	$	198,119,000
Mortgage-backed securities		42,563,000		524,000		(116,000	)		42,971,000
Municipal general obligation bonds		97,806,000		2,753,000		(22,000	)		100,537,000
Municipal revenue bonds		3,346,000		61,000		(1,000	)		3,406,000
Other investments		500,000		0		0			500,000
	$	340,141,000	$	6,489,000	$	(1,097,000	)	$	345,533,000
December 31, 2018
U.S. Government agency debt obligations	$	196,109,000	$	310,000	$	(9,342,000	)	$	187,077,000
Mortgage-backed securities		44,263,000		187,000		(792,000	)		43,658,000
Municipal general obligation bonds		103,235,000		427,000		(1,165,000	)		102,497,000
Municipal revenue bonds		3,688,000		4,000		(58,000	)		3,634,000
Other investments		500,000		0		0			500,000
	$	347,795,000	$	928,000	$	(11,357,000	)	$	337,366,000

(Continued)

15

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES (Continued)

Securities with unrealized losses at September 30, 2019 and December 31, 2018, 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 Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2019
U.S. Government agency debt obligations	$	15,630,000	$	370,000	$	53,935,000	$	588,000	$	69,565,000	$	958,000
Mortgage-backed securities		0		0		17,049,000		116,000		17,049,000		116,000
Municipal general obligation bonds		1,848,000		4,000		2,758,000		18,000		4,606,000		22,000
Municipal revenue bonds		0		0		554,000		1,000		554,000		1,000
Other investments		0		0		0		0		0		0
	$	17,478,000	$	374,000	$	74,296,000	$	723,000	$	91,774,000	$	1,097,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2018
U.S. Government agency debt obligations	$	31,220,000	$	1,136,000	$	136,445,000	$	8,206,000	$	167,665,000	$	9,342,000
Mortgage-backed securities		11,460,000		136,000		23,762,000		656,000		35,222,000		792,000
Municipal general obligation bonds		28,923,000		299,000		43,961,000		866,000		72,884,000		1,165,000
Municipal revenue bonds		1,188,000		11,000		1,372,000		47,000		2,560,000		58,000
Other investments		0		0		0		0		0		0
	$	72,791,000	$	1,582,000	$	205,540,000	$	9,775,000	$	278,331,000	$	11,357,000

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 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 September 30, 2019, 94 debt securities with fair values totaling $91.8 million have unrealized losses aggregating $1.1 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 September 30, 2019, 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 Yield		Amortized Cost		Fair Value
Due in 2019		1.92%	$	3,487,000	$	3,488,000
Due in 2020 through 2024		2.31		67,321,000		67,802,000
Due in 2025 through 2029		2.70		113,584,000		115,696,000
Due in 2030 and beyond		3.11		112,686,000		115,076,000
Mortgage-backed securities		2.87		42,563,000		42,971,000
Other investments		4.50		500,000		500,000
Total available for sale securities		2.78%	$	340,141,000	$	345,533,000

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $94.3 million and $98.2 million at September 30, 2019 and December 31, 2018, respectively, with estimated market values of $97.0 million and $97.4 million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of $6.9 million and $8.7 million at September 30, 2019 and December 31, 2018, respectively, with estimated market values of $6.9 million and $8.7 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 that are pledged to secure repurchase agreements was $104 million at September 30, 2019 and December 31, 2018. 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 September 30, 2019 were $2.93 billion compared to $2.75 billion at December 31, 2018, an increase of $180 million, or 6.5%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2019 and December 31, 2018, and the percentage change in loans from the end of 2018 to the end of the third quarter of 2019, are as follows:

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	848,659,000		31.5	%	$	768,698,000		31.3	%		10.4	%
Vacant land, land development, and residential construction		44,016,000		1.6			39,950,000		1.6			10.2
Real estate – owner occupied		527,580,000		19.6			500,188,000		20.4			5.5
Real estate – non-owner occupied		819,743,000		30.5			745,127,000		30.4			10.0
Real estate – multi-family and residential rental		101,799,000		3.8			98,035,000		4.0			3.8
Total commercial		2,341,797,000		87.0			2,151,998,000		87.7			8.8
Retail:
Home equity and other		63,026,000		2.4			65,023,000		2.7			(3.1	)
1-4 family mortgages		285,354,000		10.6			235,425,000		9.6			21.2
Total retail		348,380,000		13.0			300,448,000		12.3			16.0
Total originated loans	$	2,690,177,000		100.0	%	$	2,452,446,000		100.0	%		9.7	%

(Continued)

19

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	34,089,000		14.1	%	$	54,025,000		18.0	%		(36.9	%)
Vacant land, land development, and residential construction		4,401,000		1.8			4,935,000		1.6			(10.8	)
Real estate – owner occupied		39,687,000		16.3			48,431,000		16.1			(18.1	)
Real estate – non-owner occupied		63,337,000		26.1			71,155,000		23.7			(11.0	)
Real estate – multi-family and residential rental		25,056,000		10.3			29,562,000		9.8			(15.2	)
Total commercial		166,570,000		68.6			208,108,000		69.2			(20.0	)
Retail:
Home equity and other		15,526,000		6.4			20,416,000		6.8			(24.0	)
1-4 family mortgages		60,740,000		25.0			72,115,000		24.0			(15.8	)
Total retail		76,266,000		31.4			92,531,000		30.8			(17.6	)
Total acquired loans	$	242,836,000		100.0	%	$	300,639,000		100.0	%		(19.2	%)

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	882,748,000		30.1	%	$	822,723,000		29.9	%		7.3	%
Vacant land, land development, and residential construction		48,417,000		1.7			44,885,000		1.6			7.9
Real estate – owner occupied		567,267,000		19.3			548,619,000		19.9			3.4
Real estate – non-owner occupied		883,080,000		30.1			816,282,000		29.7			8.2
Real estate – multi-family and residential rental		126,855,000		4.3			127,597,000		4.6			(0.6	)
Total commercial		2,508,367,000		85.5			2,360,106,000		85.7			6.3
Retail:
Home equity and other		78,552,000		2.7			85,439,000		3.1			(8.1	)
1-4 family mortgages		346,094,000		11.8			307,540,000		11.2			12.5
Total retail		424,646,000		14.5			392,979,000		14.3			8.1
Total loans	$	2,933,013,000		100.0	%	$	2,753,085,000		100.0	%		6.5	%

(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 $6.2 million and $3.6 million, respectively, as of September 30, 2019. The total contractually required payments due on and carrying value of acquired impaired loans were $8.0 million and $4.6 million, respectively, as of December 31, 2018. Changes in the accretable yield for acquired impaired loans for the three and nine months ended September 30, 2019 and September 30, 2018 were as follows:

Balance at June 30, 2019	$	1,236,000
Additions		0
Accretion income		(90,000	)
Net reclassification from nonaccretable to accretable		230,000
Reductions (1)		(57,000	)
Balance at September 30, 2019	$	1,319,000
Balance at December 31, 2018	$	1,274,000
Additions		9,000
Accretion income		(315,000	)
Net reclassification from nonaccretable to accretable		435,000
Reductions (1)		(84,000	)
Balance at September 30, 2019	$	1,319,000
Balance at June 30, 2018	$	1,247,000
Additions		0
Accretion income		(118,000	)
Net reclassification from nonaccretable to accretable		118,000
Reductions (1)		(2,000	)
Balance at September 30, 2018	$	1,245,000
Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(372,000	)
Net reclassification from nonaccretable to accretable		289,000
Reductions (1)		(76,000	)
Balance at September 30, 2018	$	1,245,000

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

(Continued)

21

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Nonperforming originated loans as of September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		753,000		803,000
Total nonperforming originated loans	$	753,000	$	803,000

Nonperforming acquired loans as of September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		1,891,000		3,338,000
Total nonperforming acquired loans	$	1,891,000	$	3,338,000

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

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	0	$	17,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		183,000		950,000
Real estate – non-owner occupied		25,000		0
Real estate – multi-family and residential rental		3,000		141,000
Total commercial		211,000		1,108,000
Retail:
Home equity and other		279,000		454,000
1-4 family mortgages		2,154,000		2,579,000
Total retail		2,433,000		3,033,000
Total nonperforming loans	$	2,644,000	$	4,141,000

Acquired impaired loans are generally 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 September 30, 2019:

	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	$	0	$	0	$	848,659,000	$	848,659,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		44,016,000		44,016,000		0
Real estate – owner occupied		0		0		183,000		183,000		527,397,000		527,580,000		0
Real estate – non-owner occupied		0		0		0		0		819,743,000		819,743,000		0
Real estate – multi-family and residential rental		0		0		0		0		101,799,000		101,799,000		0
Total commercial		0		0		183,000		183,000		2,341,614,000		2,341,797,000		0
Retail:
Home equity and other		75,000		0		0		75,000		62,951,000		63,026,000		0
1-4 family mortgages		10,000		0		100,000		110,000		285,244,000		285,354,000		0
Total retail		85,000		0		100,000		185,000		348,195,000		348,380,000		0
Total past due loans	$	85,000	$	0	$	283,000	$	368,000	$	2,689,809,000	$	2,690,177,000	$	0

(Continued)

23

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	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
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	34,089,000	$	34,089,000	$	0
Vacant land, land development, and residential construction		24,000		0		0		24,000		4,377,000		4,401,000		0
Real estate – owner occupied		0		0		0		0		39,687,000		39,687,000		0
Real estate – non-owner occupied		0		0		26,000		26,000		63,311,000		63,337,000		0
Real estate – multi-family and residential rental		1,000		0		0		1,000		25,055,000		25,056,000		0
Total commercial		25,000		0		26,000		51,000		166,519,000		166,570,000		0
Retail:
Home equity and other		124,000		1,000		32,000		157,000		15,369,000		15,526,000		0
1-4 family mortgages		310,000		299,000		387,000		996,000		59,744,000		60,740,000		0
Total retail		434,000		300,000		419,000		1,153,000		75,113,000		76,266,000		0
Total past due loans	$	459,000	$	300,000	$	445,000	$	1,204,000	$	241,632,000	$	242,836,000	$	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, 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	$	186,000	$	0	$	0	$	186,000	$	768,512,000	$	768,698,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		39,950,000		39,950,000		0
Real estate – owner occupied		0		0		0		0		500,188,000		500,188,000		0
Real estate – non-owner occupied		0		0		0		0		745,127,000		745,127,000		0
Real estate – multi-family and residential rental		0		0		0		0		98,035,000		98,035,000		0
Total commercial		186,000		0		0		186,000		2,151,812,000		2,151,998,000		0
Retail:
Home equity and other		44,000		0		0		44,000		64,979,000		65,023,000		0
1-4 family mortgages		291,000		0		137,000		428,000		234,997,000		235,425,000		0
Total retail		335,000		0		137,000		472,000		299,976,000		300,448,000		0
Total past due loans	$	521,000	$	0	$	137,000	$	658,000	$	2,451,788,000	$	2,452,446,000	$	0

(Continued)

25

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	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
Acquired Loans
Commercial:
Commercial and industrial	$	8,000	$	0	$	0	$	8,000	$	54,017,000	$	54,025,000	$	0
Vacant land, land development, and residential construction		19,000		0		0		19,000		4,916,000		4,935,000		0
Real estate – owner occupied		108,000		950,000		0		1,058,000		47,373,000		48,431,000		0
Real estate – non-owner occupied		62,000		0		0		62,000		71,093,000		71,155,000		0
Real estate – multi-family and residential rental		0		0		0		0		29,562,000		29,562,000		0
Total commercial		197,000		950,000		0		1,147,000		206,961,000		208,108,000		0
Retail:
Home equity and other		167,000		31,000		0		198,000		20,218,000		20,416,000		0
1-4 family mortgages		821,000		347,000		612,000		1,780,000		70,335,000		72,115,000		0
Total retail		988,000		378,000		612,000		1,978,000		90,553,000		92,531,000		0
Total past due loans	$	1,185,000	$	1,328,000	$	612,000	$	3,125,000	$	297,514,000	$	300,639,000	$	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 September 30, 2019, and average originated impaired loans for the three and nine months ended September 30, 2019, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	20,280,000	$	20,280,000		$	15,144,000	$	12,117,000
Vacant land, land development and residential construction		87,000		87,000			88,000		90,000
Real estate – owner occupied		665,000		665,000			1,362,000		965,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			63,000		32,000
Total commercial		21,032,000		21,032,000			16,657,000		13,204,000
Retail:
Home equity and other		743,000		720,000			764,000		680,000
1-4 family mortgages		896,000		320,000			329,000		353,000
Total retail		1,639,000		1,040,000			1,093,000		1,033,000
Total with no related allowance recorded	$	22,671,000	$	22,072,000		$	17,750,000	$	14,237,000

(Continued)

27

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	3,333,000	$	3,333,000	$	699,000	$	8,494,000	$	6,876,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,533,000		1,533,000		1,000,000		767,000		1,722,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		66,000
Total commercial		4,866,000		4,866,000		1,699,000		9,261,000		8,664,000
Retail:
Home equity and other		411,000		397,000		312,000		385,000		395,000
1-4 family mortgages		405,000		327,000		14,000		329,000		334,000
Total retail		816,000		724,000		326,000		714,000		729,000
Total with an allowance recorded	$	5,682,000	$	5,590,000	$	2,025,000	$	9,975,000	$	9,393,000
Total impaired loans:
Commercial	$	25,898,000	$	25,898,000	$	1,699,000	$	25,918,000	$	21,868,000
Retail		2,455,000		1,764,000		326,000		1,807,000		1,762,000
Total impaired loans	$	28,353,000	$	27,662,000	$	2,025,000	$	27,725,000	$	23,630,000

 (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 September 30, 2019, and average impaired acquired loans for the three and nine months ended September 30, 2019, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	307,000	$	307,000		$	330,000	$	363,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		126,000		126,000			521,000		768,000
Real estate – non-owner occupied		209,000		207,000			209,000		120,000
Real estate – multi-family and residential rental		35,000		15,000			18,000		22,000
Total commercial		677,000		655,000			1,078,000		1,273,000
Retail:
Home equity and other		577,000		527,000			578,000		522,000
1-4 family mortgages		2,466,000		1,650,000			1,692,000		1,753,000
Total retail		3,043,000		2,177,000			2,270,000		2,275,000
Total with no related allowance recorded	$	3,720,000	$	2,832,000		$	3,348,000	$	3,548,000

(Continued)

29

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	134,000	$	132,000	$	30,000	$	135,000	$	146,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		101,000		101,000		5,000		51,000		98,000
Real estate – non-owner occupied		0		0		0		0		100,000
Real estate – multi-family and residential rental		0		0		0		0		1,000
Total commercial		235,000		233,000		35,000		186,000		345,000
Retail:
Home equity and other		247,000		245,000		120,000		243,000		306,000
1-4 family mortgages		406,000		404,000		87,000		394,000		402,000
Total retail		653,000		649,000		207,000		637,000		708,000
Total with an allowance recorded	$	888,000	$	882,000	$	242,000	$	823,000	$	1,053,000
Total impaired loans:
Commercial	$	912,000	$	888,000	$	35,000	$	1,264,000	$	1,618,000
Retail		3,696,000		2,826,000		207,000		2,907,000		2,983,000
Total impaired loans	$	4,608,000	$	3,714,000	$	242,000	$	4,171,000	$	4,601,000

(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, 2018, and average impaired originated loans for the three and nine months ended September 30, 2018, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	8,604,000	$	8,604,000		$	732,000	$	469,000
Vacant land, land development and residential construction		94,000		94,000			98,000		58,000
Real estate – owner occupied		632,000		632,000			383,000		1,273,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			125,000		234,000
Total commercial		9,330,000		9,330,000			1,338,000		2,034,000
Retail:
Home equity and other		607,000		586,000			719,000		717,000
1-4 family mortgages		1,053,000		390,000			402,000		420,000
Total retail		1,660,000		976,000			1,121,000		1,137,000
Total with no related allowance recorded	$	10,990,000	$	10,306,000		$	2,459,000	$	3,171,000

(Continued)

31

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	5,011,000	$	5,011,000	$	83,000	$	3,572,000	$	3,067,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		2,658,000		2,658,000		363,000		2,320,000		1,926,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		140,000		135,000		5,000		140,000		106,000
Total commercial		7,809,000		7,804,000		451,000		6,032,000		5,099,000
Retail:
Home equity and other		442,000		431,000		194,000		463,000		643,000
1-4 family mortgages		409,000		341,000		44,000		346,000		289,000
Total retail		851,000		772,000		238,000		809,000		932,000
Total with an allowance recorded	$	8,660,000	$	8,576,000	$	689,000	$	6,841,000	$	6,031,000
Total impaired loans:
Commercial	$	17,139,000	$	17,134,000	$	451,000	$	7,370,000	$	7,133,000
Retail		2,511,000		1,748,000		238,000		1,930,000		2,069,000
Total impaired loans	$	19,650,000	$	18,882,000	$	689,000	$	9,300,000	$	9,202,000

(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, 2018, and average impaired acquired loans for the three and nine months ended September 30, 2018, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	398,000	$	398,000		$	648,000	$	763,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,193,000		1,193,000			588,000		638,000
Real estate – non-owner occupied		0		0			221,000		228,000
Real estate – multi-family and residential rental		45,000		26,000			38,000		85,000
Total commercial		1,636,000		1,617,000			1,495,000		1,714,000
Retail:
Home equity and other		388,000		361,000			778,000		678,000
1-4 family mortgages		2,494,000		1,849,000			2,073,000		2,077,000
Total retail		2,882,000		2,210,000			2,851,000		2,755,000
Total with no related allowance recorded	$	4,518,000	$	3,827,000		$	4,346,000	$	4,469,000

(Continued)

33

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	175,000	$	166,000	$	43,000	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		147,000		147,000		0		0		400,000
Real estate – non-owner occupied		210,000		210,000		0		0		0
Real estate – multi-family and residential rental		3,000		3,000		0		0		0
Total commercial		535,000		526,000		43,000		0		400,000
Retail:
Home equity and other		462,000		440,000		178,000		34,000		12,000
1-4 family mortgages		418,000		371,000		89,000		0		0
Total retail		880,000		811,000		267,000		34,000		12,000
Total with an allowance recorded	$	1,415,000	$	1,337,000	$	310,000	$	34,000	$	412,000
Total impaired loans:
Commercial	$	2,171,000	$	2,143,000	$	43,000	$	1,495,000	$	2,114,000
Retail		3,762,000		3,021,000		267,000		2,885,000		2,767,000
Total impaired loans	$	5,933,000	$	5,164,000	$	310,000	$	4,380,000	$	4,881,000

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 $0.5 million and $0.2 million during the third quarters of 2019 and 2018, respectively, and $0.9 million and $0.7 million during the first nine months of 2019 and 2018, respectively. No interest income was recognized on nonaccrual loans during the third quarter and first nine months of 2019 or during the respective 2018 periods. Lost interest income on nonaccrual loans totaled $0.1 million during the third quarters of 2019 and 2018, and $0.1 million and $0.2 million during the first nine months of 2019 and 2018, respectively.

(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 and delinquency.

Credit quality indicators were as follows as of September 30, 2019:

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	$	510,197,000	$	25,101,000	$	330,704,000	$	562,161,000	$	69,498,000
Grades 5 – 7		314,845,000		18,828,000		194,440,000		257,495,000		32,155,000
Grades 8 – 9		23,617,000		87,000		2,436,000		87,000		146,000
Total commercial	$	848,659,000	$	44,016,000	$	527,580,000	$	819,743,000	$	101,799,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	63,026,000	$	285,354,000

(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	$	16,261,000	$	1,076,000	$	20,231,000	$	51,020,000	$	16,097,000
Grades 5 – 7		17,369,000		3,079,000		19,122,000		12,153,000		8,924,000
Grades 8 – 9		459,000		246,000		334,000		164,000		35,000
Total commercial	$	34,089,000	$	4,401,000	$	39,687,000	$	63,337,000	$	25,056,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	15,526,000	$	60,740,000

(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, 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	$	508,611,000	$	28,170,000	$	325,459,000	$	526,445,000	$	75,051,000
Grades 5 – 7		238,942,000		11,686,000		163,455,000		218,682,000		22,798,000
Grades 8 – 9		21,145,000		94,000		11,274,000		0		186,000
Total commercial	$	768,698,000	$	39,950,000	$	500,188,000	$	745,127,000	$	98,035,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	65,023,000	$	235,425,000

(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	$	34,678,000	$	1,246,000	$	21,595,000	$	54,401,000	$	16,050,000
Grades 5 – 7		19,122,000		3,431,000		25,485,000		16,687,000		13,460,000
Grades 8 – 9		225,000		258,000		1,351,000		67,000		52,000
Total commercial	$	54,025,000	$	4,935,000	$	48,431,000	$	71,155,000	$	29,562,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	20,416,000	$	72,115,000

(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 and nine months ended September 30, 2019 are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	21,073,000		$	2,161,000		$	97,000	$	23,331,000
Provision for loan losses		522,000			149,000			69,000		740,000
Charge-offs		(405,000	)		(114,000	)		0		(519,000	)
Recoveries		96,000			84,000			0		180,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Allowance for loan losses:
Balance at December 31, 2018	$	19,442,000		$	2,068,000		$	44,000	$	21,554,000
Provision for loan losses		2,080,000			405,000			122,000		2,607,000
Charge-offs		(407,000	)		(364,000	)		0		(771,000	)
Recoveries		171,000			171,000			0		342,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Ending balance: individually evaluated for impairment	$	1,699,000		$	326,000		$	0	$	2,025,000
Ending balance: collectively evaluated for impairment	$	19,587,000		$	1,954,000		$	166,000	$	21,707,000
Total loans:
Ending balance	$	2,341,797,000		$	348,380,000				$	2,690,177,000
Ending balance: individually evaluated for impairment	$	25,898,000		$	1,764,000				$	27,662,000
Ending balance: collectively evaluated for impairment	$	2,315,899,000		$	346,616,000				$	2,662,515,000

(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 for acquired loans during the three and nine months ended September 30, 2019 is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	198,000		$	524,000		$	0	$	722,000
Provision for loan losses		(23,000	)		(17,000	)		0		(40,000	)
Charge-offs		0			0			0		0
Recoveries		0			0			0		0
Ending balance	$	175,000		$	507,000		$	0	$	682,000
Allowance for loan losses:
Balance at December 31, 2018	$	177,000		$	649,000		$	0	$	826,000
Provision for loan losses		(3,000	)		(154,000	)		0		(157,000	)
Charge-offs		0			0			0		0
Recoveries		1,000			12,000			0		13,000
Ending balance	$	175,000		$	507,000		$	0	$	682,000

(Continued)

41

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 for originated loans during the three and nine months ended September 30, 2018 and the recorded investments in originated loans as of December 31, 2018 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2018	$	18,326,000		$	2,216,000		$	(60,000	)	$	20,482,000
Provision for loan losses		371,000			(41,000	)		143,000			473,000
Charge-offs		0			(169,000	)		0			(169,000	)
Recoveries		63,000			227,000			0			290,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Allowance for loan losses:
Balance at December 31, 2017	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Provision for loan losses		922,000			(307,000	)		(10,000	)		605,000
Charge-offs		(342,000	)		(493,000	)		0			(835,000	)
Recoveries		1,724,000			449,000			0			2,173,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Ending balance: individually evaluated for impairment	$	750,000		$	248,000		$	0		$	998,000
Ending balance: collectively evaluated for impairment	$	18,010,000		$	1,985,000		$	83,000		$	20,078,000
Total loans:
Ending balance	$	2,151,998,000		$	300,448,000					$	2,452,446,000
Ending balance: individually evaluated for impairment	$	17,134,000		$	1,748,000					$	18,882,000
Ending balance: collectively evaluated for impairment	$	2,134,864,000		$	298,700,000					$	2,433,564,000

(Continued) 

42

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 for acquired loans during the three and nine months ended September 30, 2018 is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2018	$	105,000		$	580,000		$	0	$	685,000
Provision for loan losses		9,000			(82,000	)		0		(73,000	)
Charge-offs		0			0			0		0
Recoveries		0			4,000			0		4,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000
Allowance for loan losses:
Balance at December 31, 2017	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		69,000			426,000			0		495,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			14,000			0		14,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000

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

(Continued)

43

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 September 30, 2019 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		1	$	28,000	$	28,000
Vacant land, land development and residential construction		1		87,000		87,000
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		2		115,000		115,000
Retail:
Home equity and other		1		14,000		14,000
1-4 family mortgages		0		0		0
Total originated retail		1		14,000		14,000
Total originated loans		3	$	129,000	$	129,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		4		48,000		47,000
1-4 family mortgages		1		49,000		49,000
Total acquired retail		5		97,000		96,000
Total acquired loans		6	$	199,000	$	198,000

(Continued) 

44

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 nine months ended September 30, 2019 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		7	$	14,457,000	$	14,754,000
Vacant land, land development and residential construction		1		87,000		87,000
Real estate – owner occupied		1		1,567,000		1,567,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		16,111,000		16,408,000
Retail:
Home equity and other		3		37,000		37,000
1-4 family mortgages		0		0		0
Total originated retail		3		37,000		37,000
Total originated loans		12	$	16,148,000	$	16,445,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		10		188,000		188,000
1-4 family mortgages		5		202,000		203,000
Total acquired retail		15		390,000		391,000
Total acquired loans		16	$	492,000	$	493,000

(Continued)

45

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 September 30, 2018 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		5	$	3,118,000	$	2,964,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		2,284,000		2,284,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		6		5,402,000		5,248,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		6	$	5,402,000	$	5,248,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		1		12,000		12,000
Total acquired retail		1		12,000		12,000
Total acquired loans		3	$	195,000	$	191,000

(Continued)

46

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 nine months ended September 30, 2018 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	4,186,000	$	4,126,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		2		3,261,000		3,261,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		11		7,447,000		7,387,000
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		12	$	7,497,000	$	7,437,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		10		217,000		218,000
1-4 family mortgages		2		37,000		36,000
Total acquired retail		12		254,000		254,000
Total acquired loans		14	$	437,000	$	433,000

(Continued)

47

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 September 30, 2019 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2019 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

(Continued)

48

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

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 September 30, 2019 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2019 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		6,000
Total retail		1		6,000
Total		1	$	6,000

(Continued)

49

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 September 30, 2018 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

(Continued)

50

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

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 September 30, 2018 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

(Continued)

51

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 September 30, 2019 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	$	23,645,000		$	0	$	1,582,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(35,000	)		0		(37,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		2,000			87,000		0			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	913,000		$	141,000
Charge-Offs		0			0
Payments		(35,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		13,000			0
Ending Balance	$	891,000		$	140,000

(Continued)

52

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 September 30, 2019 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	$	489,000		$	0	$	916,000		$	185,000		$	17,000
Charge-Offs		0			0		0			0			0
Payments		(50,000	)		0		(790,000	)		(4,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		102,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	553,000		$	565,000
Charge-Offs		0			0
Payments		(10,000	)		(12,000	)
Transfers to ORE		0			0
Net Additions/Deletions		47,000			49,000
Ending Balance	$	590,000		$	602,000

(Continued)

53

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 nine months ended September 30, 2019 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	$	13,590,000		$	0	$	2,682,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(4,790,000	)		0		(2,387,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		14,812,000			87,000		1,250,000			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	938,000		$	142,000
Charge-Offs		0			0
Payments		(84,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		37,000			0
Ending Balance	$	891,000		$	140,000

(Continued)

54

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 nine months ended September 30, 2019 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	$	548,000		$	0	$	418,000		$	210,000		$	24,000
Charge-Offs		0			0		0			0			0
Payments		(109,000	)		0		(865,000	)		(29,000	)		(12,000	)
Transfers to ORE		0			0		(97,000	)		0			0
Net Additions/Deletions		0			0		772,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	464,000		$	436,000
Charge-Offs		(18,000	)		0
Payments		(53,000	)		(36,000	)
Transfers to ORE		0			0
Net Additions/Deletions		197,000			202,000
Ending Balance	$	590,000		$	602,000

(Continued)

55

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 September 30, 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	$	2,425,000	$	229,000		$	1,784,000		$	0	$	0
Charge-Offs		0		0			0			0		0
Payments		0		(207,000	)		(439,000	)		0		0
Transfers to ORE		0		0			0			0		0
Net Additions/Deletions		3,315,000		0			2,278,000			0		0
Ending Balance	$	5,740,000	$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,019,000		$	143,000
Charge-Offs		0			0
Payments		(81,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	938,000		$	142,000

(Continued)

56

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 September 30, 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	$	694,000		$	0	$	393,000		$	225,000		$	32,000
Charge-Offs		0			0		0			0			0
Payments		(36,000	)		0		(15,000	)		(8,000	)		(3,000	)
Transfers to ORE		0			0		(93,000	)		0			0
Net Additions/Deletions		(80,000	)		0		151,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	302,000		$	400,000
Charge-Offs		0			0
Payments		(2,000	)		(9,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			13,000
Ending Balance	$	300,000		$	404,000

(Continued)

57

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 nine months ended September 30, 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		(934,000	)		(361,000	)		(4,057,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		3,915,000			0			6,081,000			0		0
Ending Balance	$	5,740,000		$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(238,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		49,000			0
Ending Balance	$	938,000		$	142,000

(Continued)

58

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 nine months ended September 30, 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		(69,000	)		0		(1,645,000	)		(20,000	)		(12,000	)
Transfers to ORE		0			0		(92,000	)		0			0
Net Additions/Deletions		(79,000	)		0		1,746,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(30,000	)		0
Payments		(40,000	)		(26,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		233,000			37,000
Ending Balance	$	300,000		$	404,000

(Continued)

59

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: 

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	729,000	$	126,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		1,005,000		363,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1,734,000		489,000
Retail:
Home equity and other		402,000		337,000
1-4 family mortgages		98,000		110,000
Total retail		500,000		447,000
Total related allowance	$	2,234,000	$	936,000

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)

60

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.    PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	September 30, 2019		December 31, 2018
Land and improvements	$	18,217,000	$	18,198,000
Buildings		51,140,000		45,362,000
Furniture and equipment		21,285,000		18,139,000
		90,642,000		81,699,000
Less: accumulated depreciation		36,057,000		33,378,000
Premises and equipment, net	$	54,585,000	$	48,321,000

Depreciation expense totaled $0.9 million during the third quarter of 2019 and 2018. Depreciation expense totaled $2.8 million during the first nine months of 2019, compared to $2.6 million during the first nine months of 2018.

5.    DEPOSITS

Our total deposits at September 30, 2019 totaled $2.77 billion, an increase of $303 million, or 12.3%, from December 31, 2018. The components of our outstanding balances at September 30, 2019 and December 31, 2018, and percentage change in deposits from the end of 2018 to the end of the third quarter of 2019, are as follows:

	September 30, 2019					December 31, 2018					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing checking	$	967,189,000		35.0	%	$	889,784,000		36.1	%		8.7	%
Interest-bearing checking		327,679,000		11.8			339,089,000		13.8			(3.4	)
Money market		522,742,000		18.9			434,333,000		17.6			20.4
Savings		269,958,000		9.8			317,014,000		12.9			(14.8	)
Time, under $100,000		204,767,000		7.4			160,092,000		6.5			27.9
Time, $100,000 and over		321,311,000		11.6			210,164,000		8.5			52.9
Total local deposits		2,613,646,000		94.5			2,350,476,000		95.4			11.2
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		153,445,000		5.5			113,232,000		4.6			35.5
Total out-of-area deposits		153,445,000		5.5			113,232,000		4.6			35.5
Total deposits	$	2,767,091,000		100.0	%	$	2,463,708,000		100.0	%		12.3	%

Total time deposits of more than $250,000 totaled $340 million and $232 million at September 30, 2019 and December 31, 2018, respectively.

(Continued)

61

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:

	Nine Months Ended September 30, 2019			Twelve Months Ended December 31, 2018
Outstanding balance at end of period	$	103,990,000		$	103,519,000
Average interest rate at end of period		0.21	%		0.26	%
Average daily balance during the period	$	106,396,000		$	101,005,000
Average interest rate during the period		0.25	%		0.24	%
Maximum daily balance during the period	$	133,411,000		$	123,046,000

Repurchase agreements generally have maturities of one business day. 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 $364 million at September 30, 2019, and mature at varying dates from November 2019 through June 2025, with fixed rates of interest from 1.20% to 3.18% and averaging 2.41%. FHLBI advances totaled $350 million at December 31, 2018, and were expected to mature at varying dates from January 2019 through June 2025, with fixed rates of interest from 1.20% to 3.18% and averaging 2.30%.

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 September 30, 2019 totaled about $777 million, with remaining availability based on collateral approximating $407 million.

Maturities of currently outstanding FHLBI advances are as follows:

2019	$	10,000,000
2020		40,000,000
2021		70,000,000
2022		94,000,000
2023		80,000,000
Thereafter		70,000,000

(Continued)

62

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 recorded as a liability. There was no liability balance for these instruments as of September 30, 2019 and December 31, 2018.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at September 30, 2019 and December 31, 2018 follows:

	September 30, 2019		December 31, 2018
Commercial unused lines of credit	$	735,856,000	$	784,895,000
Unused lines of credit secured by 1 – 4 family residential properties		59,361,000		57,378,000
Credit card unused lines of credit		56,340,000		47,432,000
Other consumer unused lines of credit		17,275,000		20,231,000
Commitments to make loans		164,643,000		101,517,000
Standby letters of credit		22,138,000		25,322,000
	$	1,055,613,000	$	1,036,775,000

(Continued)

63

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.   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 September 30, 2019 and December 31, 2018 (dollars in thousands):

	Level in		September 30, 2019				December 31, 2018
	Fair Value Hierarchy		Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash		Level 1	$	16,077	$	16,077	$	15,656	$	15,656
Cash equivalents		Level 2		212,461		212,461		59,698		59,698
Securities available for sale		(1)		345,533		345,533		337,366		337,366
FHLBI stock		(2)		18,002		18,002		16,022		16,022
Loans, net		Level 3		2,895,843		2,980,135		2,729,583		2,711,687
Loans held for sale		Level 2		12,756		12,756		1,122		1,122
Mortgage servicing rights		Level 2		4,385		7,117		4,436		8,444
Accrued interest receivable		Level 2		10,505		10,505		9,896		9,896
Financial liabilities:
Deposits		Level 2		2,767,091		2,666,671		2,463,708		2,471,617
Repurchase agreements		Level 2		103,990		103,990		103,519		103,519
FHLBI advances		Level 2		364,000		376,724		350,000		348,428
Subordinated debentures		Level 2		46,710		46,167		46,199		46,543
Accrued interest payable		Level 2		4,295		4,295		2,249		2,249

(1) See Note 10 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; therefore, fair value is estimated at carrying amount.

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 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. 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 off-balance sheet items is estimated to be nominal.

(Continued)

64

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  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, and municipal general obligation and revenue bonds. 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 September 30, 2019 or December 31, 2018. We have no Level 1 securities available for sale.

(Continued)

65

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES (Continued)

Derivatives. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves.

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 September 30, 2019 and December 31, 2018, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $12.8 million and $1.1 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. The fair values of impaired loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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 September 30, 2019 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	198,119,000	$	0	$	198,119,000	$	0
Mortgage-backed securities		42,971,000		0		42,971,000		0
Municipal general obligation bonds		100,537,000		0		97,842,000		2,695,000
Municipal revenue bonds		3,406,000		0		3,406,000		0
Other investments		500,000		0		500,000		0
Total	$	345,533,000	$	0	$	342,838,000	$	2,695,000

There were no transfers in or out of Level 1, Level 2, or Level 3 during the first nine months of 2019. The $1.0 million reduction in Level 3 municipal general obligation bonds during the first nine months of 2019 reflects the scheduled maturities of such bonds.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES (Continued)

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	187,077,000	$	0	$	187,077,000	$	0
Mortgage-backed securities		43,658,000		0		43,658,000		0
Municipal general obligation bonds		102,497,000		0		98,768,000		3,729,000
Municipal revenue bonds		3,634,000		0		3,634,000		0
Other investments		500,000		0		500,000		0
Total	$	337,366,000	$	0	$	333,637,000	$	3,729,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during 2018. The $1.5 million reduction in Level 3 municipal general obligation bonds during 2018 reflects the scheduled maturities of such bonds.

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 September 30, 2019 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	24,193,000	$	0	$	0	$	24,193,000
Foreclosed assets		243,000		0		0		243,000
Total	$	24,436,000	$	0	$	0	$	24,436,000

(Continued)

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  MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES (Continued)

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	8,181,000	$	0	$	0	$	8,181,000
Foreclosed assets		811,000		0		0		811,000
Total	$	8,992,000	$	0	$	0	$	8,992,000

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.

 11.  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 September 30, 2019 and December 31, 2018, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since September 30, 2019 that we believe have changed our bank’s categorization. 

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 11.  REGULATORY MATTERS (Continued)

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

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2019
Total capital (to risk weighted assets)
Consolidated	$	419,424		12.6	%	$	266,218		8.0	%	$	NA		NA
Bank		416,302		12.5			266,178		8.0			332,723		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		395,010		11.9			199,664		6.0			NA		NA
Bank		391,889		11.8			199,634		6.0			266,178		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		350,374		10.5			149,748		4.5			NA		NA
Bank		391,889		11.8			149,725		4.5			216,270		6.5
Tier 1 capital (to average assets)
Consolidated		395,010		11.1			142,581		4.0			NA		NA
Bank		391,889		11.0			142,561		4.0			178,201		5.0
December 31, 2018
Total capital (to risk weighted assets)
Consolidated	$	396,102		12.5	%	$	253,413		8.0	%	$	NA		NA
Bank		388,591		12.3			253,225		8.0			316,531		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		373,721		11.8			190,060		6.0			NA		NA
Bank		366,211		11.6			189,919		6.0			253,225		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		329,596		10.4			142,545		4.5			NA		NA
Bank		366,211		11.6			142,439		4.5			205,745		6.5
Tier 1 capital (to average assets)
Consolidated		373,721		11.4			131,014		4.0			NA		NA
Bank		366,211		11.2			130,913		4.0			163,641		5.0

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  REGULATORY MATTERS (Continued)

Our consolidated capital levels as of September 30, 2019 and December 31, 2018 include $44.6 million and $44.1 million, respectively, of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core 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 September 30, 2019 and December 31, 2018, all $44.6 million and $44.1 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 was phased in over three years beginning in 2016. The capital buffer requirement raised the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. We believe that, as of September 30, 2019, our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On January 17, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.26 per share that was paid on March 20, 2019 to shareholders of record as of March 8, 2019. On April 11, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.26 per share that was paid on June 19, 2019 to shareholders of record as of June 7, 2019. On July 11, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.27 per share that was paid on September 18, 2019 to shareholders of record as of September 6, 2019. On October 10, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.27 per share that will be paid on December 18, 2019 to shareholders of record as of December 6, 2019.

We announced on January 30, 2015 that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On April 19, 2016, we announced a $15.0 million expansion of the stock repurchase program. On May 7, 2019, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This latest authorization included a termination of the existing authorization as detailed above. During the first nine months of 2019, we repurchased a total of approximately 231,000 shares at a total price of $7.1 million, at an average price per share of $30.78. Since January 30, 2015 through September 30, 2019, we repurchased a total of approximately 1,390,000 shares at a total price of $32.6 million, at an average price per share of $23.47. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan, 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; changes in the method of determining Libor, or the replacement of Libor with an alternative reference rate; 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, 2018 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 and Mercantile Insurance Center, Inc., at September 30, 2019 and December 31, 2018 and the results of operations for the three months and nine months ended September 30, 2019 and September 30, 2018. 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 in our Form 10-K for the fiscal year ended December 31, 2018 (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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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 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 $12.6 million, or $0.77 per diluted share, for the third quarter of 2019, compared to net income of $10.1 million, or $0.61 per diluted share, during the third quarter of 2018. Net income during the first nine months of 2019 totaled $36.1 million, or $2.20 per diluted share, compared to $30.5 million, or $1.83 per diluted share, during the first nine months of 2018.

Bank owned life insurance claims and a gain on the sale of a former branch facility increased net income during the first nine months of 2019 by $3.1 million, or $0.19 per diluted share. Interest income related to purchased loan accounting entries increased net income during the first nine months of 2019 by $0.9 million, or $0.05 per diluted share, and net income during the first nine months of 2018 by $2.7 million, or $0.16 per diluted share. Excluding the impacts of these specific transactions, diluted earnings per share increased $0.29, or over 17%, during the first nine months of 2019 compared to the respective 2018 period.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling only 0.09% of total loans as of September 30, 2019. Gross loan charge-offs totaled $0.5 million during the third quarter of 2019, and aggregated $0.8 million for the first nine months of the year, while recoveries of prior period loan charge-offs equaled $0.2 million and $0.4 million during the respective time periods. Net loan charge-offs, as a percent of average total loans, equaled an annualized 0.05% during the third quarter and 0.02% during the first nine months of 2019. 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 $153 million during the third quarter of 2019, bringing the year-to-date total to $412 million. The new commercial loan pipeline remains strong, and at September 30, 2019, we had $91 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase. We believe our loan portfolio remains well diversified, with both commercial and industrial loans and non-owner occupied commercial real estate (“CRE”) loans equaling 30%, owner occupied CRE loans equaling 19% and residential mortgage and consumer loans aggregating 15% of total loans at September 30, 2019. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 58% at September 30, 2019. We recorded a provision for loan losses of $0.7 million during the third quarter of 2019, bringing the year-to-date total to $2.5 million. The provision for loan losses recorded during 2019 primarily reflects commercial loan growth.

We believe our funding structure also remains well diversified. As of September 30, 2019, noninterest-bearing checking accounts comprised 30% of total funds, interest-bearing checking and securities sold under agreements to repurchase (“sweep accounts”) combined for 13%, savings deposits and money market accounts aggregated to 25% and local time deposits accounted for 16%. Wholesale funds, comprised of brokered deposits and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances, represented 16% of total funds.

Financial Condition

Our total assets increased $346 million during the first nine months of 2019, and totaled $3.71 billion as of September 30, 2019. Total loans increased $180 million, interest-earning deposits grew by $134 million and securities available for sale increased $8.2 million, while total deposits increased $303 million and FHLBI advances were up $14.0 million during the first nine months of 2019.

Commercial loans increased $148 million during the first nine months of 2019, and at September 30, 2019 totaled $2.51 billion, or 85.5% of the loan portfolio. As of December 31, 2018, the commercial loan portfolio comprised 85.7% of total loans. The increase in commercial loans during the first nine months of 2019 primarily reflects new commercial term loans to existing and new borrowers. Commercial and industrial loans were up $60.0 million, non-owner occupied CRE loans increased $66.8 million, owner occupied CRE loans were up $18.6 million, and vacant land, land development and residential construction loans were up $3.5 million, while multi-family and residential rental loans decreased $0.7 million. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 57.8% as of September 30, 2019, compared to 58.1% at December 31, 2018.

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We are very pleased with the $2.6 billion in new commercial term loan fundings since the beginning of 2015, including $412 million during the first nine months of 2019. As of September 30, 2019, availability on existing construction and development loans totaled $91 million, with most of those funds expected to be drawn over the next 12 to 18 months. Our loan pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including $165 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 $38.6 million during the first nine months of 2019, totaling $346 million, or 11.8% of total loans, as of September 30, 2019. We originated $258 million in residential mortgage loans during the first nine months of 2019, which was almost 52% higher than originations during the first nine months of 2018. Residential mortgage loans originated for sale, generally consisting of longer-term fixed rate residential mortgage loans, during the first nine months of 2019 totaled $176 million, or about 68% of total mortgage loans originated. The remaining portion, in large part comprised of adjustable rate residential mortgage loans, was added to our balance sheet. Despite the headwinds of an ongoing housing inventory shortage in most of our larger markets, we are pleased with the success of our strategic initiative to grow our residential mortgage banking operation over the past few years, and remain optimistic that origination volumes will remain strong. As of September 30, 2019, the level of residential mortgage loan pre-qualifications remained at a high level. Other consumer-related loans declined $6.9 million during the first nine months of 2019, and at September 30, 2019 totaled $78.6 million, or 2.7% of total loans. Other consumer-related loans comprised 3.1% of total loans as of December 31, 2018. We expect this loan portfolio segment to decline in future periods as scheduled principal payments exceed anticipated new loan origination volumes.

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

	9/30/19		6/30/19		3/31/19		12/31/18		9/30/18
Commercial:
Commercial & Industrial	$	882,748,000	$	881,196,000	$	839,207,000	$	822,723,000	$	818,112,000
Land Development & Construction		48,417,000		45,158,000		45,892,000		44,885,000		39,396,000
Owner Occupied Commercial RE		567,267,000		556,868,000		551,518,000		548,619,000		542,731,000
Non-Owner Occupied Commercial RE		883,080,000		852,844,000		835,678,000		816,282,000		811,767,000
Multi-Family & Residential Rental		126,855,000		128,489,000		127,903,000		127,597,000		94,101,000
Total Commercial		2,508,367,000		2,464,555,000		2,400,198,000		2,360,106,000		2,306,107,000
Retail:
1-4 Family Mortgages		346,094,000		335,618,000		316,314,000		307,540,000		301,765,000
Home Equity & Other Consumer Loans		78,552,000		81,320,000		83,127,000		85,439,000		89,545,000
Total Retail		424,646,000		416,938,000		399,441,000		392,979,000		391,310,000
Total	$	2,933,013,000	$	2,881,493,000	$	2,799,639,000	$	2,753,085,000	$	2,697,417,000

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MERCANTILE BANK CORPORATION

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 $2.9 million (0.1% of total assets) as of September 30, 2019, compared to $5.0 million (0.2% of total assets) as of December 31, 2018. 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.

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

NONPERFORMING LOANS
	9/30/19		6/30/19		3/31/19		12/31/18		9/30/18
Residential Real Estate:
Land Development	$	32,000	$	33,000	$	45,000	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		2,390,000		2,779,000		3,032,000		3,157,000		3,498,000
		2,422,000		2,812,000		3,077,000		3,157,000		3,498,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		183,000		642,000		767,000		950,000		1,005,000
Non-Owner Occupied		26,000		26,000		62,000		0		0
		209,000		668,000		829,000		950,000		1,005,000
Non-Real Estate:
Commercial Assets		0		2,000		207,000		17,000		331,000
Consumer Assets		13,000		23,000		25,000		17,000		18,000
		13,000		25,000		232,000		34,000		349,000
Total	$	2,644,000	$	3,505,000	$	4,138,000	$	4,141,000	$	4,852,000

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MERCANTILE BANK CORPORATION

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS
	9/30/19		6/30/19		3/31/19		12/31/18		9/30/18
Residential Real Estate:
Land Development	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		186,000		446,000		372,000		398,000		410,000
		186,000		446,000		372,000		398,000		410,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		57,000		0		24,000		413,000		538,000
Non-Owner Occupied		0		0		0		0		0
		57,000		0		24,000		413,000		538,000
Non-Real Estate:
Commercial Assets		0		0		0		0		0
Consumer Assets		0		0		0		0		0
		0		0		0		0		0
Total	$	243,000	$	446,000	$	396,000	$	811,000	$	948,000

The following tables provide a reconciliation of nonperforming assets:

NONPERFORMING LOANS RECONCILIATION
	3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr
	2019			2019			2019			2018			2018
Beginning balance	$	3,505,000		$	4,138,000		$	4,141,000		$	4,852,000		$	4,965,000
Additions, net of transfers to ORE		338,000			(85,000	)		525,000			1,181,000			748,000
Returns to performing status		(126,000	)		0			0			0			0
Principal payments		(1,014,000	)		(512,000	)		(382,000	)		(1,835,000	)		(857,000	)
Loan charge-offs		(59,000	)		(36,000	)		(146,000	)		(57,000	)		(4,000	)
Total	$	2,644,000		$	3,505,000		$	4,138,000		$	4,141,000		$	4,852,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS RECONCILIATION
	3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr
	2019			2019			2019			2018			2018
Beginning balance	$	446,000		$	396,000		$	811,000		$	948,000		$	842,000
Additions		57,000			145,000			15,000			65,000			257,000
Sale proceeds		(252,000	)		(74,000	)		(429,000	)		(128,000	)		(147,000	)
Valuation write-downs		(8,000	)		(21,000	)		(1,000	)		(74,000	)		(4,000	)
Total	$	243,000		$	446,000		$	396,000		$	811,000		$	948,000

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MERCANTILE BANK CORPORATION

Gross loan charge-offs totaled $0.5 million during the third quarter of 2019, and aggregated $0.8 million for the first nine months of the year, while recoveries of prior period loan charge-offs equaled $0.2 million and $0.4 million during the respective time periods. Net loan charge-offs, as a percent of average total loans, equaled an annualized 0.05% during the third quarter and 0.02% during the first nine months of 2019. 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.

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 loans. Our migration analysis takes into account various time periods, with most weight placed on the time frame from December 31, 2010 through September 30, 2019. 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.

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MERCANTILE BANK CORPORATION

The allowance for originated loans equaled $23.7 million as of September 30, 2019, or 0.9% of total originated loans outstanding, compared to $21.6 million, or 0.9% of total originated loans outstanding at December 31, 2018. We also had an allowance for acquired loans as of September 30, 2019 and December 31, 2018, equaling $0.7 million and $0.8 million, respectively. The allowance equaled 923% of nonperforming loans as of September 30, 2019, compared to 540% as of December 31, 2018. The increase in this coverage ratio during the first nine months of 2019 in large part reflects a combination of a $1.5 million reduction in nonperforming loans and a $2.0 million balance increase in the allowance.

As of September 30, 2019, the allowance for originated loans was comprised of $21.7 million in general reserves relating to non-impaired loans and $2.0 million in specific reserves on other loans, primarily accruing loans designated as troubled debt restructurings. Troubled debt restructurings totaled $28.3 million at September 30, 2019, consisting of $0.2 million that are on nonaccrual status and $28.1 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 $0.2 million as of September 30, 2019 had been subject to previous partial charge-offs aggregating $0.5 million. Those partial charge-offs were recorded as follows: less than $0.1 million in 2018, 2017, 2016 and 2013, $0.1 million in 2015 and $0.3 million in 2011. As of September 30, 2019, there were no specific reserves allocated to impaired loans that had been subject to a previous partial charge-off.

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

	9/30/19		6/30/19		3/31/19		12/31/18		9/30/18
Performing	$	28,102,000	$	28,129,000	$	20,363,000	$	19,223,000	$	11,300,000
Nonperforming		225,000		877,000		1,195,000		229,000		1,129,000
Total	$	28,327,000	$	29,006,000	$	21,558,000	$	19,452,000	$	12,429,000

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 $8.2 million during the first nine months of 2019, totaling $346 million as of September 30, 2019. Purchases during the first nine months of 2019, consisting of U.S. Government agency bonds ($34.0 million), U.S. Government agency issued or guaranteed mortgage-backed securities ($5.6 million) and municipal bonds ($13.8 million), totaled $53.4 million. Proceeds from matured and called U.S. Government agency bonds and municipal bonds during the first nine months of 2019 totaled $34.5 million and $19.0 million, respectively, with another $7.0 million from principal paydowns on mortgage-backed securities. At September 30, 2019, the portfolio was primarily comprised of U.S. Government agency bonds (57%), municipal bonds (30%) and U.S. Government agency issued or guaranteed mortgage-backed securities (13%). 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 September 30, 2019 totaled $346 million, including a net unrealized gain of $5.4 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 2019 to generally consist of U.S. Government agency bonds, U.S. Government agency issued or guaranteed mortgage-backed securities and municipal bonds, with the securities portfolio maintained at about 10% of total assets.

FHLBI stock totaled $18.0 million as of September 30, 2019, an increase of $2.0 million compared to the balance at December 31, 2018. The increase reflects additional FHLBI stock purchased in conjunction with an increase in advances outstanding. 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.

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MERCANTILE BANK CORPORATION

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 deposit 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 nine months of 2019, the average balance of these funds equaled $93.8 million, or 2.8% of average earning assets. We expect the level of these funds to average approximately 1% to 2% of average earning assets in future quarters.

Net premises and equipment equaled $54.6 million at September 30, 2019, an increase of $6.3 million during the first nine months of 2019. The increase was attributable to net purchases of $9.1 million, in large part associated with an expansion project at our bank’s main office. Depreciation expense totaled $2.8 million during the first nine months of 2019. Foreclosed and repossessed assets equaled $0.2 million as of September 30, 2019, compared to $0.8 million as of December 31, 2018. While we expect further 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 in future periods.

Total deposits increased $303 million during the first nine months of 2019, totaling $2.77 billion at September 30, 2019. Local deposits and out-of-area deposits increased $263 million and $40.2 million, respectively, during the first nine months of 2019. As a percent of total deposits, out-of-area deposits equaled 5.5% as of September 30, 2019, compared to 4.6% as of December 31, 2018.

Noninterest-bearing checking accounts increased $77.4 million during the first nine months of 2019, reflecting deposit balance increases from existing commercial lending relationships and deposit account openings as part of recently established commercial lending relationships. Interest-bearing checking accounts decreased $11.4 million and savings deposits were down $47.1 million, primarily reflecting the cyclical nature of deposit balances in the operational accounts of many local governmental depositors. Money market deposit accounts increased $88.4 million, primarily reflecting new funds being deposited into relatively high-paying accounts from current customers. Local time deposits increased $156 million during the first nine months of 2019, generally reflecting a new money time deposit campaign we ran during February, March and early April, as well as increased deposits from certain local governmental depositors.

Sweep accounts increased $0.5 million during the first nine months of 2019, totaling $104 million as of September 30, 2019. The aggregate balance of this funding type can be subject to relatively large fluctuations given the nature of the customers utilizing this product and the sizable balances of many of the customers. The average balance of sweep accounts was $106 million during the first nine months of 2019, while the actual balance varied from a high of $133 million to a low of $89.7 million. 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.

FHLBI advances increased $14.0 million during the first nine months of 2019, reflecting new advances obtained primarily to replace maturities and fund loan growth. As of September 30, 2019, FHLBI advances totaled $364 million. 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 September 30, 2019 totaled $777 million, with remaining availability of $407 million.

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MERCANTILE BANK CORPORATION

Shareholders’ equity was $407 million at September 30, 2019, compared to $375 million at December 31, 2018. The $32.0 million increase during the first nine months of 2019 primarily reflects the positive impact of net income totaling $36.1 million, compared to the negative impact of cash dividends and common stock repurchases totaling $12.7 million and $7.1 million, respectively. Reflecting the decline in market interest rates, the change in net unrealized holding gain/loss on securities available for sale, net of tax effect, had a $12.5 million positive impact on shareholders’ equity during the first nine months of 2019.

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 deposit balances. 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 have regularly obtained monies from wholesale funding sources. Wholesale funds, primarily comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $517 million, or 16.0% of combined deposits and borrowed funds, as of September 30, 2019, compared to $474 million, or 16.2% of combined deposits and borrowed funds, as of December 31, 2018.

Sweep accounts increased $0.5 million during the first nine months of 2019, totaling $104 million as of September 30, 2019. The aggregate balance of this funding type can be subject to relatively large fluctuations given the nature of the customers utilizing this product and the sizable balances of many of the customers. The average balance of sweep accounts was $106 million during the first nine months of 2019, while the actual balance varied from a high of $133 million to a low of $89.7 million. 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 September 30, 2019 and during the first nine months of 2019 is as follows:

Outstanding balance at September 30, 2019	$	103,990,000
Weighted average interest rate at September 30, 2019		0.21	%
Maximum daily balance nine months ended September 30, 2019	$	133,411,000
Average daily balance for nine months ended September 30, 2019	$	106,396,000
Weighted average interest rate for nine months ended September 30, 2019		0.25	%

As a member of FHLBI, we have access to FHLBI advance borrowing programs. FHLBI advances increased $14.0 million during the first nine months of 2019, reflecting new advances obtained to replace maturing advances and assist in funding loan growth. As of September 30, 2019, FHLBI advances totaled $364 million, and based on available collateral we could borrow an additional $407 million.

We also have the ability to borrow up to $70.0 million on a daily basis through correspondent banks using established unsecured federal funds purchased lines of credit. We accessed a line of credit on several occasions during the initial part of the first quarter of 2019 to provide short-term assistance in funding strong loan growth and business checking account withdrawals. Federal funds purchased averaged $1.9 million during the first nine months of 2019, compared to our interest-earning deposit balance with the Federal Reserve Bank of Chicago that averaged $82.3 million. 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 $32.9 million as of September 30, 2019. We did not utilize this line of credit during the first nine months of 2019 or at any time during the previous ten fiscal years, and do not plan to access this line of credit in future periods.

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MERCANTILE BANK CORPORATION

The following table reflects, as of September 30, 2019, 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	$	2,087,568,000	$	0	$	0	$	0	$	2,087,568,000
Time deposits		367,365,000		275,203,000		36,955,000		0		679,523,000
Short-term borrowings		103,990,000		0		0		0		103,990,000
Federal Home Loan Bank advances		40,000,000		144,000,000		140,000,000		40,000,000		364,000,000
Subordinated debentures		0		0		0		46,710,000		46,710,000
Other borrowed money		0		0		0		2,823,000		2,823,000
Property leases		403,000		644,000		529,000		1,271,000		2,847,000

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 September 30, 2019, we had a total of $1.03 billion in unfunded loan commitments and $22.1 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $869 million were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $165 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 $407 million at September 30, 2019, compared to $375 million at December 31, 2018. The $32.0 million increase during the first nine months of 2019 primarily reflects the positive impact of net income totaling $36.1 million, compared to the negative impact of cash dividends and common stock repurchases totaling $12.7 million and $7.1 million, respectively. Reflecting the decline in market interest rates, the change in net unrealized holding gain/loss on securities available for sale, net of tax effect, had a $12.5 million positive impact on shareholders’ equity during the first nine months of 2019.

We announced on January 30, 2015 that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On April 19, 2016, we announced a $15.0 million expansion of the stock repurchase program. On May 7, 2019, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This latest authorization included a termination of the existing authorization as detailed above. During the first nine months of 2019, we repurchased a total of approximately 231,000 shares of common stock at a total price of $7.1 million, at an average price per share of $30.78. Since January 30, 2015 through September 30, 2019, we repurchased a total of approximately 1,390,000 shares of common stock at a total price of $32.6 million, at an average price per share of $23.47. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan, 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 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 was phased in over three years beginning in 2016. The capital buffer requirement raised the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. We believe that, as of September 30, 2019, our bank met 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 September 30, 2019, our bank’s total risk-based capital ratio was 12.5%, compared to 12.3% at December 31, 2018. Our bank’s total regulatory capital increased $27.7 million during the first nine months of 2019, in large part reflecting the net impact of net income totaling $40.9 million and cash dividends paid to us aggregating $16.6 million. Our bank’s total risk-based capital ratio was also impacted by a $159 million increase in total risk-weighted assets, primarily resulting from commercial loan growth. As of September 30, 2019, our bank’s total regulatory capital equaled $416 million, or $83.8 million in excess of the 10.0% minimum which is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of September 30, 2019 and December 31, 2018 are disclosed in Note 11 of the Notes to Condensed Consolidated Financial Statements.

Results of Operations

We recorded net income of $12.6 million, or $0.77 per basic and diluted share, for the third quarter of 2019, compared to net income of $10.1 million, or $0.61 per basic and diluted share, for the third quarter of 2018. We recorded net income of $36.1 million, or $2.20 per basic and diluted share, for the first nine months of 2019, compared to net income of $30.5 million, or $1.83 per basic and diluted share, for the first nine months of 2018.

Bank owned life insurance claims and a gain on the sale of a former branch facility increased net income during the first nine months of 2019 by $3.1 million, or $0.19 per diluted share. Interest income related to purchased loan accounting entries increased net income during the first nine months of 2019 by $0.9 million, or $0.05 per diluted share, and net income during the first nine months of 2018 by $2.7 million, or $0.16 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.29, or 17.4%, during the first nine months of 2019 compared to the respective 2018 period.

The higher level of net income during the third quarter of 2019 compared to the prior-year third quarter resulted from increased net interest income and noninterest income, which more than offset increased noninterest expense and provision expense. The growth in net interest income stemmed from a higher level of earning assets, and the improved noninterest income primarily resulted from increased mortgage banking activity income. Growth in credit and debit card income, service charges on accounts, and payroll processing fees also contributed to the higher level of noninterest income. The increased noninterest expense mainly resulted from higher salary costs.

The improved net income in the first nine months of 2019 compared to the respective prior-year period reflects increased net interest income and noninterest income, which more than offset higher noninterest expense and provision expense. The increase in net interest income resulted from a higher level of earning assets. Noninterest income during the first nine months of 2019 included bank owned life insurance claims and a gain on the sale of a former branch facility. Excluding these transactions, noninterest income during the first nine months of 2019 increased compared to the respective 2018 period, mainly reflecting higher mortgage banking activity income. Increased credit and debit card income, service charges on accounts, and payroll processing revenue also contributed to the growth in noninterest income. The higher level of noninterest expense primarily reflects increased salary costs.

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MERCANTILE BANK CORPORATION

Interest income during the third quarter of 2019 was $40.3 million, an increase of $4.8 million, or 13.6%, from the $35.5 million earned during the third quarter of 2018. The increase in interest income resulted from growth in, and a higher yield on, average earning assets. Average earning assets equaled $3.38 billion during the third quarter of 2019, up $322 million, or 10.5%, from the level of $3.06 billion during the third quarter of 2018; average loans increased $245 million, average interest-earning deposit balances were up $56.5 million, and average securities increased $20.8 million. The yield on average earning assets was 4.73% during the third quarter of 2019, compared to 4.60% during the prior-year third quarter. The increased yield on average earning assets primarily resulted from a higher yield on loans. The increase in the yield on loans from 4.91% during the third quarter of 2018 to 5.06% during the third quarter of 2019 was primarily due to a higher yield on commercial loans, which equaled 5.15% in the current-year third quarter compared to 5.01% during the prior-year third quarter. The improved yield on commercial loans primarily reflected the positive impact of higher interest rates on variable-rate commercial loans stemming from the Federal Open Market Committee’s (“FOMC”) raising of the targeted federal funds rate by 25 basis points in both September and December 2018. The impact of these rate increases more than offset the negative impact of lower interest rates on variable-rate commercial loans resulting from the FOMC’s lowering of the targeted federal funds rate by 25 basis points in both July and September 2019.

Interest income during the first nine months of 2019 was $119 million, an increase of $14.0 million, or 13.3%, from the $105 million earned during the first nine months of 2018. The increase in interest income resulted from growth in, and a higher yield on, average earning assets. Average earning assets equaled $3.30 billion during the first nine months of 2019, up $270 million, or 8.9%, from the level of $3.03 billion during the respective 2018 period; on an average basis, loans were up $244 million, securities increased $14.6 million, and interest-earning deposit balances were up $11.1 million. The yield on average earning assets was 4.82% during the first nine months of 2019, compared to 4.63% during the first nine months of 2018. The higher yield on average earning assets primarily resulted from an increased yield on loans, which equaled 5.15% during the first nine months of 2019, compared to 4.99% during the respective 2018 period. Excluding interest income related to purchased loan accounting entries, the yield on loans equaled 5.09% during the first nine months of 2019, compared to 4.81% during the respective 2018 period. Interest income related to purchased loan accounting entries totaled $1.1 million during the first nine months of 2019, compared to $3.4 million during the respective prior-year period. The increased yield on loans mainly stemmed from a higher yield on commercial loans, which equaled 5.25% and 5.07% during the first nine months of 2019 and 2018, respectively. The higher yield on commercial loans primarily resulted from higher interest rates on variable-rate commercial loans resulting from the FOMC raising the targeted federal funds by 25 basis points in each of March, June, September, and December 2018. The positive impact of these rate increases more than offset the negative impact of decreased interest rates on variable-rate commercial loans stemming from the FOMC lowering the targeted federal funds rate by 25 basis points in both July and September 2019.

Interest expense during the third quarter of 2019 was $8.7 million, an increase of $3.1 million, or 54.3%, from the $5.6 million expensed during the third quarter of 2018. The increase in interest expense is primarily attributable to a higher weighted average cost of interest-bearing liabilities, which equaled 1.52% in the third quarter of 2019, compared to 1.11% in the third quarter of 2018. The increase in the weighted average cost of interest-bearing liabilities primarily reflects a higher cost of time deposits and a change in funding mix. The cost of time deposits increased from 1.64% during the prior-year third quarter to 2.34% during the current-year third quarter, mainly reflecting the rising interest rate environment during 2018. A higher-costing time deposit special campaign, which was introduced in mid-first quarter 2019 and ended in early April 2019, also contributed to the increased cost of time deposits. On an average basis, higher-costing time deposits and borrowed funds represented 29.2% and 23.3%, respectively, of average interest-bearing liabilities during the third quarter of 2019, compared to 23.3% and 19.1%, respectively, during the prior-year third quarter. Increased reliance on more costly wholesale funds during the twelve months ended September 30, 2019, most of which occurred in the fourth quarter of 2018 and January 2019, was necessitated by various funding requirements, including ongoing loan growth and seasonal deposit withdrawals by certain business customers for bonus and tax payments. Average lower-costing interest-bearing non-time deposits represented 47.5% of average interest-bearing liabilities during the current-year third quarter, down from 57.6% during the respective 2018 period. An increase in average interest-bearing liabilities also contributed to the higher level of interest expense during the third quarter of 2019 compared to the prior-year third quarter. Average interest-bearing liabilities were $2.27 billion during the third quarter of 2019, up $259 million, or 12.9%, from the $2.01 billion average during the third quarter of 2018.

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MERCANTILE BANK CORPORATION

Interest expense during the first nine months of 2019 was $25.4 million, an increase of $9.9 million, or 63.7%, from the $15.5 million expensed during the first nine months of 2018. The increase in interest expense is primarily attributable to a higher weighted average cost of interest-bearing liabilities, which equaled 1.52% during the first nine months of 2019 compared to 1.02% during the respective 2018 period. The increase in the weighted average cost of interest-bearing liabilities primarily reflects higher costs of time deposits, borrowed funds, and certain non-time deposit account categories and a change in funding mix. The cost of time deposits increased from 1.50% during the first nine months of 2018 to 2.27% during the respective current-year period, primarily reflecting the rising interest rate environment during 2018. The previously-mentioned higher-costing time deposit special also contributed to the increased cost. The cost of borrowed funds increased from 2.00% during the first nine months of 2018 to 2.39% during the first nine months of 2019, mainly reflecting a higher cost of FHLBI advances, which equaled 2.38% during the first nine months of 2019 compared to 1.83% during the respective 2018 period. The higher cost primarily reflects the rising interest rate during 2018 and the lengthening of the average weighted maturity of the advance portfolio. Longer-term FHLBI advances totaling $194 million were obtained during the last eight months of 2018 and first month of 2019 to meet various funding needs. The cost of interest-bearing non-time deposit accounts increased from 0.52% during the first nine months of 2018 to 0.63% during the first nine months of 2019, mainly reflecting higher rates paid on money market accounts and a change in funding mix. The increased rates mainly reflect the rising interest rate environment during 2018. On an average basis, higher-costing money market accounts represented 44.1% of interest-bearing non-time deposits during the first nine months of 2019, up from 40.4% during the respective 2018 period. Average higher-costing time deposits and average borrowed funds represented 28.4% and 23.7%, respectively, of average interest-bearing liabilities during the first nine months of 2019, compared to 23.8% and 18.5%, respectively, during the first nine months of 2018. As noted previously, most of the increased reliance on more costly wholesale funds, which was necessitated by certain funding requirements, occurred in late 2018 and January 2019. Average lower-costing interest-bearing non-time deposits represented 47.9% of average interest-bearing liabilities during the first nine months of 2019, down from 57.7% during the respective 2018 period. An increase in interest-bearing liabilities also contributed to the higher level of interest expense during the first nine months of 2019 compared to the same time period in 2018. Average interest-bearing liabilities were $2.24 billion during the first nine months of 2019, up $215 million, or 10.6%, from the $2.03 billion average during the first nine months of 2018.

Net interest income during the third quarter of 2019 was $31.6 million, an increase of $1.8 million, or 5.9%, from the $29.8 million earned during the third quarter of 2018. The increase was due to growth in average earning assets. The net interest margin was 3.71% in the third quarter of 2019, compared to 3.87% in the prior-year third quarter. The yield on average earning assets equaled 4.73% during the third quarter of 2019, up from 4.60% during the respective 2018 period mainly due to an increased yield on commercial loans. The improved yield on commercial loans primarily reflects the positive impact of higher interest rates on variable-rate commercial loans stemming from the FOMC’s raising of the targeted federal funds rate by 25 basis points in both September and December 2018. The impact of these rate increases more than offset the negative impact of decreased rates on variable-rate commercial loans resulting from the FOMC’s lowering of the targeted federal funds rate in both July and September 2019. The cost of funds equaled 1.02% during the third quarter of 2019, up from 0.73% during the prior-year third quarter mainly due to an increased cost of time deposits and a change in funding mix.

Net interest income during the first nine months of 2019 was $93.4 million, an increase of $4.1 million, or 4.6%, from the $89.3 million earned during the first nine months of 2018. The increase was due to a higher level of average earning assets. The net interest margin was 3.79% during the first nine months of 2019, compared to 3.95% during the respective 2018 period. The yield on average earning assets equaled 4.82% during the first nine months of 2019, up from 4.63% during the respective 2018 period mainly due to an increased yield on commercial loans. The improved yield on commercial loans primarily reflects the positive impact of higher interest rates on variable-rate commercial loans stemming from the FOMC’s raising of the targeted federal funds rate by 25 basis points in each of March, June, September, and December 2018. The impact of these rate increases more than offset the negative impact of decreased rates on variable-rate commercial loans resulting from the FOMC’s lowering of the targeted federal funds rate by 25 basis points in both July and September 2019. The cost of funds equaled 1.03% during the first nine months of 2019, up from 0.68% during the respective prior-year period primarily due to increased costs of time deposits, borrowed funds, and certain non-time deposit account categories and a change in funding mix. Excluding interest income associated with purchased loan accounting entries, our core net interest margin was 3.75% during the first nine months of 2019, compared to 3.80% during the first nine months of 2018.

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MERCANTILE BANK CORPORATION

The following tables set 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 third quarters and first nine months of 2019 and 2018. 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 third quarters and first nine months of 2019 and 2018 have been computed on a tax equivalent basis using a marginal tax rate of 21%. Securities interest income was increased by $60,000 in both the third quarter of 2019 and the third quarter of 2018, and $180,000 and $210,000 in the first nine months of 2019 and 2018, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to one basis point increases in our net interest margin for each of the 2019 and 2018 periods.

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MERCANTILE BANK CORPORATION

	Quarters ended September 30,
	2 0 1 9								2 0 1 8
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	2,903,161		$	37,005		5.06	%	$	2,658,092		$	32,918		4.91	%
Investment securities		363,394			2,720		2.99			342,593			2,315		2.70
Other interest-earning assets		118,314			651		2.15			61,810			313		1.98
Total interest - earning assets		3,384,869			40,376		4.73			3,062,495			35,546		4.60
Allowance for loan losses		(24,498	)							(21,661	)
Other assets		261,797								254,295
Total assets	$	3,622,168							$	3,295,129
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	1,741,562		$	5,573		1.22	%	$	1,628,346		$	3,574		0.87	%
Short-term borrowings		112,739			71		0.25			97,090			63		0.26
Federal Home Loan Bank advances		367,370			2,257		2.40			237,609			1,201		1.98
Other borrowings		49,482			810		6.41			49,131			808		6.44
Total interest-bearing liabilities		2,271,153			8,711		1.52			2,012,176			5,646		1.11
Noninterest-bearing deposits		930,851								893,181
Other liabilities		16,814								12,198
Shareholders’ equity		403,350								377,574
Total liabilities and shareholders’ equity	$	3,622,168							$	3,295,129
Net interest income				$	31,665							$	29,900
Net interest rate spread							3.21	%							3.49	%
Net interest spread on average assets							3.47	%							3.60	%
Net interest margin on earning assets							3.71	%							3.87	%

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MERCANTILE BANK CORPORATION

	Nine months ended September 30,
	2 0 1 9								2 0 1 8
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	2,846,735		$	109,559		5.15	%	$	2,602,718		$	97,087		4.99	%
Investment securities		358,557			7,767		2.89			343,983			6,838		2.65
Other interest-earning assets		93,800			1,627		2.32			82,700			1,071		1.73
Total interest - earning assets		3,299,092			118,953		4.82			3,029,401			104,996		4.63
Allowance for loan losses		(23,598	)							(20,824	)
Other assets		256,347								250,576
Total assets	$	3,531,841							$	3,259,153
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	1,710,120		$	15,906		1.24	%	$	1,651,186		$	9,921		0.80	%
Short-term borrowings		108,262			244		0.30			100,165			181		0.24
Federal Home Loan Bank advances		373,436			6,751		2.38			226,154			3,134		1.83
Other borrowings		49,375			2,506		6.69			48,988			2,286		6.15
Total interest-bearing liabilities		2,241,193			25,407		1.52			2,026,493			15,522		1.02
Noninterest-bearing deposits		886,536								849,337
Other liabilities		14,484								12,318
Shareholders’ equity		389,628								371,005
Total liabilities and shareholders’ equity	$	3,531,841							$	3,259,153
Net interest income				$	93,546							$	89,474
Net interest rate spread							3.30	%							3.61	%
Net interest spread on average assets							3.54	%							3.67	%
Net interest margin on earning assets							3.79	%							3.95	%

A loan loss provision expense of $0.7 million was recorded during the third quarter of 2019, compared to $0.4 million during the third quarter of 2018. A loan loss provision expense of $2.5 million was recorded during the first nine months of 2019, compared to $1.1 million during the first nine months of 2018. The provision expense recorded during the 2019 and 2018 periods primarily reflects ongoing net loan growth; in addition, the provision expense recorded during the first nine months of 2018 depicts an increased allocation related to our “competitive environment” environmental factor. The amount of provision expense necessitated by net loan growth during the first nine months of 2018 was partially mitigated by net loan recoveries being recorded during the period.

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MERCANTILE BANK CORPORATION

Net loan charge-offs of $0.3 million and $0.4 million were recorded during the third quarter and first nine months of 2019, respectively, compared to net loan recoveries of $0.1 million and $1.1 million during the respective 2018 periods. The allowance for originated loans, as a percentage of total originated loans, was 0.9% as of both September 30, 2019, and September 30, 2018. Our allowances for originated loans and acquired loans totaled $23.7 million and $0.7 million, respectively, as of September 30, 2019, compared to $21.1 million and $0.6 million, respectively, as of September 30, 2018.

Noninterest income during the third quarter of 2019 was $6.7 million, up $2.0 million, or nearly 42%, from the prior-year third quarter. The improved level of noninterest income primarily reflected increased mortgage banking activity income stemming from the success of continuing strategic initiatives designed to increase market presence, along with a higher percentage of originated residential mortgage loans being sold and an increased level of refinance activity resulting from a recent decrease in residential mortgage loan interest rates. Residential mortgage loan originations totaled $133 million during the third quarter of 2019 compared to $66.8 million during the prior-year third quarter, representing an increase of $66.0 million, or nearly 99%. Sold residential mortgage loans represented approximately 79% of total originations during the third quarter of 2019, up from approximately 46% during the third quarter of 2018. Increased credit and debit card income, service charges on accounts, and payroll processing fees also contributed to the higher level of noninterest income.

Noninterest income during the first nine months of 2019 was $19.6 million, compared to $13.6 million during the same time period in 2018. Noninterest income during the first nine months of 2019 included bank owned life insurance claims aggregating $2.6 million and a gain on the sale of a former branch facility of $0.6 million. Excluding the impacts of these transactions, noninterest income increased $2.8 million, or 20.7%, in the first nine months of 2019 compared to the respective 2018 period. The increase in noninterest income primarily reflects higher mortgage banking activity. As noted previously, ongoing strategic initiatives intended to increase market penetration, along with a higher percentage of loans being sold and increased refinance activity stemming from interest rate declines, have enhanced mortgage banking activity income. Residential mortgage loan originations totaled $258 million during the first nine months of 2019, up $88.2 million, or approximately 52%, from the $170 million in originations during the first nine months of 2018. As a percentage of total originations, sold residential mortgage loans equaled approximately 68% during the first nine months of 2019, up from about 44% during the respective 2018 period. Growth in credit and debit card income, service charges on accounts, and payroll processing revenue also contributed to the higher level of noninterest income.

Noninterest expense totaled $22.0 million during the third quarter of 2019, up $0.4 million, or 1.7%, from the prior-year third quarter. Noninterest expense during the first nine months of 2019 was $65.9 million, an increase of $1.7 million, or 2.7%, from the $64.2 million expensed during the first nine months of 2018. The higher level of expense in both periods primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases, higher mortgage loan lender commissions, and increased stock-based compensation expense. Pay increases for all hourly employees, which went into effect on April 1, 2018, also contributed to the higher level of salary costs during the first nine months of 2019. Federal Deposit Insurance Corporation deposit insurance premiums were down $0.5 million in both the third quarter and first nine months of 2019 compared to the respective 2018 periods as a result of deposit insurance credits being applied against regular assessments.

During the third quarter of 2019, we recorded income before federal income tax of $15.6 million and a federal income tax expense of $3.0 million. During the third quarter of 2018, we recorded income before federal income tax of $12.5 million and a federal income tax expense of $2.4 million. During the first nine months of 2019, we recorded income before federal income tax of $44.6 million and a federal income tax expense of $8.5 million. During the first nine months of 2018, we recorded income before federal income tax of $37.6 million and a federal income tax expense of $7.1 million. The increased federal income tax expense in the 2019 periods compared to the respective 2018 periods resulted from higher levels of income before federal income tax. Our effective tax rate was 19.0% during both the third quarter and first nine months of 2019 and the respective 2018 periods.

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MERCANTILE BANK CORPORATION

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 September 30, 2019:

	Within			Three to			One to			After
	Three			Twelve			Five			Five
	Months			Months			Years			Years			Total
Assets:
Commercial loans (1)	$	1,198,795,000		$	111,925,000		$	878,800,000		$	310,743,000		$	2,500,263,000
Residential real estate loans		51,798,000			24,618,000			153,672,000			178,806,000			408,894,000
Consumer loans		2,294,000			1,200,000			18,134,000			2,228,000			23,856,000
Securities (2)		21,997,000			14,359,000			73,829,000			253,350,000			363,535,000
Other interest-earning assets		140,513,000			1,000,000			2,750,000			0			144,263,000
Allowance for loan losses		0			0			0			0			(24,414,000	)
Other assets		0			0			0			0			293,983,000
Total assets		1,415,397,000			153,102,000			1,127,185,000			745,127,000		$	3,710,380,000
Liabilities:
Interest-bearing checking		327,679,000			0			0			0			327,679,000
Savings deposits		269,958,000			0			0			0			269,958,000
Money market accounts		522,742,000			0			0			0			522,742,000
Time deposits under $100,000		32,107,000			83,373,000			89,287,000			0			204,767,000
Time deposits $100,000 & over		70,685,000			181,200,000			222,871,000			0			474,756,000
Short-term borrowings		103,990,000			0			0			0			103,990,000
Federal Home Loan Bank advances		10,000,000			30,000,000			284,000,000			40,000,000			364,000,000
Other borrowed money		49,534,000			0			0			0			49,534,000
Noninterest-bearing checking		0			0			0			0			967,189,000
Other liabilities		0			0			0			0			18,565,000
Total liabilities		1,386,695,000			294,573,000			596,158,000			40,000,000			3,303,180,000
Shareholders' equity		0			0			0			0			407,200,000
Total liabilities & shareholders' equity		1,386,695,000			294,573,000			596,158,000			40,000,000		$	3,710,380,000
Net asset (liability) GAP	$	28,702,000		$	(141,471,000	)	$	531,027,000		$	705,127,000
Cumulative GAP	$	28,702,000		$	(112,769,000	)	$	418,258,000		$	1,123,385,000
Percent of cumulative GAP to total assets		0.8	%		(3.0	%)		11.3	%		30.3	%

⁽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 September 30, 2019.

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.

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MERCANTILE BANK CORPORATION

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 September 30, 2019, in which it was assumed that changes in market interest rates occurred ranging from up 300 basis points to down 200 basis points in equal quarterly instalments over the next twelve months. The following table reflects the estimated dollar and percentage changes in net interest income over the next twelve months in comparison to the $123 million in net interest income projected using balance sheet amounts and anticipated replacement interest rates as of September 30, 2019. The resulting estimates are generally 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 200 basis points	$	(10,190,000	)		(8.2%)
Interest rates down 100 basis points		(5,220,000	)		(4.2)
Interest rates up 100 basis points		4,670,000			3.8
Interest rates up 200 basis points		9,280,000			7.5
Interest rates up 300 basis points		13,850,000			11.2

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 September 30, 2019, 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 September 30, 2019.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 2018, 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 September 30, 2019.

Issuer Purchases of Equity Securities

On May 7, 2019, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. Repurchases made during the third quarter of 2019 are detailed in the table below.

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
July 1 – 31		16,000	$	31.98		0	$	19,488,000
August 1 – 31		63,896		31.45		0		17,479,000
September 1 – 30		31,997		30.85		0		16,492,000
Total		111,893	$	31.36		0	$	16,492,000

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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MERCANTILE BANK CORPORATION

Item 6. Exhibits

Exhibit No.	EXHIBIT DESCRIPTION
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 February 26, 2015 are incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed February 26, 2015
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 September 30, 2019, 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

94

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 November 6, 2019.

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)

95

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:     November 6, 2019	By:	/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:     November 6, 2019	By:	/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 September 30, 2019 (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: November 6, 2019

By:	/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 September 30, 2019 (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: November 6, 2019

By:	/s/ Charles E. Christmas
	Charles E. Christmas
	Executive Vice President, Chief Financial Officer and Treasurer

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Note 9 - Fair Values of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	Level in		September 30, 2019				December 31, 2018
	Fair Value Hierarchy		Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash		Level 1	$	16,077	$	16,077	$	15,656	$	15,656
Cash equivalents		Level 2		212,461		212,461		59,698		59,698
Securities available for sale		(1)		345,533		345,533		337,366		337,366
FHLBI stock		(2)		18,002		18,002		16,022		16,022
Loans, net		Level 3		2,895,843		2,980,135		2,729,583		2,711,687
Loans held for sale		Level 2		12,756		12,756		1,122		1,122
Mortgage servicing rights		Level 2		4,385		7,117		4,436		8,444
Accrued interest receivable		Level 2		10,505		10,505		9,896		9,896
Financial liabilities:
Deposits		Level 2		2,767,091		2,666,671		2,463,708		2,471,617
Repurchase agreements		Level 2		103,990		103,990		103,519		103,519
FHLBI advances		Level 2		364,000		376,724		350,000		348,428
Subordinated debentures		Level 2		46,710		46,167		46,199		46,543
Accrued interest payable		Level 2		4,295		4,295		2,249		2,249

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

: The unaudited financial statements for the

nine

months ended

September 30, 2019

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 and Mercantile Insurance Center, Inc. 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

September 30, 2019

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,

2018.

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

260,000

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

three

and

nine

months ended

September 30, 2019.

In addition, stock options for approximately

4,000

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

three

and

nine

months ended

September 30, 2019.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

and

nine

months ended

September 30, 2019.

Approximately

230,000

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

three

and

nine

months ended

September 30, 2018.

In addition, stock options for approximately

16,000

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

three

and

nine

months ended

September 30, 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

and

nine

months ended

September 30, 2018.

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. 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 impairment (“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.

Financing Receivable, Held-for-investment [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.

Financing Receivable, Held-for-sale [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

September 30, 2019

and

December 31, 2018,

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

$12.8

million and

$1.1

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 an interest 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

$678

million as of

September 30, 2019.

Mortgage Banking Activity [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.

Troubled Debt Restructuring [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. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. 

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 the derivatives and 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. 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

2017

and

2018,

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 (generally monthly) 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

February 2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU (as subsequently amended by ASU

2018

-

01,

ASU

2018

-

10,

ASU

2018

-

11

and ASU

2018

-

20

) 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.

The adoption of this new standard as of

January 1, 2019

resulted in the recording of a ROU asset and associated lease liability of approximately

$1.3

million.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Measurement of Credit Losses on Financial Instruments

. This ASU (as subsequently amended by ASU

2018

-

19

) 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 have completed our initial framework and developed our initial assumptions. We are now finalizing and documenting new processes and controls, challenging assumptions and outputs, refining the qualitative inputs and drafting policies and disclosures. Additionally, parallel runs will be enhanced throughout the remainder of

2019

as the processes, controls and policies are finalized by year-end

2019.

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Note 5 - Deposits (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	September 30, 2019					December 31, 2018					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing checking	$	967,189,000		35.0	%	$	889,784,000		36.1	%		8.7	%
Interest-bearing checking		327,679,000		11.8			339,089,000		13.8			(3.4	)
Money market		522,742,000		18.9			434,333,000		17.6			20.4
Savings		269,958,000		9.8			317,014,000		12.9			(14.8	)
Time, under $100,000		204,767,000		7.4			160,092,000		6.5			27.9
Time, $100,000 and over		321,311,000		11.6			210,164,000		8.5			52.9
Total local deposits		2,613,646,000		94.5			2,350,476,000		95.4			11.2
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		153,445,000		5.5			113,232,000		4.6			35.5
Total out-of-area deposits		153,445,000		5.5			113,232,000		4.6			35.5
Total deposits	$	2,767,091,000		100.0	%	$	2,463,708,000		100.0	%		12.3	%

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Note 10 - Fair Values - Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Details) - Fair Value, Nonrecurring [Member] - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Impaired loans	$ 24,193,000	$ 8,181,000
Foreclosed assets	243,000	811,000
Total	24,436,000	8,992,000
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	24,193,000	8,181,000
Foreclosed assets	243,000	811,000
Total	$ 24,436,000	$ 8,992,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified as Troubled Debt Restructurings (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Originated Loan [Member]
Number of Contracts	3	6	12	12
Pre- Modification Recorded Principal Balance	$ 129,000	$ 5,402,000	$ 16,148,000	$ 7,497,000
Post- Modification Recorded Principal Balance	$ 129,000	$ 5,248,000	$ 16,445,000	$ 7,437,000
Acquired Loan [Member]
Number of Contracts	6	3	16	14
Pre- Modification Recorded Principal Balance	$ 199,000	$ 195,000	$ 492,000	$ 437,000
Post- Modification Recorded Principal Balance	$ 198,000	$ 191,000	$ 493,000	$ 433,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	2	6	9	11
Pre- Modification Recorded Principal Balance	$ 115,000	$ 5,402,000	$ 16,111,000	$ 7,447,000
Post- Modification Recorded Principal Balance	$ 115,000	$ 5,248,000	$ 16,408,000	$ 7,387,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	1	5	7	9
Pre- Modification Recorded Principal Balance	$ 28,000	$ 3,118,000	$ 14,457,000	$ 4,186,000
Post- Modification Recorded Principal Balance	$ 28,000	$ 2,964,000	$ 14,754,000	$ 4,126,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	1	0	1	0
Pre- Modification Recorded Principal Balance	$ 87,000	$ 0	$ 87,000	$ 0
Post- Modification Recorded Principal Balance	$ 87,000	$ 0	$ 87,000	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	1	1	2
Pre- Modification Recorded Principal Balance	$ 0	$ 2,284,000	$ 1,567,000	$ 3,261,000
Post- Modification Recorded Principal Balance	$ 0	$ 2,284,000	$ 1,567,000	$ 3,261,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	1	2	1	2
Pre- Modification Recorded Principal Balance	$ 102,000	$ 183,000	$ 102,000	$ 183,000
Post- Modification Recorded Principal Balance	$ 102,000	$ 179,000	$ 102,000	$ 179,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	0	1	0	1
Pre- Modification Recorded Principal Balance	$ 0	$ 33,000	$ 0	$ 33,000
Post- Modification Recorded Principal Balance	$ 0	$ 29,000	$ 0	$ 29,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	1	1	1	1
Pre- Modification Recorded Principal Balance	$ 102,000	$ 150,000	$ 102,000	$ 150,000
Post- Modification Recorded Principal Balance	$ 102,000	$ 150,000	$ 102,000	$ 150,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Retail Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	1	0	3	1
Pre- Modification Recorded Principal Balance	$ 14,000	$ 0	$ 37,000	$ 50,000
Post- Modification Recorded Principal Balance	$ 14,000	$ 0	$ 37,000	$ 50,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Number of Contracts	1	0	3	1
Pre- Modification Recorded Principal Balance	$ 14,000	$ 0	$ 37,000	$ 50,000
Post- Modification Recorded Principal Balance	$ 14,000	$ 0	$ 37,000	$ 50,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	5	1	15	12
Pre- Modification Recorded Principal Balance	$ 97,000	$ 12,000	$ 390,000	$ 254,000
Post- Modification Recorded Principal Balance	$ 96,000	$ 12,000	$ 391,000	$ 254,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Number of Contracts	4	0	10	10
Pre- Modification Recorded Principal Balance	$ 48,000	$ 0	$ 188,000	$ 217,000
Post- Modification Recorded Principal Balance	$ 47,000	$ 0	$ 188,000	$ 218,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	1	1	5	2
Pre- Modification Recorded Principal Balance	$ 49,000	$ 12,000	$ 202,000	$ 37,000
Post- Modification Recorded Principal Balance	$ 49,000	$ 12,000	$ 203,000	$ 36,000

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Note 3 - Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Originated Loan [Member]
With no related allowance recorded, unpaid principal balance	$ 22,671,000		$ 22,671,000		$ 10,990,000
With no related allowance recorded, principal balance	22,072,000		22,072,000		10,306,000
With no related allowance recorded, average recorded principal balance	17,750,000	$ 2,459,000	14,237,000	$ 3,171,000
With related allowance recorded, unpaid principal balance	5,682,000		5,682,000		8,660,000
With related allowance recorded, principal balance	5,590,000		5,590,000		8,576,000
Related allowance	2,025,000		2,025,000		689,000
With related allowance recorded, average recorded principal balance	9,975,000	6,841,000	9,393,000	6,031,000
Total unpaid principal balance	28,353,000		28,353,000		19,650,000
Total principal balance	27,662,000		27,662,000		18,882,000
Total average recorded principal balance	27,725,000	9,300,000	23,630,000	9,202,000
Originated Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	21,032,000		21,032,000		9,330,000
With no related allowance recorded, principal balance	21,032,000		21,032,000		9,330,000
With no related allowance recorded, average recorded principal balance	16,657,000	1,338,000	13,204,000	2,034,000
With related allowance recorded, unpaid principal balance	4,866,000		4,866,000		7,809,000
With related allowance recorded, principal balance	4,866,000		4,866,000		7,804,000
Related allowance	1,699,000		1,699,000		451,000
With related allowance recorded, average recorded principal balance	9,261,000	6,032,000	8,664,000	5,099,000
Total unpaid principal balance	25,898,000		25,898,000		17,139,000
Total principal balance	25,898,000		25,898,000		17,134,000
Total average recorded principal balance	25,918,000	7,370,000	21,868,000	7,133,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	20,280,000		20,280,000		8,604,000
With no related allowance recorded, principal balance	20,280,000		20,280,000		8,604,000
With no related allowance recorded, average recorded principal balance	15,144,000	732,000	12,117,000	469,000
With related allowance recorded, unpaid principal balance	3,333,000		3,333,000		5,011,000
With related allowance recorded, principal balance	3,333,000		3,333,000		5,011,000
Related allowance	699,000		699,000		83,000
With related allowance recorded, average recorded principal balance	8,494,000	3,572,000	6,876,000	3,067,000
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	87,000		87,000		94,000
With no related allowance recorded, principal balance	87,000		87,000		94,000
With no related allowance recorded, average recorded principal balance	88,000	98,000	90,000	58,000
With related allowance recorded, unpaid principal balance	0		0		0
With related allowance recorded, principal balance	0		0		0
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	665,000		665,000		632,000
With no related allowance recorded, principal balance	665,000		665,000		632,000
With no related allowance recorded, average recorded principal balance	1,362,000	383,000	965,000	1,273,000
With related allowance recorded, unpaid principal balance	1,533,000		1,533,000		2,658,000
With related allowance recorded, principal balance	1,533,000		1,533,000		2,658,000
Related allowance	1,000,000		1,000,000		363,000
With related allowance recorded, average recorded principal balance	767,000	2,320,000	1,722,000	1,926,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0		0
With no related allowance recorded, principal balance	0		0		0
With no related allowance recorded, average recorded principal balance	0	0	0	0
With related allowance recorded, unpaid principal balance	0		0		0
With related allowance recorded, principal balance	0		0		0
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0		0
With no related allowance recorded, principal balance	0		0		0
With no related allowance recorded, average recorded principal balance	63,000	125,000	32,000	234,000
With related allowance recorded, unpaid principal balance	0		0		140,000
With related allowance recorded, principal balance	0		0		135,000
Related allowance	0		0		5,000
With related allowance recorded, average recorded principal balance	0	140,000	66,000	106,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	1,639,000		1,639,000		1,660,000
With no related allowance recorded, principal balance	1,040,000		1,040,000		976,000
With no related allowance recorded, average recorded principal balance	1,093,000	1,121,000	1,033,000	1,137,000
With related allowance recorded, unpaid principal balance	816,000		816,000		851,000
With related allowance recorded, principal balance	724,000		724,000		772,000
Related allowance	326,000		326,000		238,000
With related allowance recorded, average recorded principal balance	714,000	809,000	729,000	932,000
Total unpaid principal balance	2,455,000		2,455,000		2,511,000
Total principal balance	1,764,000		1,764,000		1,748,000
Total average recorded principal balance	1,807,000	1,930,000	1,762,000	2,069,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	743,000		743,000		607,000
With no related allowance recorded, principal balance	720,000		720,000		586,000
With no related allowance recorded, average recorded principal balance	764,000	719,000	680,000	717,000
With related allowance recorded, unpaid principal balance	411,000		411,000		442,000
With related allowance recorded, principal balance	397,000		397,000		431,000
Related allowance	312,000		312,000		194,000
With related allowance recorded, average recorded principal balance	385,000	463,000	395,000	643,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	896,000		896,000		1,053,000
With no related allowance recorded, principal balance	320,000		320,000		390,000
With no related allowance recorded, average recorded principal balance	329,000	402,000	353,000	420,000
With related allowance recorded, unpaid principal balance	405,000		405,000		409,000
With related allowance recorded, principal balance	327,000		327,000		341,000
Related allowance	14,000		14,000		44,000
With related allowance recorded, average recorded principal balance	329,000	346,000	334,000	289,000
Acquired Loan [Member]
With no related allowance recorded, unpaid principal balance	3,720,000		3,720,000		4,518,000
With no related allowance recorded, principal balance	2,832,000		2,832,000		3,827,000
With no related allowance recorded, average recorded principal balance	3,348,000	4,346,000	3,548,000	4,469,000
With related allowance recorded, unpaid principal balance	888,000		888,000		1,415,000
With related allowance recorded, principal balance	882,000		882,000		1,337,000
Related allowance	242,000		242,000		310,000
With related allowance recorded, average recorded principal balance	823,000	34,000	1,053,000	412,000
Total unpaid principal balance	4,608,000		4,608,000		5,933,000
Total principal balance	3,714,000		3,714,000		5,164,000
Total average recorded principal balance	4,171,000	4,380,000	4,601,000	4,881,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	677,000		677,000		1,636,000
With no related allowance recorded, principal balance	655,000		655,000		1,617,000
With no related allowance recorded, average recorded principal balance	1,078,000	1,495,000	1,273,000	1,714,000
With related allowance recorded, unpaid principal balance	235,000		235,000		535,000
With related allowance recorded, principal balance	233,000		233,000		526,000
Related allowance	35,000		35,000		43,000
With related allowance recorded, average recorded principal balance	186,000	0	345,000	400,000
Total unpaid principal balance	912,000		912,000		2,171,000
Total principal balance	888,000		888,000		2,143,000
Total average recorded principal balance	1,264,000	1,495,000	1,618,000	2,114,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	307,000		307,000		398,000
With no related allowance recorded, principal balance	307,000		307,000		398,000
With no related allowance recorded, average recorded principal balance	330,000	648,000	363,000	763,000
With related allowance recorded, unpaid principal balance	134,000		134,000		175,000
With related allowance recorded, principal balance	132,000		132,000		166,000
Related allowance	30,000		30,000		43,000
With related allowance recorded, average recorded principal balance	135,000	0	146,000	0
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		0
With no related allowance recorded, principal balance	0		0		0
With no related allowance recorded, average recorded principal balance	0	0	0	0
With related allowance recorded, unpaid principal balance	0		0		0
With related allowance recorded, principal balance	0		0		0
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	126,000		126,000		1,193,000
With no related allowance recorded, principal balance	126,000		126,000		1,193,000
With no related allowance recorded, average recorded principal balance	521,000	588,000	768,000	638,000
With related allowance recorded, unpaid principal balance	101,000		101,000		147,000
With related allowance recorded, principal balance	101,000		101,000		147,000
Related allowance	5,000		5,000		0
With related allowance recorded, average recorded principal balance	51,000	0	98,000	400,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	209,000		209,000		0
With no related allowance recorded, principal balance	207,000		207,000		0
With no related allowance recorded, average recorded principal balance	209,000	221,000	120,000	228,000
With related allowance recorded, unpaid principal balance	0		0		210,000
With related allowance recorded, principal balance	0		0		210,000
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	100,000	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	35,000		35,000		45,000
With no related allowance recorded, principal balance	15,000		15,000		26,000
With no related allowance recorded, average recorded principal balance	18,000	38,000	22,000	85,000
With related allowance recorded, unpaid principal balance	0		0		3,000
With related allowance recorded, principal balance	0		0		3,000
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	1,000	0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	3,043,000		3,043,000		2,882,000
With no related allowance recorded, principal balance	2,177,000		2,177,000		2,210,000
With no related allowance recorded, average recorded principal balance	2,270,000	2,851,000	2,275,000	2,755,000
With related allowance recorded, unpaid principal balance	653,000		653,000		880,000
With related allowance recorded, principal balance	649,000		649,000		811,000
Related allowance	207,000		207,000		267,000
With related allowance recorded, average recorded principal balance	637,000	34,000	708,000	12,000
Total unpaid principal balance	3,696,000		3,696,000		3,762,000
Total principal balance	2,826,000		2,826,000		3,021,000
Total average recorded principal balance	2,907,000	2,885,000	2,983,000	2,767,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	577,000		577,000		388,000
With no related allowance recorded, principal balance	527,000		527,000		361,000
With no related allowance recorded, average recorded principal balance	578,000	778,000	522,000	678,000
With related allowance recorded, unpaid principal balance	247,000		247,000		462,000
With related allowance recorded, principal balance	245,000		245,000		440,000
Related allowance	120,000		120,000		178,000
With related allowance recorded, average recorded principal balance	243,000	34,000	306,000	12,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	2,466,000		2,466,000		2,494,000
With no related allowance recorded, principal balance	1,650,000		1,650,000		1,849,000
With no related allowance recorded, average recorded principal balance	1,692,000	2,073,000	1,753,000	2,077,000
With related allowance recorded, unpaid principal balance	406,000		406,000		418,000
With related allowance recorded, principal balance	404,000		404,000		371,000
Related allowance	87,000		87,000		$ 89,000
With related allowance recorded, average recorded principal balance	$ 394,000	$ 0	$ 402,000	$ 0

XML

Note 4 - Premises and Equipment, Net (Details Textual) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Depreciation, Total	$ 0.9	$ 0.9	$ 2.8	$ 2.6

XML

Note 8 - Commitments and Off-balance Sheet Risk - Exposure to Credit Losses (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Contractual amounts of financial instruments with off-balance sheet risk	$ 1,055,613,000	$ 1,036,775,000
Standby Letters of Credit [Member]
Contractual amounts of financial instruments with off-balance sheet risk	22,138,000	25,322,000
Unused lines of Credit [Member] | Commercial Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	735,856,000	784,895,000
Unused lines of Credit [Member] | One to Four Family Mortgages [Member]
Contractual amounts of financial instruments with off-balance sheet risk	59,361,000	57,378,000
Unused lines of Credit [Member] | Consumer Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	56,340,000	47,432,000
Unused lines of Credit [Member] | Consumer Other Financing Receivable 1 [Member]
Contractual amounts of financial instruments with off-balance sheet risk	17,275,000	20,231,000
Loan Origination Commitments [Member]
Contractual amounts of financial instruments with off-balance sheet risk	$ 164,643,000	$ 101,517,000

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Sep. 30, 2019	Dec. 31, 2018
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 issued (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)	16,332,660	16,534,256
Common stock, shares issued (in shares)	16,332,660	16,534,256

XML

Note 4 - Premises and Equipment, Net - Summary of Premises and Equipment (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Property, plant and equipment, gross	$ 90,642,000	$ 81,699,000
Less: accumulated depreciation	36,057,000	33,378,000
Premises and equipment, net	54,585,000	48,321,000
Land and Land Improvements [Member]
Property, plant and equipment, gross	18,217,000	18,198,000
Building [Member]
Property, plant and equipment, gross	51,140,000	45,362,000
Furniture and Fixtures [Member]
Property, plant and equipment, gross	$ 21,285,000	$ 18,139,000

XML

Note 6 - Securities Sold Under Agreements to Repurchase - Securities Sold Under Agreement to Repurchase (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Securities sold under agreements to repurchase	$ 103,990,000	$ 103,519,000
Average daily balance during the period	106,396,000	101,005,000
Maximum daily balance during the period	$ 133,411,000	$ 123,046,000
Securities Sold under Agreements to Repurchase [Member]
Average interest rate at end of period	0.21%	0.26%
Average interest rate during the period	0.25%	0.24%

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Common Stock Including Additional Paid in Capital [Member]
Employee stock purchase plan (in shares)	402	414	1,201	1,169
Dividend reinvestment plan (in shares)	5,445	4,952	16,392	14,015
Share repurchase program (in shares)	111,893		231,013
Stock option exercises (in shares)		1,800	2,500	8,800
Stock grants to directors (in shares)			11,905	11,171
Retained Earnings [Member]
Cash dividends per common share (in dollars per share)	$ 0.27	$ 0.24	$ 0.79	$ 0.68
Cash dividends per common share (in dollars per share)	$ 0.27	$ 0.24	$ 0.79	$ 0.68

XML

Note 2 - Securities - Debt Securities by Maturity (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Due in 2019, weighted average yield	1.92%
Due in 2019, amortized cost	$ 3,487,000
Due in 2019, fair value	$ 3,488,000
Due in 2020 through 2024, weighted average yield	2.31%
Due in 2020 through 2024, amortized cost	$ 67,321,000
Due in 2020 through 2024, fair value	$ 67,802,000
Due in 2025 through 2029, weighted average yield	2.70%
Due in 2025 through 2029, amortized cost	$ 113,584,000
Due in 2025 through 2029, fair value	$ 115,696,000
Due in 2030 and beyond, weighted average yield	3.11%
Due in 2030 and beyond, amortized cost	$ 112,686,000
Due in 2030 and beyond, fair value	$ 115,076,000
Weighted average yield	2.78%
Amortized cost	$ 340,141,000	$ 347,795,000
Fair value	$ 345,533,000	337,366,000
Collateralized Mortgage Backed Securities [Member]
No single maturity, weighted average yield	2.87%
No single maturity, amortized cost	$ 42,563,000
No single maturity, fair value	42,971,000
Amortized cost	42,563,000	44,263,000
Fair value	$ 42,971,000	43,658,000
Other Debt and Equity Securities [Member]
No single maturity, weighted average yield	4.50%
No single maturity, amortized cost	$ 500,000
No single maturity, fair value	500,000
Amortized cost	500,000	500,000
Fair value	$ 500,000	$ 500,000

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Note 1 - Significant Accounting Policies (Details Textual) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) shares	Sep. 30, 2018 shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2018 shares	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Number of Unconsolidated Business Trusts Formed to Issue Trust Preferred Securities	5		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, Ending Balance	$ 12.8		$ 12.8			$ 1.1
Servicing Asset, Total	$ 678.0		$ 678.0
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset					$ 1.3
Operating Lease, Liability, Total					$ 1.3
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	260,000	230,000	260,000	230,000
Share-based Payment Arrangement, Option [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights | shares	4,000	16,000	4,000	16,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | shares	7,000	7,000	7,000	7,000

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Note 3 - Loans and Allowance for Loan Losses - Nonperforming Loans (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
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 loans	2,644,000	4,141,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Total nonperforming loans	211,000	1,108,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Total nonperforming loans	0	17,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Total nonperforming loans	0	0
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Total nonperforming loans	183,000	950,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Total nonperforming loans	25,000	0
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Total nonperforming loans	3,000	141,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member]
Total nonperforming loans	2,433,000	3,033,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Total nonperforming loans	279,000	454,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Total nonperforming loans	2,154,000	2,579,000
Nonperforming Financial Instruments [Member] | Originated Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	753,000	803,000
Total nonperforming loans	753,000	803,000
Nonperforming Financial Instruments [Member] | Acquired Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	1,891,000	3,338,000
Total nonperforming loans	$ 1,891,000	$ 3,338,000

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Note 4 - Premises and Equipment, Net

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

    

PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	September 30, 2019		December 31, 2018
Land and improvements	$	18,217,000	$	18,198,000
Buildings		51,140,000		45,362,000
Furniture and equipment		21,285,000		18,139,000
		90,642,000		81,699,000
Less: accumulated depreciation		36,057,000		33,378,000
Premises and equipment, net	$	54,585,000	$	48,321,000

Depreciation expense totaled

$0.9

million during the

third

quarter of

2019

and

2018.

Depreciation expense totaled

$2.8

million during the

first

nine

months of

2019,

compared to

$2.6

million during the

first

nine

months of

2018.

XML

Note 8 - Commitments and Off-balance Sheet Risk

9 Months Ended

Sep. 30, 2019

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 recorded as a liability. There was

no

liability balance for these instruments as of

September 30, 2019

and

December 31, 2018.

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

September 30, 2019

and

December 31, 2018

follows:

	September 30, 2019		December 31, 2018
Commercial unused lines of credit	$	735,856,000	$	784,895,000
Unused lines of credit secured by 1 – 4 family residential properties		59,361,000		57,378,000
Credit card unused lines of credit		56,340,000		47,432,000
Other consumer unused lines of credit		17,275,000		20,231,000
Commitments to make loans		164,643,000		101,517,000
Standby letters of credit		22,138,000		25,322,000
	$	1,055,613,000	$	1,036,775,000

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 84,275,000	$ 64,872,000
Interest-earning deposits	144,263,000	10,482,000
Total cash and cash equivalents	228,538,000	75,354,000
Securities available for sale	345,533,000	337,366,000
Federal Home Loan Bank stock	18,002,000	16,022,000
Loans	2,933,013,000	2,753,085,000
Allowance for loan losses	(24,414,000)	(22,380,000)
Loans, net	2,908,599,000	2,730,705,000
Premises and equipment, net	54,585,000	48,321,000
Bank owned life insurance	67,993,000	69,647,000
Goodwill	49,473,000	49,473,000
Core deposit intangible, net	4,237,000	5,561,000
Other assets	33,420,000	31,458,000
Total assets	3,710,380,000	3,363,907,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing	967,189,000	889,784,000
Interest-bearing	1,799,902,000	1,573,924,000
Total deposits	2,767,091,000	2,463,708,000
Securities sold under agreements to repurchase	103,990,000	103,519,000
Federal Home Loan Bank advances	364,000,000	350,000,000
Subordinated debentures	46,710,000	46,199,000
Accrued interest and other liabilities	21,389,000	25,232,000
Total liabilities	3,303,180,000	2,988,658,000
Commitments and contingent liabilities (Note 8)
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; 16,332,660 shares issued and outstanding at September 30, 2019 and 16,534,256 shares issued and outstanding at December 31, 2018	304,065,000	308,005,000
Retained earnings	98,876,000	75,483,000
Accumulated other comprehensive gain/(loss)	4,259,000	(8,239,000)
Total shareholders’ equity	407,200,000	375,249,000
Total liabilities and shareholders’ equity	$ 3,710,380,000	$ 3,363,907,000

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Note 5 - Deposits (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Deposits, Total	$ 2,767,091,000	$ 2,463,708,000
Increase (Decrease) in Deposits, Total	$ 303,000,000
Aggregate Increase (Decrease) in Percentage of Deposits	12.30%
Time Deposits, at or Above FDIC Insurance Limit	$ 340,000,000	$ 232,000,000

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances (Details Textual) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Long-term Federal Home Loan Bank Advances, Total	$ 364,000,000	$ 350,000,000
Line of Credit Facility, Maximum Borrowing Capacity	777,000,000
Line of Credit Facility, Remaining Borrowing Capacity	407,000,000
Federal Home Loan Bank of Indianapolis [Member]
Long-term Federal Home Loan Bank Advances, Total	$ 364,000,000	$ 350,000,000
Federal Home Loan Bank of Indianapolis [Member] | Minimum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	1.20%	1.20%
Federal Home Loan Bank of Indianapolis [Member] | Maximum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	3.18%	3.18%
Federal Home Loan Bank of Indianapolis [Member] | Weighted Average [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate	2.41%	2.30%

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock Including Additional Paid in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances at Dec. 31, 2017	$ 0	$ 309,772,000	$ 61,001,000	$ (4,903,000)	$ 365,870,000
Employee stock purchase plan		40,000			40,000
Dividend reinvestment plan		500,000			500,000
Stock-based compensation expense		1,763,000			1,763,000
Cash dividends			(11,134,000)		(11,134,000)
Net income			30,450,000		30,450,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(8,494,000)	(8,494,000)
Stock option exercises		66,000			66,000
Stock grants to directors for retainer fees		403,000			403,000
Reclassification of equity securities related to ASU 2016-01 adoption			(42,000)	42,000	0
Change in fair value of interest rate swap, net of tax effect				1,000	1,000
Balances at Sep. 30, 2018	0	312,544,000	80,275,000	(13,354,000)	379,465,000
Balances at Jun. 30, 2018	0	311,720,000	74,084,000	(10,885,000)	374,919,000
Employee stock purchase plan		14,000			14,000
Dividend reinvestment plan		172,000			172,000
Stock-based compensation expense		627,000			627,000
Cash dividends			(3,932,000)		(3,932,000)
Net income			10,123,000		10,123,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(2,469,000)	(2,469,000)
Stock option exercises		11,000			11,000
Balances at Sep. 30, 2018	0	312,544,000	80,275,000	(13,354,000)	379,465,000
Balances at Dec. 31, 2018	0	308,005,000	75,483,000	(8,239,000)	375,249,000
Employee stock purchase plan		39,000			39,000
Dividend reinvestment plan		541,000			541,000
Stock-based compensation expense		2,199,000			2,199,000
Share repurchase program		(7,110,000)			(7,110,000)
Cash dividends			(12,746,000)		(12,746,000)
Net income			36,139,000		36,139,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				12,498,000	12,498,000
Stock option exercises		16,000			16,000
Stock grants to directors for retainer fees		375,000			375,000
Balances at Sep. 30, 2019	0	304,065,000	98,876,000	4,259,000	407,200,000
Balances at Jun. 30, 2019	0	306,669,000	90,618,000	2,830,000	400,117,000
Employee stock purchase plan		13,000			13,000
Dividend reinvestment plan		180,000			180,000
Stock-based compensation expense		711,000			711,000
Share repurchase program		(3,508,000)			(3,508,000)
Cash dividends			(4,342,000)		(4,342,000)
Net income			12,600,000		12,600,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				1,429,000	1,429,000
Balances at Sep. 30, 2019	$ 0	$ 304,065,000	$ 98,876,000	$ 4,259,000	$ 407,200,000

XML

Note 9 - Fair Values of Financial Instruments - Fair Value Hierarchy of Financial Instruments (Details) - USD ($)		Sep. 30, 2019	Dec. 31, 2018
Securities available for sale		$ 345,533,000	$ 337,366,000
Reported Value Measurement [Member]
Securities available for sale	[1]	345,533,000	337,366,000
FHLBI stock	[2]	18,002,000	16,022,000
Estimate of Fair Value Measurement [Member]
Securities available for sale	[1]	345,533,000	337,366,000
FHLBI stock	[2]	18,002,000	16,022,000
Fair Value, Inputs, Level 1 [Member]
Securities available for sale		0	0
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member]
Cash		16,077,000	15,656,000
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Cash		16,077,000	15,656,000
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member]
Cash equivalents		212,461,000	59,698,000
Loans held for sale		12,756,000	1,122,000
Mortgage servicing rights		4,385,000	4,436,000
Accrued interest receivable		10,505,000	9,896,000
Deposits		2,767,091,000	2,463,708,000
Repurchase agreements		103,990,000	103,519,000
FHLBI advances		364,000,000	350,000,000
Subordinated debentures		46,710,000	46,199,000
Accrued interest payable		4,295,000	2,249,000
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Cash equivalents		212,461,000	59,698,000
Loans held for sale		12,756,000	1,122,000
Mortgage servicing rights		7,117,000	8,444,000
Accrued interest receivable		10,505,000	9,896,000
Deposits		2,666,671,000	2,471,617,000
Repurchase agreements		103,990,000	103,519,000
FHLBI advances		376,724,000	348,428,000
Subordinated debentures		46,167,000	46,543,000
Accrued interest payable		4,295,000	2,249,000
Fair Value, Inputs, Level 3 [Member] | Reported Value Measurement [Member]
Loans, net		2,895,843,000	2,729,583,000
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Loans, net		$ 2,980,135,000	$ 2,711,687,000

[1] See Note 10 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; therefore, fair value is estimated at carrying amount.

XML

Note 3 - Loans and Allowance for Loan Losses - Acquired Impaired Loans Accretable Yield (Details) - USD ($)		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Balance at beginning of period		$ 1,236,000	$ 1,247,000	$ 1,274,000	$ 1,404,000
Additions		0	0	9,000	0
Accretion income		(90,000)	(118,000)	(315,000)	(372,000)
Net reclassification from nonaccretable to accretable		230,000	118,000	435,000	289,000
Reductions (1)	[1]	(57,000)	(2,000)	(84,000)	(76,000)
Balance at end of period		$ 1,319,000	$ 1,245,000	$ 1,319,000	$ 1,245,000

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

XML

Note 2 - Securities - Securities in a Continuous Loss Position (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Securities available for sale, continuous unrealized loss position, less than 12 months	$ 17,478,000	$ 72,791,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	374,000	1,582,000
Securities available for sale, continuous unrealized loss position, 12 months or more	74,296,000	205,540,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	723,000	9,775,000
Securities available for sale, continuous unrealized loss position	91,774,000	278,331,000
Securities available for sale, continuous unrealized loss position, unrealized loss	1,097,000	11,357,000
US Government Agencies Debt Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	15,630,000	31,220,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	370,000	1,136,000
Securities available for sale, continuous unrealized loss position, 12 months or more	53,935,000	136,445,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	588,000	8,206,000
Securities available for sale, continuous unrealized loss position	69,565,000	167,665,000
Securities available for sale, continuous unrealized loss position, unrealized loss	958,000	9,342,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	0	11,460,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	0	136,000
Securities available for sale, continuous unrealized loss position, 12 months or more	17,049,000	23,762,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	116,000	656,000
Securities available for sale, continuous unrealized loss position	17,049,000	35,222,000
Securities available for sale, continuous unrealized loss position, unrealized loss	116,000	792,000
Municipal General Obligation Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	1,848,000	28,923,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	4,000	299,000
Securities available for sale, continuous unrealized loss position, 12 months or more	2,758,000	43,961,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	18,000	866,000
Securities available for sale, continuous unrealized loss position	4,606,000	72,884,000
Securities available for sale, continuous unrealized loss position, unrealized loss	22,000	1,165,000
Municipal Revenue Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	0	1,188,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	0	11,000
Securities available for sale, continuous unrealized loss position, 12 months or more	554,000	1,372,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	1,000	47,000
Securities available for sale, continuous unrealized loss position	554,000	2,560,000
Securities available for sale, continuous unrealized loss position, unrealized loss	1,000	58,000
Other Debt and Equity Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	0	0
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	0	0
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	0	0
Securities available for sale, continuous unrealized loss position, unrealized loss	$ 0	$ 0

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Note 11 - Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2019
Total capital (to risk weighted assets)
Consolidated	$	419,424		12.6	%	$	266,218		8.0	%	$	NA		NA
Bank		416,302		12.5			266,178		8.0			332,723		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		395,010		11.9			199,664		6.0			NA		NA
Bank		391,889		11.8			199,634		6.0			266,178		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		350,374		10.5			149,748		4.5			NA		NA
Bank		391,889		11.8			149,725		4.5			216,270		6.5
Tier 1 capital (to average assets)
Consolidated		395,010		11.1			142,581		4.0			NA		NA
Bank		391,889		11.0			142,561		4.0			178,201		5.0
December 31, 2018
Total capital (to risk weighted assets)
Consolidated	$	396,102		12.5	%	$	253,413		8.0	%	$	NA		NA
Bank		388,591		12.3			253,225		8.0			316,531		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		373,721		11.8			190,060		6.0			NA		NA
Bank		366,211		11.6			189,919		6.0			253,225		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		329,596		10.4			142,545		4.5			NA		NA
Bank		366,211		11.6			142,439		4.5			205,745		6.5
Tier 1 capital (to average assets)
Consolidated		373,721		11.4			131,014		4.0			NA		NA
Bank		366,211		11.2			130,913		4.0			163,641		5.0

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Note 5 - Deposits

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

5.

    

DEPOSITS

Our total deposits at

September 30, 2019

totaled

$2.77

billion, an increase of

$303

million, or

12.3%,

from

December 

31,

2018.

The components of our outstanding balances at

September 30, 2019

and

December 31, 2018,

and percentage change in deposits from the end of

2018

to the end of the

third

quarter of

2019,

are as follows:

	September 30, 2019					December 31, 2018					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing checking	$	967,189,000		35.0	%	$	889,784,000		36.1	%		8.7	%
Interest-bearing checking		327,679,000		11.8			339,089,000		13.8			(3.4	)
Money market		522,742,000		18.9			434,333,000		17.6			20.4
Savings		269,958,000		9.8			317,014,000		12.9			(14.8	)
Time, under $100,000		204,767,000		7.4			160,092,000		6.5			27.9
Time, $100,000 and over		321,311,000		11.6			210,164,000		8.5			52.9
Total local deposits		2,613,646,000		94.5			2,350,476,000		95.4			11.2
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		153,445,000		5.5			113,232,000		4.6			35.5
Total out-of-area deposits		153,445,000		5.5			113,232,000		4.6			35.5
Total deposits	$	2,767,091,000		100.0	%	$	2,463,708,000		100.0	%		12.3	%

Total time deposits of more than

$250,000

totaled

$340

million and

$232

million at

September 30, 2019

and

December 31, 2018,

respectively.

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Note 9 - Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

9.

  

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

September 30, 2019

and

December 31, 2018 (

dollars in thousands):

	Level in		September 30, 2019				December 31, 2018
	Fair Value Hierarchy		Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash		Level 1	$	16,077	$	16,077	$	15,656	$	15,656
Cash equivalents		Level 2		212,461		212,461		59,698		59,698
Securities available for sale		(1)		345,533		345,533		337,366		337,366
FHLBI stock		(2)		18,002		18,002		16,022		16,022
Loans, net		Level 3		2,895,843		2,980,135		2,729,583		2,711,687
Loans held for sale		Level 2		12,756		12,756		1,122		1,122
Mortgage servicing rights		Level 2		4,385		7,117		4,436		8,444
Accrued interest receivable		Level 2		10,505		10,505		9,896		9,896
Financial liabilities:
Deposits		Level 2		2,767,091		2,666,671		2,463,708		2,471,617
Repurchase agreements		Level 2		103,990		103,990		103,519		103,519
FHLBI advances		Level 2		364,000		376,724		350,000		348,428
Subordinated debentures		Level 2		46,710		46,167		46,199		46,543
Accrued interest payable		Level 2		4,295		4,295		2,249		2,249

( 1 ) See Note 10 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; therefore, fair value is estimated at carrying amount.

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 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. 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 off-balance sheet items is estimated to be nominal.

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Note 2 - Securities (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Available-for-sale Securities [Table Text Block]

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019
U.S. Government agency debt obligations	$	195,926,000	$	3,151,000	$	(958,000	)	$	198,119,000
Mortgage-backed securities		42,563,000		524,000		(116,000	)		42,971,000
Municipal general obligation bonds		97,806,000		2,753,000		(22,000	)		100,537,000
Municipal revenue bonds		3,346,000		61,000		(1,000	)		3,406,000
Other investments		500,000		0		0			500,000
	$	340,141,000	$	6,489,000	$	(1,097,000	)	$	345,533,000
December 31, 201 8
U.S. Government agency debt obligations	$	196,109,000	$	310,000	$	(9,342,000	)	$	187,077,000
Mortgage-backed securities		44,263,000		187,000		(792,000	)		43,658,000
Municipal general obligation bonds		103,235,000		427,000		(1,165,000	)		102,497,000
Municipal revenue bonds		3,688,000		4,000		(58,000	)		3,634,000
Other investments		500,000		0		0			500,000
	$	347,795,000	$	928,000	$	(11,357,000	)	$	337,366,000

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

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2019
U.S. Government agency debt obligations	$	15,630,000	$	370,000	$	53,935,000	$	588,000	$	69,565,000	$	958,000
Mortgage-backed securities		0		0		17,049,000		116,000		17,049,000		116,000
Municipal general obligation bonds		1,848,000		4,000		2,758,000		18,000		4,606,000		22,000
Municipal revenue bonds		0		0		554,000		1,000		554,000		1,000
Other investments		0		0		0		0		0		0
	$	17,478,000	$	374,000	$	74,296,000	$	723,000	$	91,774,000	$	1,097,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2018
U.S. Government agency debt obligations	$	31,220,000	$	1,136,000	$	136,445,000	$	8,206,000	$	167,665,000	$	9,342,000
Mortgage-backed securities		11,460,000		136,000		23,762,000		656,000		35,222,000		792,000
Municipal general obligation bonds		28,923,000		299,000		43,961,000		866,000		72,884,000		1,165,000
Municipal revenue bonds		1,188,000		11,000		1,372,000		47,000		2,560,000		58,000
Other investments		0		0		0		0		0		0
	$	72,791,000	$	1,582,000	$	205,540,000	$	9,775,000	$	278,331,000	$	11,357,000

Investments Classified by Contractual Maturity Date [Table Text Block]

	Weighted Average Yield		Amortized Cost		Fair Value
Due in 2019		1.92%	$	3,487,000	$	3,488,000
Due in 2020 through 2024		2.31		67,321,000		67,802,000
Due in 2025 through 2029		2.70		113,584,000		115,696,000
Due in 2030 and beyond		3.11		112,686,000		115,076,000
Mortgage-backed securities		2.87		42,563,000		42,971,000
Other investments		4.50		500,000		500,000
Total available for sale securities		2.78%	$	340,141,000	$	345,533,000

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

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Repurchase Agreements [Table Text Block]

	Nine Months Ended September 30, 2019			Twelve Months Ended December 31, 2018
Outstanding balance at end of period	$	103,990,000		$	103,519,000
Average interest rate at end of period		0.21	%		0.26	%
Average daily balance during the period	$	106,396,000		$	101,005,000
Average interest rate during the period		0.25	%		0.24	%
Maximum daily balance during the period	$	133,411,000		$	123,046,000

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Note 10 - Fair Values (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	198,119,000	$	0	$	198,119,000	$	0
Mortgage-backed securities		42,971,000		0		42,971,000		0
Municipal general obligation bonds		100,537,000		0		97,842,000		2,695,000
Municipal revenue bonds		3,406,000		0		3,406,000		0
Other investments		500,000		0		500,000		0
Total	$	345,533,000	$	0	$	342,838,000	$	2,695,000

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	187,077,000	$	0	$	187,077,000	$	0
Mortgage-backed securities		43,658,000		0		43,658,000		0
Municipal general obligation bonds		102,497,000		0		98,768,000		3,729,000
Municipal revenue bonds		3,634,000		0		3,634,000		0
Other investments		500,000		0		500,000		0
Total	$	337,366,000	$	0	$	333,637,000	$	3,729,000

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	24,193,000	$	0	$	0	$	24,193,000
Foreclosed assets		243,000		0		0		243,000
Total	$	24,436,000	$	0	$	0	$	24,436,000

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	8,181,000	$	0	$	0	$	8,181,000
Foreclosed assets		811,000		0		0		811,000
Total	$	8,992,000	$	0	$	0	$	8,992,000

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Note 11 - Regulatory Matters (Details Textual) - USD ($) $ / shares in Units, $ in Millions					9 Months Ended	56 Months Ended
	Oct. 10, 2019	Jul. 11, 2019	Apr. 11, 2019	Jan. 17, 2019	Sep. 30, 2019	Sep. 30, 2019	May 07, 2019	Dec. 31, 2018	Apr. 19, 2016	Jan. 30, 2015	Dec. 31, 2009
Preferred Securities of Subsidiary Trust					$ 44.6	$ 44.6		$ 44.1
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
Capital Conservation Buffer								2.50%
Common Stock, Dividends, Per Share, Declared		$ 0.27	$ 0.26	$ 0.26
Stock Repurchase Program, Authorized Amount							$ 20.0			$ 20.0
Stock Repurchase Program Additional Authorized Amount									$ 15.0
Stock Repurchased During Period, Shares					231,000	1,390,000
Stock Repurchased During Period, Value					$ 7.1	$ 32.6
Treasury Stock Acquired, Average Cost Per Share					$ 30.78	$ 23.47
Dividends Payable, Date to be Paid		Sep. 18, 2019	Jun. 19, 2019	Mar. 20, 2019
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.27
Dividends Payable, Date to be Paid	Dec. 18, 2019

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Note 3 - Loans and Allowance for Loan Losses - Allowance Related to Troubled Debt Restructurings (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Related allowance	$ 2,234,000	$ 936,000
Commercial Portfolio Segment [Member]
Related allowance	1,734,000	489,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Related allowance	729,000	126,000
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	1,005,000	363,000
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	500,000	447,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Related allowance	402,000	337,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Related allowance	$ 98,000	$ 110,000

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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		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Provision for loan losses	$ 700,000	$ 400,000	$ 2,450,000	$ 1,100,000
Loans and Leases Receivable, Net of Deferred Income, Total	2,933,013,000		2,933,013,000		$ 2,753,085,000
Originated Loan [Member]
Beginning balance	23,331,000	20,482,000	21,554,000	19,133,000
Provision for loan losses	740,000	473,000	2,607,000	605,000
Charge-offs	(519,000)	(169,000)	(771,000)	(835,000)
Recoveries	180,000	290,000	342,000	2,173,000
Ending balance	23,732,000	21,076,000	23,732,000	21,076,000
Ending balance: individually evaluated for impairment	2,025,000	998,000	2,025,000	998,000
Ending balance: collectively evaluated for impairment	21,707,000	20,078,000	21,707,000	20,078,000
Loans and Leases Receivable, Net of Deferred Income, Total	2,690,177,000		2,690,177,000		2,452,446,000
Ending balance: individually evaluated for impairment	27,662,000		27,662,000		18,882,000
Ending balance: collectively evaluated for impairment	2,662,515,000		2,662,515,000		2,433,564,000
Acquired Loan [Member]
Beginning balance	722,000	685,000	826,000	368,000
Provision for loan losses	(40,000)	(73,000)	(157,000)	495,000
Charge-offs	0	0	0	(261,000)
Recoveries	0	4,000	13,000	14,000
Ending balance	682,000	616,000	682,000	616,000
Loans and Leases Receivable, Net of Deferred Income, Total	242,836,000		242,836,000		300,639,000
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	2,508,367,000		2,508,367,000		2,360,106,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Beginning balance	21,073,000	18,326,000	19,442,000	16,456,000
Provision for loan losses	522,000	371,000	2,080,000	922,000
Charge-offs	(405,000)	0	(407,000)	(342,000)
Recoveries	96,000	63,000	171,000	1,724,000
Ending balance	21,286,000	18,760,000	21,286,000	18,760,000
Ending balance: individually evaluated for impairment	1,699,000	750,000	1,699,000	750,000
Ending balance: collectively evaluated for impairment	19,587,000	18,010,000	19,587,000	18,010,000
Loans and Leases Receivable, Net of Deferred Income, Total	2,341,797,000		2,341,797,000		2,151,998,000
Ending balance: individually evaluated for impairment	25,898,000		25,898,000		17,134,000
Ending balance: collectively evaluated for impairment	2,315,899,000		2,315,899,000		2,134,864,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Beginning balance	198,000	105,000	177,000	291,000
Provision for loan losses	(23,000)	9,000	(3,000)	69,000
Charge-offs	0	0	0	(246,000)
Recoveries	0	0	1,000	0
Ending balance	175,000	114,000	175,000	114,000
Loans and Leases Receivable, Net of Deferred Income, Total	166,570,000		166,570,000		208,108,000
Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	424,646,000		424,646,000		392,979,000
Retail Portfolio Segment [Member] | Originated Loan [Member]
Beginning balance	2,161,000	2,216,000	2,068,000	2,584,000
Provision for loan losses	149,000	(41,000)	405,000	(307,000)
Charge-offs	(114,000)	(169,000)	(364,000)	(493,000)
Recoveries	84,000	227,000	171,000	449,000
Ending balance	2,280,000	2,233,000	2,280,000	2,233,000
Ending balance: individually evaluated for impairment	326,000	248,000	326,000	248,000
Ending balance: collectively evaluated for impairment	1,954,000	1,985,000	1,954,000	1,985,000
Loans and Leases Receivable, Net of Deferred Income, Total	348,380,000		348,380,000		300,448,000
Ending balance: individually evaluated for impairment	1,764,000		1,764,000		1,748,000
Ending balance: collectively evaluated for impairment	346,616,000		346,616,000		298,700,000
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Beginning balance	524,000	580,000	649,000	77,000
Provision for loan losses	(17,000)	(82,000)	(154,000)	426,000
Charge-offs	0	0	0	(15,000)
Recoveries	0	4,000	12,000	14,000
Ending balance	507,000	502,000	507,000	502,000
Loans and Leases Receivable, Net of Deferred Income, Total	76,266,000		76,266,000		92,531,000
Unallocated Financing Receivables [Member] | Originated Loan [Member]
Beginning balance	97,000	(60,000)	44,000	93,000
Provision for loan losses	69,000	143,000	122,000	(10,000)
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Ending balance	166,000	83,000	166,000	83,000
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	166,000	83,000	166,000	83,000
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	0
Provision for loan losses	0	0	0	0
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Ending balance	$ 0	$ 0	$ 0	$ 0

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Note 3 - Loans and Allowance for Loan Losses - Age Analysis of Past Due Loans (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Loans	$ 2,933,013,000	$ 2,753,085,000
Originated Loan [Member]
Past due loans	368,000	658,000
Current loans	2,689,809,000	2,451,788,000
Loans	2,690,177,000	2,452,446,000
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member]
Past due loans	1,204,000	3,125,000
Current loans	241,632,000	297,514,000
Loans	242,836,000	300,639,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member]
Loans	2,508,367,000	2,360,106,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	882,748,000	822,723,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	48,417,000	44,885,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	567,267,000	548,619,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	883,080,000	816,282,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	126,855,000	127,597,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	183,000	186,000
Current loans	2,341,614,000	2,151,812,000
Loans	2,341,797,000	2,151,998,000
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	0	186,000
Current loans	848,659,000	768,512,000
Loans	848,659,000	768,698,000
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	0
Current loans	44,016,000	39,950,000
Loans	44,016,000	39,950,000
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	183,000	0
Current loans	527,397,000	500,188,000
Loans	527,580,000	500,188,000
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	819,743,000	745,127,000
Loans	819,743,000	745,127,000
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	101,799,000	98,035,000
Loans	101,799,000	98,035,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	51,000	1,147,000
Current loans	166,519,000	206,961,000
Loans	166,570,000	208,108,000
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	0	8,000
Current loans	34,089,000	54,017,000
Loans	34,089,000	54,025,000
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	24,000	19,000
Current loans	4,377,000	4,916,000
Loans	4,401,000	4,935,000
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	0	1,058,000
Current loans	39,687,000	47,373,000
Loans	39,687,000	48,431,000
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	26,000	62,000
Current loans	63,311,000	71,093,000
Loans	63,337,000	71,155,000
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	1,000	0
Current loans	25,055,000	29,562,000
Loans	25,056,000	29,562,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member]
Loans	424,646,000	392,979,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	78,552,000	85,439,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	346,094,000	307,540,000
Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	185,000	472,000
Current loans	348,195,000	299,976,000
Loans	348,380,000	300,448,000
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	75,000	44,000
Current loans	62,951,000	64,979,000
Loans	63,026,000	65,023,000
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	110,000	428,000
Current loans	285,244,000	234,997,000
Loans	285,354,000	235,425,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	1,153,000	1,978,000
Current loans	75,113,000	90,553,000
Loans	76,266,000	92,531,000
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	157,000	198,000
Current loans	15,369,000	20,218,000
Loans	15,526,000	20,416,000
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	996,000	1,780,000
Current loans	59,744,000	70,335,000
Loans	60,740,000	72,115,000
Loans past due 90 days or more still accruing interest	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Originated Loan [Member]
Past due loans	85,000	521,000
Financial Asset, 30 to 59 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	459,000	1,185,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	0	186,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	186,000
Financial Asset, 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
Financial Asset, 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
Financial Asset, 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
Financial Asset, 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
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	25,000	197,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	8,000
Financial Asset, 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	24,000	19,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	108,000
Financial Asset, 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	62,000
Financial Asset, 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	1,000	0
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	85,000	335,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	75,000	44,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	10,000	291,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	434,000	988,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	124,000	167,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	310,000	821,000
Financial Asset, 60 to 89 Days Past Due [Member] | Originated Loan [Member]
Past due loans	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	300,000	1,328,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financial Asset, 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
Financial Asset, 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
Financial Asset, 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
Financial Asset, 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
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	0	950,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financial Asset, 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
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	950,000
Financial Asset, 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
Financial Asset, 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
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	300,000	378,000
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	1,000	31,000
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	299,000	347,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Originated Loan [Member]
Past due loans	283,000	137,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	445,000	612,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	183,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financial Asset, Equal to or 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	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	183,000	0
Financial Asset, Equal to or 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
Financial Asset, Equal to or 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
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	26,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financial Asset, Equal to or 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
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	26,000	0
Financial Asset, Equal to or 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	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	100,000	137,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	100,000	137,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	419,000	612,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	32,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	$ 387,000	$ 612,000

XML

Note 6 - Securities Sold Under Agreements to Repurchase (Details Textual)	9 Months Ended
	Sep. 30, 2019
Repurchase Agreement Counterparty, Weighted Average Maturity of Agreements	1 day

XML

Note 8 - Commitments and Off-balance Sheet Risk (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Reserve or Liability Balance for Financial Instruments With Off Balance Sheet Risk	$ 0	$ 0

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest income
Loans, including fees	$ 37,005,000	$ 32,918,000	$ 109,559,000	$ 97,087,000
Securities, taxable	2,104,000	1,718,000	5,930,000	4,938,000
Securities, tax-exempt	556,000	537,000	1,657,000	1,690,000
Other interest-earning assets	651,000	313,000	1,627,000	1,071,000
Total interest income	40,316,000	35,486,000	118,773,000	104,786,000
Interest expense
Deposits	5,573,000	3,574,000	15,906,000	9,921,000
Short-term borrowings	71,000	63,000	244,000	181,000
Federal Home Loan Bank advances	2,257,000	1,201,000	6,751,000	3,134,000
Subordinated debentures and other borrowings	810,000	808,000	2,506,000	2,286,000
Total interest expense	8,711,000	5,646,000	25,407,000	15,522,000
Net interest income	31,605,000	29,840,000	93,366,000	89,264,000
Provision for loan losses	700,000	400,000	2,450,000	1,100,000
Net interest income after provision for loan losses	30,905,000	29,440,000	90,916,000	88,164,000
Noninterest income:
Mortgage banking income	2,889,000	1,235,000	5,291,000	3,115,000
Earnings on bank owned life insurance	330,000	318,000	3,567,000	969,000
Payroll services income	367,000	328,000	1,227,000	1,128,000
Other income	358,000	322,000	1,755,000	1,213,000
Total noninterest income	6,676,000	4,708,000	19,643,000	13,639,000
Noninterest expense
Salaries and benefits	13,680,000	12,932,000	39,982,000	38,027,000
Occupancy	1,697,000	1,648,000	5,089,000	5,049,000
Furniture and equipment depreciation, rent and maintenance	629,000	659,000	1,885,000	1,789,000
Data processing costs	2,342,000	2,150,000	6,854,000	6,415,000
Other expense	3,679,000	4,261,000	12,134,000	12,931,000
Total noninterest expenses	22,027,000	21,650,000	65,944,000	64,211,000
Income before federal income tax expense	15,554,000	12,498,000	44,615,000	37,592,000
Federal income tax expense	2,954,000	2,375,000	8,476,000	7,142,000
Net income	$ 12,600,000	$ 10,123,000	$ 36,139,000	$ 30,450,000
Basic earnings per share (in dollars per share)	$ 0.77	$ 0.61	$ 2.20	$ 1.83
Diluted earnings per share (in dollars per share)	0.77	0.61	2.20	1.83
Cash dividends per share (in dollars per share)	$ 0.27	$ 0.24	$ 0.79	$ 0.68
Average basic shares outstanding (in shares)	16,390,203	16,611,411	16,415,843	16,602,701
Average diluted shares outstanding (in shares)	16,393,078	16,619,295	16,420,845	16,610,544
Deposit Account [Member]
Noninterest income:
Noninterest income	$ 1,185,000	$ 1,127,000	$ 3,406,000	$ 3,259,000
Credit and Debit Card [Member]
Noninterest income:
Noninterest income	$ 1,547,000	$ 1,378,000	$ 4,397,000	$ 3,955,000

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities
Net income	$ 36,139,000	$ 30,450,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization	6,997,000	7,345,000
Accretion of acquired loans	(522,000)	(1,057,000)
Provision for loan losses	2,450,000	1,100,000
Stock-based compensation expense	2,199,000	1,763,000
Stock grants to directors for retainer fee	375,000	403,000
Proceeds from sales of mortgage loans held for sale	163,056,000	77,276,000
Origination of mortgage loans held for sale	(169,661,000)	(73,790,000)
Net gain from sales of mortgage loans held for sale	(5,032,000)	(2,703,000)
Net gain from sales and valuation write-downs of foreclosed assets	(132,000)	(205,000)
Net gain from sales and valuation write-downs of former bank premises	(559,000)	(78,000)
Net loss from sales and write-downs of fixed assets	5,000	97,000
Earnings on bank owned life insurance	(3,567,000)	(969,000)
Net change in:
Accrued interest receivable	(609,000)	(1,217,000)
Other assets	(7,163,000)	(2,744,000)
Accrued interest payable and other liabilities	(3,843,000)	(779,000)
Net cash from operating activities	20,133,000	34,892,000
Cash flows from investing activities
Loan originations and payments, net	(168,412,000)	(138,170,000)
Purchases of securities available for sale	(53,353,000)	(35,729,000)
Proceeds from maturities, calls and repayments of securities available for sale	60,617,000	31,935,000
Proceeds from sales of foreclosed assets	632,000	597,000
Proceeds from sales of former bank premises	854,000	1,964,000
Purchases of Federal Home Loan Bank stock	(1,980,000)	(36,000)
Purchases of bank owned life insurance	(2,500,000)	0
Proceeds from bank owned life insurance cash value release and death benefits	7,708,000	0
Net purchases of premises and equipment	(9,109,000)	(5,084,000)
Net cash for investing activities	(165,543,000)	(144,523,000)
Cash flows from financing activities
Net increase (decrease) in time deposits	196,035,000	(50,574,000)
Net increase in all other deposits	107,348,000	37,019,000
Net increase (decrease) in securities sold under agreements to repurchase	471,000	(6,370,000)
Maturities of Federal Home Loan Bank advances	(30,000,000)	(30,000,000)
Proceeds from Federal Home Loan Bank advances	44,000,000	50,000,000
Proceeds from stock option exercises	16,000	66,000
Employee stock purchase plan	39,000	40,000
Dividend reinvestment plan	541,000	500,000
Repurchases of common stock shares	(7,110,000)	0
Payment of cash dividends to common shareholders	(12,746,000)	(11,134,000)
Net cash from (for) financing activities	298,594,000	(10,453,000)
Net change in cash and cash equivalents	153,184,000	(120,084,000)
Cash and cash equivalents at beginning of period	75,354,000	200,101,000
Cash and cash equivalents at end of period	228,538,000	80,017,000
Supplemental disclosures of cash flows information
Interest	23,361,000	15,266,000
Federal income tax	8,875,000	7,425,000
Transfers from loans to foreclosed assets	227,000	670,000
Transfers from bank premises to other real estate owned	$ 0	$ 296,000

XML

Note 11 - Regulatory Matters

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

 

11.

  

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

September 30, 2019

and

December 31, 2018,

our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are

no

conditions or events since

September 30, 2019

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:

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2019
Total capital (to risk weighted assets)
Consolidated	$	419,424		12.6	%	$	266,218		8.0	%	$	NA		NA
Bank		416,302		12.5			266,178		8.0			332,723		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		395,010		11.9			199,664		6.0			NA		NA
Bank		391,889		11.8			199,634		6.0			266,178		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		350,374		10.5			149,748		4.5			NA		NA
Bank		391,889		11.8			149,725		4.5			216,270		6.5
Tier 1 capital (to average assets)
Consolidated		395,010		11.1			142,581		4.0			NA		NA
Bank		391,889		11.0			142,561		4.0			178,201		5.0
December 31, 2018
Total capital (to risk weighted assets)
Consolidated	$	396,102		12.5	%	$	253,413		8.0	%	$	NA		NA
Bank		388,591		12.3			253,225		8.0			316,531		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		373,721		11.8			190,060		6.0			NA		NA
Bank		366,211		11.6			189,919		6.0			253,225		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		329,596		10.4			142,545		4.5			NA		NA
Bank		366,211		11.6			142,439		4.5			205,745		6.5
Tier 1 capital (to average assets)
Consolidated		373,721		11.4			131,014		4.0			NA		NA
Bank		366,211		11.2			130,913		4.0			163,641		5.0

Our consolidated capital levels as of

September 30, 2019

and

December 31, 2018

include

$44.6

million and

$44.1

million, respectively, of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core 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

September 30, 2019

and

December 31, 2018,

all

$44.6

million and

$44.1

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 was phased in over

three

years beginning in

2016.

The capital buffer requirement raised the minimum required common equity Tier

1

capital ratio to

7.0%,

the Tier

1

capital ratio to

8.5%

and the total capital ratio to

10.5%

on a fully phased-in basis on

January 1, 2019.

We believe that, as of

September 30, 2019,

our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On

January 17, 2019,

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

$0.26

per share that was paid on

March 20, 2019

to shareholders of record as of

March 8, 2019.

On

April 11, 2019,

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

$0.26

per share that was paid on

June 19, 2019

to shareholders of record as of

June 7, 2019.

On

July 11, 2019,

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

$0.27

per share that was paid on

September 18, 2019

to shareholders of record as of

September 6, 2019.

On

October 10, 2019,

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

$0.27

per share that will be paid on

December 18, 2019

to shareholders of record as of

December 6, 2019.

We announced on

January 30, 2015

that our Board of Directors had authorized a program to repurchase up to

$20.0

million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On

April 19, 2016,

we announced a

$15.0

million expansion of the stock repurchase program. On

May 7, 2019,

we announced that our Board of Directors had authorized a program to repurchase up to

$20.0

million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This latest authorization included a termination of the existing authorization as detailed above. During the

first

nine

months of

2019,

we repurchased a total of approximately

231,000

shares at a total price of

$7.1

million, at an average price per share of

$30.78.

Since

January 30, 2015

through

September 30, 2019,

we repurchased a total of approximately

1,390,000

shares at a total price of

$32.6

million, at an average price per share of

$23.47.

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

may

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

XML

Note 3 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2019

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

September 30, 2019

were

$2.93

billion compared to

$2.75

billion at

December 31, 2018,

an increase of

$180

million, or

6.5%.

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

September 30, 2019

and

December 31, 2018,

and the percentage change in loans from the end of

2018

to the end of the

third

quarter of

2019,

are as follows:

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	848,659,000		31.5	%	$	768,698,000		31.3	%		10.4	%
Vacant land, land development, and residential construction		44,016,000		1.6			39,950,000		1.6			10.2
Real estate – owner occupied		527,580,000		19.6			500,188,000		20.4			5.5
Real estate – non-owner occupied		819,743,000		30.5			745,127,000		30.4			10.0
Real estate – multi-family and residential rental		101,799,000		3.8			98,035,000		4.0			3.8
Total commercial		2,341,797,000		87.0			2,151,998,000		87.7			8.8
Retail:
Home equity and other		63,026,000		2.4			65,023,000		2.7			(3.1	)
1-4 family mortgages		285,354,000		10.6			235,425,000		9.6			21.2
Total retail		348,380,000		13.0			300,448,000		12.3			16.0
Total originated loans	$	2,690,177,000		100.0	%	$	2,452,446,000		100.0	%		9.7	%

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	34,089,000		14.1	%	$	54,025,000		18.0	%		(36.9	%)
Vacant land, land development, and residential construction		4,401,000		1.8			4,935,000		1.6			(10.8	)
Real estate – owner occupied		39,687,000		16.3			48,431,000		16.1			(18.1	)
Real estate – non-owner occupied		63,337,000		26.1			71,155,000		23.7			(11.0	)
Real estate – multi-family and residential rental		25,056,000		10.3			29,562,000		9.8			(15.2	)
Total commercial		166,570,000		68.6			208,108,000		69.2			(20.0	)
Retail:
Home equity and other		15,526,000		6.4			20,416,000		6.8			(24.0	)
1-4 family mortgages		60,740,000		25.0			72,115,000		24.0			(15.8	)
Total retail		76,266,000		31.4			92,531,000		30.8			(17.6	)
Total acquired loans	$	242,836,000		100.0	%	$	300,639,000		100.0	%		(19.2	%)

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	882,748,000		30.1	%	$	822,723,000		29.9	%		7.3	%
Vacant land, land development, and residential construction		48,417,000		1.7			44,885,000		1.6			7.9
Real estate – owner occupied		567,267,000		19.3			548,619,000		19.9			3.4
Real estate – non-owner occupied		883,080,000		30.1			816,282,000		29.7			8.2
Real estate – multi-family and residential rental		126,855,000		4.3			127,597,000		4.6			(0.6	)
Total commercial		2,508,367,000		85.5			2,360,106,000		85.7			6.3
Retail:
Home equity and other		78,552,000		2.7			85,439,000		3.1			(8.1	)
1-4 family mortgages		346,094,000		11.8			307,540,000		11.2			12.5
Total retail		424,646,000		14.5			392,979,000		14.3			8.1
Total loans	$	2,933,013,000		100.0	%	$	2,753,085,000		100.0	%		6.5	%

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

$6.2

million and

$3.6

million, respectively, as of

September 30, 2019.

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

$8.0

million and

$4.6

million, respectively, as of

December 31, 2018.

Changes in the accretable yield for acquired impaired loans for the

three

and

nine

months ended

September 30, 2019

and

September 30, 2018

were as follows:

Balance at June 30, 2019	$	1,236,000
Additions		0
Accretion income		(90,000	)
Net reclassification from nonaccretable to accretable		230,000
Reductions (1)		(57,000	)
Balance at September 30, 2019	$	1,319,000
Balance at December 31, 2018	$	1,274,000
Additions		9,000
Accretion income		(315,000	)
Net reclassification from nonaccretable to accretable		435,000
Reductions (1)		(84,000	)
Balance at September 30, 2019	$	1,319,000
Balance at June 30, 2018	$	1,247,000
Additions		0
Accretion income		(118,000	)
Net reclassification from nonaccretable to accretable		118,000
Reductions (1)		(2,000	)
Balance at September 30, 2018	$	1,245,000
Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(372,000	)
Net reclassification from nonaccretable to accretable		289,000
Reductions (1)		(76,000	)
Balance at September 30, 2018	$	1,245,000

(

1

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

Nonperforming originated loans as of

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		753,000		803,000
Total nonperforming originated loans	$	753,000	$	803,000

Nonperforming acquired loans as of

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		1,891,000		3,338,000
Total nonperforming acquired loans	$	1,891,000	$	3,338,000

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

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	0	$	17,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		183,000		950,000
Real estate – non-owner occupied		25,000		0
Real estate – multi-family and residential rental		3,000		141,000
Total commercial		211,000		1,108,000
Retail:
Home equity and other		279,000		454,000
1-4 family mortgages		2,154,000		2,579,000
Total retail		2,433,000		3,033,000
Total nonperforming loans	$	2,644,000	$	4,141,000

Acquired impaired loans are generally

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

September 30, 2019:

	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	$	0	$	0	$	848,659,000	$	848,659,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		44,016,000		44,016,000		0
Real estate – owner occupied		0		0		183,000		183,000		527,397,000		527,580,000		0
Real estate – non-owner occupied		0		0		0		0		819,743,000		819,743,000		0
Real estate – multi-family and residential rental		0		0		0		0		101,799,000		101,799,000		0
Total commercial		0		0		183,000		183,000		2,341,614,000		2,341,797,000		0
Retail:
Home equity and other		75,000		0		0		75,000		62,951,000		63,026,000		0
1-4 family mortgages		10,000		0		100,000		110,000		285,244,000		285,354,000		0
Total retail		85,000		0		100,000		185,000		348,195,000		348,380,000		0
Total past due loans	$	85,000	$	0	$	283,000	$	368,000	$	2,689,809,000	$	2,690,177,000	$	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
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	34,089,000	$	34,089,000	$	0
Vacant land, land development, and residential construction		24,000		0		0		24,000		4,377,000		4,401,000		0
Real estate – owner occupied		0		0		0		0		39,687,000		39,687,000		0
Real estate – non-owner occupied		0		0		26,000		26,000		63,311,000		63,337,000		0
Real estate – multi-family and residential rental		1,000		0		0		1,000		25,055,000		25,056,000		0
Total commercial		25,000		0		26,000		51,000		166,519,000		166,570,000		0
Retail:
Home equity and other		124,000		1,000		32,000		157,000		15,369,000		15,526,000		0
1-4 family mortgages		310,000		299,000		387,000		996,000		59,744,000		60,740,000		0
Total retail		434,000		300,000		419,000		1,153,000		75,113,000		76,266,000		0
Total past due loans	$	459,000	$	300,000	$	445,000	$	1,204,000	$	241,632,000	$	242,836,000	$	0

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

December 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	$	186,000	$	0	$	0	$	186,000	$	768,512,000	$	768,698,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		39,950,000		39,950,000		0
Real estate – owner occupied		0		0		0		0		500,188,000		500,188,000		0
Real estate – non-owner occupied		0		0		0		0		745,127,000		745,127,000		0
Real estate – multi-family and residential rental		0		0		0		0		98,035,000		98,035,000		0
Total commercial		186,000		0		0		186,000		2,151,812,000		2,151,998,000		0
Retail:
Home equity and other		44,000		0		0		44,000		64,979,000		65,023,000		0
1-4 family mortgages		291,000		0		137,000		428,000		234,997,000		235,425,000		0
Total retail		335,000		0		137,000		472,000		299,976,000		300,448,000		0
Total past due loans	$	521,000	$	0	$	137,000	$	658,000	$	2,451,788,000	$	2,452,446,000	$	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
Acquired Loans
Commercial:
Commercial and industrial	$	8,000	$	0	$	0	$	8,000	$	54,017,000	$	54,025,000	$	0
Vacant land, land development, and residential construction		19,000		0		0		19,000		4,916,000		4,935,000		0
Real estate – owner occupied		108,000		950,000		0		1,058,000		47,373,000		48,431,000		0
Real estate – non-owner occupied		62,000		0		0		62,000		71,093,000		71,155,000		0
Real estate – multi-family and residential rental		0		0		0		0		29,562,000		29,562,000		0
Total commercial		197,000		950,000		0		1,147,000		206,961,000		208,108,000		0
Retail:
Home equity and other		167,000		31,000		0		198,000		20,218,000		20,416,000		0
1-4 family mortgages		821,000		347,000		612,000		1,780,000		70,335,000		72,115,000		0
Total retail		988,000		378,000		612,000		1,978,000		90,553,000		92,531,000		0
Total past due loans	$	1,185,000	$	1,328,000	$	612,000	$	3,125,000	$	297,514,000	$	300,639,000	$	0

Impaired originated loans as of

September 30, 2019,

and average originated impaired loans for the

three

and

nine

months ended

September 30, 2019,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	20,280,000	$	20,280,000		$	15,144,000	$	12,117,000
Vacant land, land development and residential construction		87,000		87,000			88,000		90,000
Real estate – owner occupied		665,000		665,000			1,362,000		965,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			63,000		32,000
Total commercial		21,032,000		21,032,000			16,657,000		13,204,000
Retail:
Home equity and other		743,000		720,000			764,000		680,000
1-4 family mortgages		896,000		320,000			329,000		353,000
Total retail		1,639,000		1,040,000			1,093,000		1,033,000
Total with no related allowance recorded	$	22,671,000	$	22,072,000		$	17,750,000	$	14,237,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	3,333,000	$	3,333,000	$	699,000	$	8,494,000	$	6,876,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,533,000		1,533,000		1,000,000		767,000		1,722,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		66,000
Total commercial		4,866,000		4,866,000		1,699,000		9,261,000		8,664,000
Retail:
Home equity and other		411,000		397,000		312,000		385,000		395,000
1-4 family mortgages		405,000		327,000		14,000		329,000		334,000
Total retail		816,000		724,000		326,000		714,000		729,000
Total with an allowance recorded	$	5,682,000	$	5,590,000	$	2,025,000	$	9,975,000	$	9,393,000
Total impaired loans:
Commercial	$	25,898,000	$	25,898,000	$	1,699,000	$	25,918,000	$	21,868,000
Retail		2,455,000		1,764,000		326,000		1,807,000		1,762,000
Total impaired loans	$	28,353,000	$	27,662,000	$	2,025,000	$	27,725,000	$	23,630,000

Impaired acquired loans as of

September 30, 2019,

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2019,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	307,000	$	307,000		$	330,000	$	363,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		126,000		126,000			521,000		768,000
Real estate – non-owner occupied		209,000		207,000			209,000		120,000
Real estate – multi-family and residential rental		35,000		15,000			18,000		22,000
Total commercial		677,000		655,000			1,078,000		1,273,000
Retail:
Home equity and other		577,000		527,000			578,000		522,000
1-4 family mortgages		2,466,000		1,650,000			1,692,000		1,753,000
Total retail		3,043,000		2,177,000			2,270,000		2,275,000
Total with no related allowance recorded	$	3,720,000	$	2,832,000		$	3,348,000	$	3,548,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	134,000	$	132,000	$	30,000	$	135,000	$	146,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		101,000		101,000		5,000		51,000		98,000
Real estate – non-owner occupied		0		0		0		0		100,000
Real estate – multi-family and residential rental		0		0		0		0		1,000
Total commercial		235,000		233,000		35,000		186,000		345,000
Retail:
Home equity and other		247,000		245,000		120,000		243,000		306,000
1-4 family mortgages		406,000		404,000		87,000		394,000		402,000
Total retail		653,000		649,000		207,000		637,000		708,000
Total with an allowance recorded	$	888,000	$	882,000	$	242,000	$	823,000	$	1,053,000
Total impaired loans:
Commercial	$	912,000	$	888,000	$	35,000	$	1,264,000	$	1,618,000
Retail		3,696,000		2,826,000		207,000		2,907,000		2,983,000
Total impaired loans	$	4,608,000	$	3,714,000	$	242,000	$	4,171,000	$	4,601,000

Impaired originated loans as of

December 31, 2018,

and average impaired originated loans for the

three

and

nine

months ended

September 30, 2018,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	8,604,000	$	8,604,000		$	732,000	$	469,000
Vacant land, land development and residential construction		94,000		94,000			98,000		58,000
Real estate – owner occupied		632,000		632,000			383,000		1,273,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			125,000		234,000
Total commercial		9,330,000		9,330,000			1,338,000		2,034,000
Retail:
Home equity and other		607,000		586,000			719,000		717,000
1-4 family mortgages		1,053,000		390,000			402,000		420,000
Total retail		1,660,000		976,000			1,121,000		1,137,000
Total with no related allowance recorded	$	10,990,000	$	10,306,000		$	2,459,000	$	3,171,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	5,011,000	$	5,011,000	$	83,000	$	3,572,000	$	3,067,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		2,658,000		2,658,000		363,000		2,320,000		1,926,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		140,000		135,000		5,000		140,000		106,000
Total commercial		7,809,000		7,804,000		451,000		6,032,000		5,099,000
Retail:
Home equity and other		442,000		431,000		194,000		463,000		643,000
1-4 family mortgages		409,000		341,000		44,000		346,000		289,000
Total retail		851,000		772,000		238,000		809,000		932,000
Total with an allowance recorded	$	8,660,000	$	8,576,000	$	689,000	$	6,841,000	$	6,031,000
Total impaired loans:
Commercial	$	17,139,000	$	17,134,000	$	451,000	$	7,370,000	$	7,133,000
Retail		2,511,000		1,748,000		238,000		1,930,000		2,069,000
Total impaired loans	$	19,650,000	$	18,882,000	$	689,000	$	9,300,000	$	9,202,000

Impaired acquired loans as of

December 31, 2018,

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2018,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	398,000	$	398,000		$	648,000	$	763,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,193,000		1,193,000			588,000		638,000
Real estate – non-owner occupied		0		0			221,000		228,000
Real estate – multi-family and residential rental		45,000		26,000			38,000		85,000
Total commercial		1,636,000		1,617,000			1,495,000		1,714,000
Retail:
Home equity and other		388,000		361,000			778,000		678,000
1-4 family mortgages		2,494,000		1,849,000			2,073,000		2,077,000
Total retail		2,882,000		2,210,000			2,851,000		2,755,000
Total with no related allowance recorded	$	4,518,000	$	3,827,000		$	4,346,000	$	4,469,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	175,000	$	166,000	$	43,000	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		147,000		147,000		0		0		400,000
Real estate – non-owner occupied		210,000		210,000		0		0		0
Real estate – multi-family and residential rental		3,000		3,000		0		0		0
Total commercial		535,000		526,000		43,000		0		400,000
Retail:
Home equity and other		462,000		440,000		178,000		34,000		12,000
1-4 family mortgages		418,000		371,000		89,000		0		0
Total retail		880,000		811,000		267,000		34,000		12,000
Total with an allowance recorded	$	1,415,000	$	1,337,000	$	310,000	$	34,000	$	412,000
Total impaired loans:
Commercial	$	2,171,000	$	2,143,000	$	43,000	$	1,495,000	$	2,114,000
Retail		3,762,000		3,021,000		267,000		2,885,000		2,767,000
Total impaired loans	$	5,933,000	$	5,164,000	$	310,000	$	4,380,000	$	4,881,000

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

$0.5

million and

$0.2

million during the

third

quarters of

2019

and

2018,

respectively, and

$0.9

million and

$0.7

million during the

first

nine

months of

2019

and

2018,

respectively.

No

interest income was recognized on nonaccrual loans during the

third

quarter and

first

nine

months of

2019

or during the respective

2018

periods. Lost interest income on nonaccrual loans totaled

$0.1

million during the

third

quarters of

2019

and

2018,

and

$0.1

million and

$0.2

million during the

first

nine

months of

2019

and

2018,

respectively.

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 and delinquency.

Credit quality indicators were as follows as of

September 30, 2019:

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	$	510,197,000	$	25,101,000	$	330,704,000	$	562,161,000	$	69,498,000
Grades 5 – 7		314,845,000		18,828,000		194,440,000		257,495,000		32,155,000
Grades 8 – 9		23,617,000		87,000		2,436,000		87,000		146,000
Total commercial	$	848,659,000	$	44,016,000	$	527,580,000	$	819,743,000	$	101,799,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	63,026,000	$	285,354,000

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	$	16,261,000	$	1,076,000	$	20,231,000	$	51,020,000	$	16,097,000
Grades 5 – 7		17,369,000		3,079,000		19,122,000		12,153,000		8,924,000
Grades 8 – 9		459,000		246,000		334,000		164,000		35,000
Total commercial	$	34,089,000	$	4,401,000	$	39,687,000	$	63,337,000	$	25,056,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	15,526,000	$	60,740,000

Credit quality indicators were as follows as of

December 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	$	508,611,000	$	28,170,000	$	325,459,000	$	526,445,000	$	75,051,000
Grades 5 – 7		238,942,000		11,686,000		163,455,000		218,682,000		22,798,000
Grades 8 – 9		21,145,000		94,000		11,274,000		0		186,000
Total commercial	$	768,698,000	$	39,950,000	$	500,188,000	$	745,127,000	$	98,035,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	65,023,000	$	235,425,000

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	$	34,678,000	$	1,246,000	$	21,595,000	$	54,401,000	$	16,050,000
Grades 5 – 7		19,122,000		3,431,000		25,485,000		16,687,000		13,460,000
Grades 8 – 9		225,000		258,000		1,351,000		67,000		52,000
Total commercial	$	54,025,000	$	4,935,000	$	48,431,000	$	71,155,000	$	29,562,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	20,416,000	$	72,115,000

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

and

nine

months ended

September 30, 2019

are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	21,073,000		$	2,161,000		$	97,000	$	23,331,000
Provision for loan losses		522,000			149,000			69,000		740,000
Charge-offs		(405,000	)		(114,000	)		0		(519,000	)
Recoveries		96,000			84,000			0		180,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Allowance for loan losses:
Balance at December 31, 2018	$	19,442,000		$	2,068,000		$	44,000	$	21,554,000
Provision for loan losses		2,080,000			405,000			122,000		2,607,000
Charge-offs		(407,000	)		(364,000	)		0		(771,000	)
Recoveries		171,000			171,000			0		342,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Ending balance: individually evaluated for impairment	$	1,699,000		$	326,000		$	0	$	2,025,000
Ending balance: collectively evaluated for impairment	$	19,587,000		$	1,954,000		$	166,000	$	21,707,000
Total loans:
Ending balance	$	2,341,797,000		$	348,380,000				$	2,690,177,000
Ending balance: individually evaluated for impairment	$	25,898,000		$	1,764,000				$	27,662,000
Ending balance: collectively evaluated for impairment	$	2,315,899,000		$	346,616,000				$	2,662,515,000

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

three

and

nine

months ended

September 30, 2019

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	198,000		$	524,000		$	0	$	722,000
Provision for loan losses		(23,000	)		(17,000	)		0		(40,000	)
Charge-offs		0			0			0		0
Recoveries		0			0			0		0
Ending balance	$	175,000		$	507,000		$	0	$	682,000
Allowance for loan losses:
Balance at December 31, 2018	$	177,000		$	649,000		$	0	$	826,000
Provision for loan losses		(3,000	)		(154,000	)		0		(157,000	)
Charge-offs		0			0			0		0
Recoveries		1,000			12,000			0		13,000
Ending balance	$	175,000		$	507,000		$	0	$	682,000

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

three

and

nine

months ended

September 30, 2018

and the recorded investments in originated loans as of

December 31, 2018

are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2018	$	18,326,000		$	2,216,000		$	(60,000	)	$	20,482,000
Provision for loan losses		371,000			(41,000	)		143,000			473,000
Charge-offs		0			(169,000	)		0			(169,000	)
Recoveries		63,000			227,000			0			290,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Allowance for loan losses:
Balance at December 31, 2017	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Provision for loan losses		922,000			(307,000	)		(10,000	)		605,000
Charge-offs		(342,000	)		(493,000	)		0			(835,000	)
Recoveries		1,724,000			449,000			0			2,173,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Ending balance: individually evaluated for impairment	$	750,000		$	248,000		$	0		$	998,000
Ending balance: collectively evaluated for impairment	$	18,010,000		$	1,985,000		$	83,000		$	20,078,000
Total loans:
Ending balance	$	2,151,998,000		$	300,448,000					$	2,452,446,000
Ending balance: individually evaluated for impairment	$	17,134,000		$	1,748,000					$	18,882,000
Ending balance: collectively evaluated for impairment	$	2,134,864,000		$	298,700,000					$	2,433,564,000

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

three

and

nine

months ended

September 30, 2018

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2018	$	105,000		$	580,000		$	0	$	685,000
Provision for loan losses		9,000			(82,000	)		0		(73,000	)
Charge-offs		0			0			0		0
Recoveries		0			4,000			0		4,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000
Allowance for loan losses:
Balance at December 31, 2017	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		69,000			426,000			0		495,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			14,000			0		14,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000

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

September 30, 2019

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		1	$	28,000	$	28,000
Vacant land, land development and residential construction		1		87,000		87,000
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		2		115,000		115,000
Retail:
Home equity and other		1		14,000		14,000
1-4 family mortgages		0		0		0
Total originated retail		1		14,000		14,000
Total originated loans		3	$	129,000	$	129,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		4		48,000		47,000
1-4 family mortgages		1		49,000		49,000
Total acquired retail		5		97,000		96,000
Total acquired loans		6	$	199,000	$	198,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 30, 2019

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		7	$	14,457,000	$	14,754,000
Vacant land, land development and residential construction		1		87,000		87,000
Real estate – owner occupied		1		1,567,000		1,567,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		16,111,000		16,408,000
Retail:
Home equity and other		3		37,000		37,000
1-4 family mortgages		0		0		0
Total originated retail		3		37,000		37,000
Total originated loans		12	$	16,148,000	$	16,445,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		10		188,000		188,000
1-4 family mortgages		5		202,000		203,000
Total acquired retail		15		390,000		391,000
Total acquired loans		16	$	492,000	$	493,000

Loans modified as troubled debt restructurings during the

three

months ended

September 30, 2018

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		5	$	3,118,000	$	2,964,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		2,284,000		2,284,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		6		5,402,000		5,248,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		6	$	5,402,000	$	5,248,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		1		12,000		12,000
Total acquired retail		1		12,000		12,000
Total acquired loans		3	$	195,000	$	191,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 30, 2018

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	4,186,000	$	4,126,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		2		3,261,000		3,261,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		11		7,447,000		7,387,000
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		12	$	7,497,000	$	7,437,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		10		217,000		218,000
1-4 family mortgages		2		37,000		36,000
Total acquired retail		12		254,000		254,000
Total acquired loans		14	$	437,000	$	433,000

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

September 30, 2019 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

twelve

months, became over

30

days past due within the

nine

months ended

September 30, 2019 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

September 30, 2019 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

twelve

months, became over

30

days past due within the

nine

months ended

September 30, 2019 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		6,000
Total retail		1		6,000
Total		1	$	6,000

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

September 30, 2018 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

twelve

months, became over

30

days past due within the

nine

months ended

September 30, 2018 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

September 30, 2018 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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

twelve

months, became over

30

days past due within the

nine

months ended

September 30, 2018 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2019

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	$	23,645,000		$	0	$	1,582,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(35,000	)		0		(37,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		2,000			87,000		0			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	913,000		$	141,000
Charge-Offs		0			0
Payments		(35,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		13,000			0
Ending Balance	$	891,000		$	140,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2019

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	$	489,000		$	0	$	916,000		$	185,000		$	17,000
Charge-Offs		0			0		0			0			0
Payments		(50,000	)		0		(790,000	)		(4,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		102,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	553,000		$	565,000
Charge-Offs		0			0
Payments		(10,000	)		(12,000	)
Transfers to ORE		0			0
Net Additions/Deletions		47,000			49,000
Ending Balance	$	590,000		$	602,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2019

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	$	13,590,000		$	0	$	2,682,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(4,790,000	)		0		(2,387,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		14,812,000			87,000		1,250,000			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	938,000		$	142,000
Charge-Offs		0			0
Payments		(84,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		37,000			0
Ending Balance	$	891,000		$	140,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2019

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	$	548,000		$	0	$	418,000		$	210,000		$	24,000
Charge-Offs		0			0		0			0			0
Payments		(109,000	)		0		(865,000	)		(29,000	)		(12,000	)
Transfers to ORE		0			0		(97,000	)		0			0
Net Additions/Deletions		0			0		772,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	464,000		$	436,000
Charge-Offs		(18,000	)		0
Payments		(53,000	)		(36,000	)
Transfers to ORE		0			0
Net Additions/Deletions		197,000			202,000
Ending Balance	$	590,000		$	602,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 30, 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	$	2,425,000	$	229,000		$	1,784,000		$	0	$	0
Charge-Offs		0		0			0			0		0
Payments		0		(207,000	)		(439,000	)		0		0
Transfers to ORE		0		0			0			0		0
Net Additions/Deletions		3,315,000		0			2,278,000			0		0
Ending Balance	$	5,740,000	$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,019,000		$	143,000
Charge-Offs		0			0
Payments		(81,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	938,000		$	142,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 30, 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	$	694,000		$	0	$	393,000		$	225,000		$	32,000
Charge-Offs		0			0		0			0			0
Payments		(36,000	)		0		(15,000	)		(8,000	)		(3,000	)
Transfers to ORE		0			0		(93,000	)		0			0
Net Additions/Deletions		(80,000	)		0		151,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	302,000		$	400,000
Charge-Offs		0			0
Payments		(2,000	)		(9,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			13,000
Ending Balance	$	300,000		$	404,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 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		(934,000	)		(361,000	)		(4,057,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		3,915,000			0			6,081,000			0		0
Ending Balance	$	5,740,000		$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(238,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		49,000			0
Ending Balance	$	938,000		$	142,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 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		(69,000	)		0		(1,645,000	)		(20,000	)		(12,000	)
Transfers to ORE		0			0		(92,000	)		0			0
Net Additions/Deletions		(79,000	)		0		1,746,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(30,000	)		0
Payments		(40,000	)		(26,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		233,000			37,000
Ending Balance	$	300,000		$	404,000

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

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	729,000	$	126,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		1,005,000		363,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1,734,000		489,000
Retail:
Home equity and other		402,000		337,000
1-4 family mortgages		98,000		110,000
Total retail		500,000		447,000
Total related allowance	$	2,234,000	$	936,000

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 7 - Federal Home Loan Bank of Indianapolis Advances

9 Months Ended

Sep. 30, 2019

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

$364

million at

September 30, 2019,

and mature at varying dates from

November 2019

through

June 2025,

with fixed rates of interest from

1.20%

to

3.18%

and averaging

2.41%.

FHLBI advances totaled

$350

million at

December 31, 2018,

and were expected to mature at varying dates from

January 2019

through

June 2025,

with fixed rates of interest from

1.20%

to

3.18%

and averaging

2.30%.

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

September 30, 2019

totaled about

$777

million, with remaining availability based on collateral approximating

$407

million.

Maturities of currently outstanding FHLBI advances are as follows:

2019	$	10,000,000
2020		40,000,000
2021		70,000,000
2022		94,000,000
2023		80,000,000
Thereafter		70,000,000

XML

Note 3 - Loans and Allowance for Loan Losses (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Loans and Leases Receivable, Net of Deferred Income, Total	$ 2,933,013,000		$ 2,933,013,000		$ 2,753,085,000
Loans and Leases Receivable Period Increase (Decrease)			$ 180,000,000
Loans and Leases Receivable, Percentage Period Increase (Decrease)			6.50%
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Outstanding Balance, Total	6,200,000		$ 6,200,000		8,000,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net	3,600,000		3,600,000		$ 4,600,000
Impaired Financing Receivable, Interest Income, Accrual Method, Total	500,000	$ 200,000	900,000	$ 700,000
Loans and Leases Receivable, Nonaccrual Loans, Interest Income Recognized	0	0	0	0
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	$ 100,000	$ 100,000	$ 100,000	$ 200,000
Minimum Number of Days Past Due at Period End For Loans Modified as Troubled Debt Restructurings			30 days

XML

Note 2 - Securities (Details Textual)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	94
Debt Securities, Available-for-sale, Unrealized Loss Position, Total	$ 91,774,000	$ 278,331,000
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss, Total	1,097,000	11,357,000
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	340,141,000	347,795,000
Debt Securities, Available-for-sale, Total	345,533,000	337,366,000
State of Michigan and All Its Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	94,300,000	98,200,000
Debt Securities, Available-for-sale, Total	97,000,000	97,400,000
All Other States and Their Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	6,900,000	8,700,000
Debt Securities, Available-for-sale, Total	6,900,000	8,700,000
US Government Agency Debt Obligations and Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Restricted	$ 104,000,000	$ 104,000,000

XML

Note 4 - Premises and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 2019		December 31, 2018
Land and improvements	$	18,217,000	$	18,198,000
Buildings		51,140,000		45,362,000
Furniture and equipment		21,285,000		18,139,000
		90,642,000		81,699,000
Less: accumulated depreciation		36,057,000		33,378,000
Premises and equipment, net	$	54,585,000	$	48,321,000

XML

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

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	September 30, 2019		December 31, 2018
Commercial unused lines of credit	$	735,856,000	$	784,895,000
Unused lines of credit secured by 1 – 4 family residential properties		59,361,000		57,378,000
Credit card unused lines of credit		56,340,000		47,432,000
Other consumer unused lines of credit		17,275,000		20,231,000
Commitments to make loans		164,643,000		101,517,000
Standby letters of credit		22,138,000		25,322,000
	$	1,055,613,000	$	1,036,775,000

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		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Originated Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member]
Number of Contracts	0	0	1	0
Recorded Principal Balance	$ 0	$ 0	$ 6,000	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	0	0	1	0
Recorded Principal Balance	$ 0	$ 0	$ 6,000	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0	1	0
Recorded Principal Balance	$ 0	$ 0	$ 6,000	$ 0

XML

Note 3 - Loans and Allowance for Loan Losses - Loans by Credit Quality Indicators (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Loans	$ 2,933,013,000	$ 2,753,085,000
Originated Loan [Member]
Loans	2,690,177,000	2,452,446,000
Acquired Loan [Member]
Loans	242,836,000	300,639,000
Commercial Portfolio Segment [Member]
Loans	2,508,367,000	2,360,106,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Loans	2,341,797,000	2,151,998,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Loans	166,570,000	208,108,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	882,748,000	822,723,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	848,659,000	768,698,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	34,089,000	54,025,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	48,417,000	44,885,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	44,016,000	39,950,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	4,401,000	4,935,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	567,267,000	548,619,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	527,580,000	500,188,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	39,687,000	48,431,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	883,080,000	816,282,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	819,743,000	745,127,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	63,337,000	71,155,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	126,855,000	127,597,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	101,799,000	98,035,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	25,056,000	29,562,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	510,197,000	508,611,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	16,261,000	34,678,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	25,101,000	28,170,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	1,076,000	1,246,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	330,704,000	325,459,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	20,231,000	21,595,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	562,161,000	526,445,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	51,020,000	54,401,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	69,498,000	75,051,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	16,097,000	16,050,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	314,845,000	238,942,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	17,369,000	19,122,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	18,828,000	11,686,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	3,079,000	3,431,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	194,440,000	163,455,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	19,122,000	25,485,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	257,495,000	218,682,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	12,153,000	16,687,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	32,155,000	22,798,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	8,924,000	13,460,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	23,617,000	21,145,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	459,000	225,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	87,000	94,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	246,000	258,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	2,436,000	11,274,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	334,000	1,351,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	87,000	0
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	164,000	67,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	146,000	186,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	$ 35,000	$ 52,000

XML

Note 10 - Fair Values - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Total	$ 345,533,000	$ 337,366,000
Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale, Total	198,119,000	187,077,000
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	42,971,000	43,658,000
Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	100,537,000	102,497,000
Municipal Revenue Bonds [Member]
Debt Securities, Available-for-sale, Total	3,406,000	3,634,000
Other Debt and Equity Securities [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member]
Debt Securities, Available-for-sale, Total	345,533,000	337,366,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	342,838,000	333,637,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	2,695,000	3,729,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale, Total	198,119,000	187,077,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	198,119,000	187,077,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	42,971,000	43,658,000
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	42,971,000	43,658,000
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	100,537,000	102,497,000
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	97,842,000	98,768,000
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	2,695,000	3,729,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member]
Debt Securities, Available-for-sale, Total	3,406,000	3,634,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	3,406,000	3,634,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	$ 0	$ 0

XML

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

9 Months Ended

Sep. 30, 2019

Notes Tables

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

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	848,659,000		31.5	%	$	768,698,000		31.3	%		10.4	%
Vacant land, land development, and residential construction		44,016,000		1.6			39,950,000		1.6			10.2
Real estate – owner occupied		527,580,000		19.6			500,188,000		20.4			5.5
Real estate – non-owner occupied		819,743,000		30.5			745,127,000		30.4			10.0
Real estate – multi-family and residential rental		101,799,000		3.8			98,035,000		4.0			3.8
Total commercial		2,341,797,000		87.0			2,151,998,000		87.7			8.8
Retail:
Home equity and other		63,026,000		2.4			65,023,000		2.7			(3.1	)
1-4 family mortgages		285,354,000		10.6			235,425,000		9.6			21.2
Total retail		348,380,000		13.0			300,448,000		12.3			16.0
Total originated loans	$	2,690,177,000		100.0	%	$	2,452,446,000		100.0	%		9.7	%

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	34,089,000		14.1	%	$	54,025,000		18.0	%		(36.9	%)
Vacant land, land development, and residential construction		4,401,000		1.8			4,935,000		1.6			(10.8	)
Real estate – owner occupied		39,687,000		16.3			48,431,000		16.1			(18.1	)
Real estate – non-owner occupied		63,337,000		26.1			71,155,000		23.7			(11.0	)
Real estate – multi-family and residential rental		25,056,000		10.3			29,562,000		9.8			(15.2	)
Total commercial		166,570,000		68.6			208,108,000		69.2			(20.0	)
Retail:
Home equity and other		15,526,000		6.4			20,416,000		6.8			(24.0	)
1-4 family mortgages		60,740,000		25.0			72,115,000		24.0			(15.8	)
Total retail		76,266,000		31.4			92,531,000		30.8			(17.6	)
Total acquired loans	$	242,836,000		100.0	%	$	300,639,000		100.0	%		(19.2	%)

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	882,748,000		30.1	%	$	822,723,000		29.9	%		7.3	%
Vacant land, land development, and residential construction		48,417,000		1.7			44,885,000		1.6			7.9
Real estate – owner occupied		567,267,000		19.3			548,619,000		19.9			3.4
Real estate – non-owner occupied		883,080,000		30.1			816,282,000		29.7			8.2
Real estate – multi-family and residential rental		126,855,000		4.3			127,597,000		4.6			(0.6	)
Total commercial		2,508,367,000		85.5			2,360,106,000		85.7			6.3
Retail:
Home equity and other		78,552,000		2.7			85,439,000		3.1			(8.1	)
1-4 family mortgages		346,094,000		11.8			307,540,000		11.2			12.5
Total retail		424,646,000		14.5			392,979,000		14.3			8.1
Total loans	$	2,933,013,000		100.0	%	$	2,753,085,000		100.0	%		6.5	%

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

Balance at June 30, 2019	$	1,236,000
Additions		0
Accretion income		(90,000	)
Net reclassification from nonaccretable to accretable		230,000
Reductions (1)		(57,000	)
Balance at September 30, 2019	$	1,319,000
Balance at December 31, 2018	$	1,274,000
Additions		9,000
Accretion income		(315,000	)
Net reclassification from nonaccretable to accretable		435,000
Reductions (1)		(84,000	)
Balance at September 30, 2019	$	1,319,000
Balance at June 30, 2018	$	1,247,000
Additions		0
Accretion income		(118,000	)
Net reclassification from nonaccretable to accretable		118,000
Reductions (1)		(2,000	)
Balance at September 30, 2018	$	1,245,000
Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(372,000	)
Net reclassification from nonaccretable to accretable		289,000
Reductions (1)		(76,000	)
Balance at September 30, 2018	$	1,245,000

Financing Receivable, Nonaccrual [Table Text Block]

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		753,000		803,000
Total nonperforming originated loans	$	753,000	$	803,000

	September 30, 2019		December 31, 2018
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		1,891,000		3,338,000
Total nonperforming acquired loans	$	1,891,000	$	3,338,000

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	0	$	17,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		183,000		950,000
Real estate – non-owner occupied		25,000		0
Real estate – multi-family and residential rental		3,000		141,000
Total commercial		211,000		1,108,000
Retail:
Home equity and other		279,000		454,000
1-4 family mortgages		2,154,000		2,579,000
Total retail		2,433,000		3,033,000
Total nonperforming loans	$	2,644,000	$	4,141,000

Financing Receivable, Past Due [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	$	0	$	0	$	0	$	0	$	848,659,000	$	848,659,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		44,016,000		44,016,000		0
Real estate – owner occupied		0		0		183,000		183,000		527,397,000		527,580,000		0
Real estate – non-owner occupied		0		0		0		0		819,743,000		819,743,000		0
Real estate – multi-family and residential rental		0		0		0		0		101,799,000		101,799,000		0
Total commercial		0		0		183,000		183,000		2,341,614,000		2,341,797,000		0
Retail:
Home equity and other		75,000		0		0		75,000		62,951,000		63,026,000		0
1-4 family mortgages		10,000		0		100,000		110,000		285,244,000		285,354,000		0
Total retail		85,000		0		100,000		185,000		348,195,000		348,380,000		0
Total past due loans	$	85,000	$	0	$	283,000	$	368,000	$	2,689,809,000	$	2,690,177,000	$	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
Acquired loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	34,089,000	$	34,089,000	$	0
Vacant land, land development, and residential construction		24,000		0		0		24,000		4,377,000		4,401,000		0
Real estate – owner occupied		0		0		0		0		39,687,000		39,687,000		0
Real estate – non-owner occupied		0		0		26,000		26,000		63,311,000		63,337,000		0
Real estate – multi-family and residential rental		1,000		0		0		1,000		25,055,000		25,056,000		0
Total commercial		25,000		0		26,000		51,000		166,519,000		166,570,000		0
Retail:
Home equity and other		124,000		1,000		32,000		157,000		15,369,000		15,526,000		0
1-4 family mortgages		310,000		299,000		387,000		996,000		59,744,000		60,740,000		0
Total retail		434,000		300,000		419,000		1,153,000		75,113,000		76,266,000		0
Total past due loans	$	459,000	$	300,000	$	445,000	$	1,204,000	$	241,632,000	$	242,836,000	$	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	$	186,000	$	0	$	0	$	186,000	$	768,512,000	$	768,698,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		39,950,000		39,950,000		0
Real estate – owner occupied		0		0		0		0		500,188,000		500,188,000		0
Real estate – non-owner occupied		0		0		0		0		745,127,000		745,127,000		0
Real estate – multi-family and residential rental		0		0		0		0		98,035,000		98,035,000		0
Total commercial		186,000		0		0		186,000		2,151,812,000		2,151,998,000		0
Retail:
Home equity and other		44,000		0		0		44,000		64,979,000		65,023,000		0
1-4 family mortgages		291,000		0		137,000		428,000		234,997,000		235,425,000		0
Total retail		335,000		0		137,000		472,000		299,976,000		300,448,000		0
Total past due loans	$	521,000	$	0	$	137,000	$	658,000	$	2,451,788,000	$	2,452,446,000	$	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
Acquired Loans
Commercial:
Commercial and industrial	$	8,000	$	0	$	0	$	8,000	$	54,017,000	$	54,025,000	$	0
Vacant land, land development, and residential construction		19,000		0		0		19,000		4,916,000		4,935,000		0
Real estate – owner occupied		108,000		950,000		0		1,058,000		47,373,000		48,431,000		0
Real estate – non-owner occupied		62,000		0		0		62,000		71,093,000		71,155,000		0
Real estate – multi-family and residential rental		0		0		0		0		29,562,000		29,562,000		0
Total commercial		197,000		950,000		0		1,147,000		206,961,000		208,108,000		0
Retail:
Home equity and other		167,000		31,000		0		198,000		20,218,000		20,416,000		0
1-4 family mortgages		821,000		347,000		612,000		1,780,000		70,335,000		72,115,000		0
Total retail		988,000		378,000		612,000		1,978,000		90,553,000		92,531,000		0
Total past due loans	$	1,185,000	$	1,328,000	$	612,000	$	3,125,000	$	297,514,000	$	300,639,000	$	0

Impaired Financing Receivables [Table Text Block]

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	20,280,000	$	20,280,000		$	15,144,000	$	12,117,000
Vacant land, land development and residential construction		87,000		87,000			88,000		90,000
Real estate – owner occupied		665,000		665,000			1,362,000		965,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			63,000		32,000
Total commercial		21,032,000		21,032,000			16,657,000		13,204,000
Retail:
Home equity and other		743,000		720,000			764,000		680,000
1-4 family mortgages		896,000		320,000			329,000		353,000
Total retail		1,639,000		1,040,000			1,093,000		1,033,000
Total with no related allowance recorded	$	22,671,000	$	22,072,000		$	17,750,000	$	14,237,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	3,333,000	$	3,333,000	$	699,000	$	8,494,000	$	6,876,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,533,000		1,533,000		1,000,000		767,000		1,722,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		66,000
Total commercial		4,866,000		4,866,000		1,699,000		9,261,000		8,664,000
Retail:
Home equity and other		411,000		397,000		312,000		385,000		395,000
1-4 family mortgages		405,000		327,000		14,000		329,000		334,000
Total retail		816,000		724,000		326,000		714,000		729,000
Total with an allowance recorded	$	5,682,000	$	5,590,000	$	2,025,000	$	9,975,000	$	9,393,000
Total impaired loans:
Commercial	$	25,898,000	$	25,898,000	$	1,699,000	$	25,918,000	$	21,868,000
Retail		2,455,000		1,764,000		326,000		1,807,000		1,762,000
Total impaired loans	$	28,353,000	$	27,662,000	$	2,025,000	$	27,725,000	$	23,630,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	307,000	$	307,000		$	330,000	$	363,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		126,000		126,000			521,000		768,000
Real estate – non-owner occupied		209,000		207,000			209,000		120,000
Real estate – multi-family and residential rental		35,000		15,000			18,000		22,000
Total commercial		677,000		655,000			1,078,000		1,273,000
Retail:
Home equity and other		577,000		527,000			578,000		522,000
1-4 family mortgages		2,466,000		1,650,000			1,692,000		1,753,000
Total retail		3,043,000		2,177,000			2,270,000		2,275,000
Total with no related allowance recorded	$	3,720,000	$	2,832,000		$	3,348,000	$	3,548,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	134,000	$	132,000	$	30,000	$	135,000	$	146,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		101,000		101,000		5,000		51,000		98,000
Real estate – non-owner occupied		0		0		0		0		100,000
Real estate – multi-family and residential rental		0		0		0		0		1,000
Total commercial		235,000		233,000		35,000		186,000		345,000
Retail:
Home equity and other		247,000		245,000		120,000		243,000		306,000
1-4 family mortgages		406,000		404,000		87,000		394,000		402,000
Total retail		653,000		649,000		207,000		637,000		708,000
Total with an allowance recorded	$	888,000	$	882,000	$	242,000	$	823,000	$	1,053,000
Total impaired loans:
Commercial	$	912,000	$	888,000	$	35,000	$	1,264,000	$	1,618,000
Retail		3,696,000		2,826,000		207,000		2,907,000		2,983,000
Total impaired loans	$	4,608,000	$	3,714,000	$	242,000	$	4,171,000	$	4,601,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	8,604,000	$	8,604,000		$	732,000	$	469,000
Vacant land, land development and residential construction		94,000		94,000			98,000		58,000
Real estate – owner occupied		632,000		632,000			383,000		1,273,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			125,000		234,000
Total commercial		9,330,000		9,330,000			1,338,000		2,034,000
Retail:
Home equity and other		607,000		586,000			719,000		717,000
1-4 family mortgages		1,053,000		390,000			402,000		420,000
Total retail		1,660,000		976,000			1,121,000		1,137,000
Total with no related allowance recorded	$	10,990,000	$	10,306,000		$	2,459,000	$	3,171,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	5,011,000	$	5,011,000	$	83,000	$	3,572,000	$	3,067,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		2,658,000		2,658,000		363,000		2,320,000		1,926,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		140,000		135,000		5,000		140,000		106,000
Total commercial		7,809,000		7,804,000		451,000		6,032,000		5,099,000
Retail:
Home equity and other		442,000		431,000		194,000		463,000		643,000
1-4 family mortgages		409,000		341,000		44,000		346,000		289,000
Total retail		851,000		772,000		238,000		809,000		932,000
Total with an allowance recorded	$	8,660,000	$	8,576,000	$	689,000	$	6,841,000	$	6,031,000
Total impaired loans:
Commercial	$	17,139,000	$	17,134,000	$	451,000	$	7,370,000	$	7,133,000
Retail		2,511,000		1,748,000		238,000		1,930,000		2,069,000
Total impaired loans	$	19,650,000	$	18,882,000	$	689,000	$	9,300,000	$	9,202,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	398,000	$	398,000		$	648,000	$	763,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,193,000		1,193,000			588,000		638,000
Real estate – non-owner occupied		0		0			221,000		228,000
Real estate – multi-family and residential rental		45,000		26,000			38,000		85,000
Total commercial		1,636,000		1,617,000			1,495,000		1,714,000
Retail:
Home equity and other		388,000		361,000			778,000		678,000
1-4 family mortgages		2,494,000		1,849,000			2,073,000		2,077,000
Total retail		2,882,000		2,210,000			2,851,000		2,755,000
Total with no related allowance recorded	$	4,518,000	$	3,827,000		$	4,346,000	$	4,469,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	175,000	$	166,000	$	43,000	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		147,000		147,000		0		0		400,000
Real estate – non-owner occupied		210,000		210,000		0		0		0
Real estate – multi-family and residential rental		3,000		3,000		0		0		0
Total commercial		535,000		526,000		43,000		0		400,000
Retail:
Home equity and other		462,000		440,000		178,000		34,000		12,000
1-4 family mortgages		418,000		371,000		89,000		0		0
Total retail		880,000		811,000		267,000		34,000		12,000
Total with an allowance recorded	$	1,415,000	$	1,337,000	$	310,000	$	34,000	$	412,000
Total impaired loans:
Commercial	$	2,171,000	$	2,143,000	$	43,000	$	1,495,000	$	2,114,000
Retail		3,762,000		3,021,000		267,000		2,885,000		2,767,000
Total impaired loans	$	5,933,000	$	5,164,000	$	310,000	$	4,380,000	$	4,881,000

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	$	510,197,000	$	25,101,000	$	330,704,000	$	562,161,000	$	69,498,000
Grades 5 – 7		314,845,000		18,828,000		194,440,000		257,495,000		32,155,000
Grades 8 – 9		23,617,000		87,000		2,436,000		87,000		146,000
Total commercial	$	848,659,000	$	44,016,000	$	527,580,000	$	819,743,000	$	101,799,000

	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	$	16,261,000	$	1,076,000	$	20,231,000	$	51,020,000	$	16,097,000
Grades 5 – 7		17,369,000		3,079,000		19,122,000		12,153,000		8,924,000
Grades 8 – 9		459,000		246,000		334,000		164,000		35,000
Total commercial	$	34,089,000	$	4,401,000	$	39,687,000	$	63,337,000	$	25,056,000

	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	$	508,611,000	$	28,170,000	$	325,459,000	$	526,445,000	$	75,051,000
Grades 5 – 7		238,942,000		11,686,000		163,455,000		218,682,000		22,798,000
Grades 8 – 9		21,145,000		94,000		11,274,000		0		186,000
Total commercial	$	768,698,000	$	39,950,000	$	500,188,000	$	745,127,000	$	98,035,000

	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	$	34,678,000	$	1,246,000	$	21,595,000	$	54,401,000	$	16,050,000
Grades 5 – 7		19,122,000		3,431,000		25,485,000		16,687,000		13,460,000
Grades 8 – 9		225,000		258,000		1,351,000		67,000		52,000
Total commercial	$	54,025,000	$	4,935,000	$	48,431,000	$	71,155,000	$	29,562,000

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	21,073,000		$	2,161,000		$	97,000	$	23,331,000
Provision for loan losses		522,000			149,000			69,000		740,000
Charge-offs		(405,000	)		(114,000	)		0		(519,000	)
Recoveries		96,000			84,000			0		180,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Allowance for loan losses:
Balance at December 31, 2018	$	19,442,000		$	2,068,000		$	44,000	$	21,554,000
Provision for loan losses		2,080,000			405,000			122,000		2,607,000
Charge-offs		(407,000	)		(364,000	)		0		(771,000	)
Recoveries		171,000			171,000			0		342,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000
Ending balance: individually evaluated for impairment	$	1,699,000		$	326,000		$	0	$	2,025,000
Ending balance: collectively evaluated for impairment	$	19,587,000		$	1,954,000		$	166,000	$	21,707,000
Total loans:
Ending balance	$	2,341,797,000		$	348,380,000				$	2,690,177,000
Ending balance: individually evaluated for impairment	$	25,898,000		$	1,764,000				$	27,662,000
Ending balance: collectively evaluated for impairment	$	2,315,899,000		$	346,616,000				$	2,662,515,000

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2019	$	198,000		$	524,000		$	0	$	722,000
Provision for loan losses		(23,000	)		(17,000	)		0		(40,000	)
Charge-offs		0			0			0		0
Recoveries		0			0			0		0
Ending balance	$	175,000		$	507,000		$	0	$	682,000
Allowance for loan losses:
Balance at December 31, 2018	$	177,000		$	649,000		$	0	$	826,000
Provision for loan losses		(3,000	)		(154,000	)		0		(157,000	)
Charge-offs		0			0			0		0
Recoveries		1,000			12,000			0		13,000
Ending balance	$	175,000		$	507,000		$	0	$	682,000

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2018	$	18,326,000		$	2,216,000		$	(60,000	)	$	20,482,000
Provision for loan losses		371,000			(41,000	)		143,000			473,000
Charge-offs		0			(169,000	)		0			(169,000	)
Recoveries		63,000			227,000			0			290,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Allowance for loan losses:
Balance at December 31, 2017	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Provision for loan losses		922,000			(307,000	)		(10,000	)		605,000
Charge-offs		(342,000	)		(493,000	)		0			(835,000	)
Recoveries		1,724,000			449,000			0			2,173,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000
Ending balance: individually evaluated for impairment	$	750,000		$	248,000		$	0		$	998,000
Ending balance: collectively evaluated for impairment	$	18,010,000		$	1,985,000		$	83,000		$	20,078,000
Total loans:
Ending balance	$	2,151,998,000		$	300,448,000					$	2,452,446,000
Ending balance: individually evaluated for impairment	$	17,134,000		$	1,748,000					$	18,882,000
Ending balance: collectively evaluated for impairment	$	2,134,864,000		$	298,700,000					$	2,433,564,000

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2018	$	105,000		$	580,000		$	0	$	685,000
Provision for loan losses		9,000			(82,000	)		0		(73,000	)
Charge-offs		0			0			0		0
Recoveries		0			4,000			0		4,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000
Allowance for loan losses:
Balance at December 31, 2017	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		69,000			426,000			0		495,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			14,000			0		14,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000

Financing Receivable, Troubled Debt Restructuring [Table Text Block]

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		1	$	28,000	$	28,000
Vacant land, land development and residential construction		1		87,000		87,000
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		2		115,000		115,000
Retail:
Home equity and other		1		14,000		14,000
1-4 family mortgages		0		0		0
Total originated retail		1		14,000		14,000
Total originated loans		3	$	129,000	$	129,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		4		48,000		47,000
1-4 family mortgages		1		49,000		49,000
Total acquired retail		5		97,000		96,000
Total acquired loans		6	$	199,000	$	198,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		7	$	14,457,000	$	14,754,000
Vacant land, land development and residential construction		1		87,000		87,000
Real estate – owner occupied		1		1,567,000		1,567,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		16,111,000		16,408,000
Retail:
Home equity and other		3		37,000		37,000
1-4 family mortgages		0		0		0
Total originated retail		3		37,000		37,000
Total originated loans		12	$	16,148,000	$	16,445,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000
Retail:
Home equity and other		10		188,000		188,000
1-4 family mortgages		5		202,000		203,000
Total acquired retail		15		390,000		391,000
Total acquired loans		16	$	492,000	$	493,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		5	$	3,118,000	$	2,964,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		2,284,000		2,284,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		6		5,402,000		5,248,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		6	$	5,402,000	$	5,248,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		1		12,000		12,000
Total acquired retail		1		12,000		12,000
Total acquired loans		3	$	195,000	$	191,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	4,186,000	$	4,126,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		2		3,261,000		3,261,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		11		7,447,000		7,387,000
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		12	$	7,497,000	$	7,437,000
Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000
Retail:
Home equity and other		10		217,000		218,000
1-4 family mortgages		2		37,000		36,000
Total acquired retail		12		254,000		254,000
Total acquired loans		14	$	437,000	$	433,000

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

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		6,000
Total retail		1		6,000
Total		1	$	6,000

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
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		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

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	$	23,645,000		$	0	$	1,582,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(35,000	)		0		(37,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		2,000			87,000		0			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	913,000		$	141,000
Charge-Offs		0			0
Payments		(35,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		13,000			0
Ending Balance	$	891,000		$	140,000

	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	$	489,000		$	0	$	916,000		$	185,000		$	17,000
Charge-Offs		0			0		0			0			0
Payments		(50,000	)		0		(790,000	)		(4,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		102,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	553,000		$	565,000
Charge-Offs		0			0
Payments		(10,000	)		(12,000	)
Transfers to ORE		0			0
Net Additions/Deletions		47,000			49,000
Ending Balance	$	590,000		$	602,000

	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	$	13,590,000		$	0	$	2,682,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(4,790,000	)		0		(2,387,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		14,812,000			87,000		1,250,000			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	938,000		$	142,000
Charge-Offs		0			0
Payments		(84,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		37,000			0
Ending Balance	$	891,000		$	140,000

	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	$	548,000		$	0	$	418,000		$	210,000		$	24,000
Charge-Offs		0			0		0			0			0
Payments		(109,000	)		0		(865,000	)		(29,000	)		(12,000	)
Transfers to ORE		0			0		(97,000	)		0			0
Net Additions/Deletions		0			0		772,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	464,000		$	436,000
Charge-Offs		(18,000	)		0
Payments		(53,000	)		(36,000	)
Transfers to ORE		0			0
Net Additions/Deletions		197,000			202,000
Ending Balance	$	590,000		$	602,000

	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	$	2,425,000	$	229,000		$	1,784,000		$	0	$	0
Charge-Offs		0		0			0			0		0
Payments		0		(207,000	)		(439,000	)		0		0
Transfers to ORE		0		0			0			0		0
Net Additions/Deletions		3,315,000		0			2,278,000			0		0
Ending Balance	$	5,740,000	$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,019,000		$	143,000
Charge-Offs		0			0
Payments		(81,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	938,000		$	142,000

	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	$	694,000		$	0	$	393,000		$	225,000		$	32,000
Charge-Offs		0			0		0			0			0
Payments		(36,000	)		0		(15,000	)		(8,000	)		(3,000	)
Transfers to ORE		0			0		(93,000	)		0			0
Net Additions/Deletions		(80,000	)		0		151,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	302,000		$	400,000
Charge-Offs		0			0
Payments		(2,000	)		(9,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			13,000
Ending Balance	$	300,000		$	404,000

	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	$	2,989,000		$	383,000		$	1,599,000		$	0	$	0
Charge-Offs		(230,000	)		0			0			0		0
Payments		(934,000	)		(361,000	)		(4,057,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		3,915,000			0			6,081,000			0		0
Ending Balance	$	5,740,000		$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(238,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		49,000			0
Ending Balance	$	938,000		$	142,000

	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		(69,000	)		0		(1,645,000	)		(20,000	)		(12,000	)
Transfers to ORE		0			0		(92,000	)		0			0
Net Additions/Deletions		(79,000	)		0		1,746,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(30,000	)		0
Payments		(40,000	)		(26,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		233,000			37,000
Ending Balance	$	300,000		$	404,000

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

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	729,000	$	126,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		1,005,000		363,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1,734,000		489,000
Retail:
Home equity and other		402,000		337,000
1-4 family mortgages		98,000		110,000
Total retail		500,000		447,000
Total related allowance	$	2,234,000	$	936,000

Retail Portfolio Segment [Member]

Notes Tables

Financing Receivable Credit Quality Indicators [Table Text Block]

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	63,026,000	$	285,354,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	15,526,000	$	60,740,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	65,023,000	$	235,425,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	20,416,000	$	72,115,000

XML

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

9 Months Ended

Sep. 30, 2019

Notes Tables

Maturities of Currently Outstanding FHLB Advances [Table Text Block]

2019	$	10,000,000
2020		40,000,000
2021		70,000,000
2022		94,000,000
2023		80,000,000
Thereafter		70,000,000

XML

Note 3 - Loans and Allowance for Loan Losses - Activity for Troubled Debt Restructurings (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	$ 23,645,000	$ 2,425,000	$ 13,590,000	$ 2,989,000
Charge-Offs	0	0	0	(230,000)
Payments	(35,000)	0	(4,790,000)	(934,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	2,000	3,315,000	14,812,000	3,915,000
Ending Balance	23,612,000	5,740,000	23,612,000	5,740,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	0	229,000	0	383,000
Charge-Offs	0	0	0	0
Payments	0	(207,000)	0	(361,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	87,000	0	87,000	0
Ending Balance	87,000	22,000	87,000	22,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	1,582,000	1,784,000	2,682,000	1,599,000
Charge-Offs	0	0	0	0
Payments	(37,000)	(439,000)	(2,387,000)	(4,057,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	2,278,000	1,250,000	6,081,000
Ending Balance	1,545,000	3,623,000	1,545,000	3,623,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	0	0	0	0
Charge-Offs	0	0	0	0
Payments	0	0	0	0
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	0	0	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	0	0	0	0
Charge-Offs	0	0	0	0
Payments	0	0	0	0
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	0	0	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	489,000	694,000	548,000	1,001,000
Charge-Offs	0	0	0	(275,000)
Payments	(50,000)	(36,000)	(109,000)	(69,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	(80,000)	0	(79,000)
Ending Balance	439,000	578,000	439,000	578,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	0	0	0	0
Charge-Offs	0	0	0	0
Payments	0	0	0	0
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	0	0	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	916,000	393,000	418,000	427,000
Charge-Offs	0	0	0	0
Payments	(790,000)	(15,000)	(865,000)	(1,645,000)
Transfers to ORE	0	(93,000)	(97,000)	(92,000)
Net Additions/Deletions	102,000	151,000	772,000	1,746,000
Ending Balance	228,000	436,000	228,000	436,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	185,000	225,000	210,000	237,000
Charge-Offs	0	0	0	0
Payments	(4,000)	(8,000)	(29,000)	(20,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	181,000	217,000	181,000	217,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	17,000	32,000	24,000	41,000
Charge-Offs	0	0	0	0
Payments	(5,000)	(3,000)	(12,000)	(12,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	12,000	29,000	12,000	29,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Beginning Balance	913,000	1,019,000	938,000	1,127,000
Charge-Offs	0	0	0	0
Payments	(35,000)	(81,000)	(84,000)	(238,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	13,000	0	37,000	49,000
Ending Balance	891,000	938,000	891,000	938,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	141,000	143,000	142,000	146,000
Charge-Offs	0	0	0	0
Payments	(1,000)	(1,000)	(2,000)	(4,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	140,000	142,000	140,000	142,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Beginning Balance	553,000	302,000	464,000	219,000
Charge-Offs	0	0	(18,000)	(30,000)
Payments	(10,000)	(2,000)	(53,000)	(40,000)
Transfers to ORE	0	0	0	(82,000)
Net Additions/Deletions	47,000	0	197,000	233,000
Ending Balance	590,000	300,000	590,000	300,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	565,000	400,000	436,000	393,000
Charge-Offs	0	0	0	0
Payments	(12,000)	(9,000)	(36,000)	(26,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	49,000	13,000	202,000	37,000
Ending Balance	$ 602,000	$ 404,000	$ 602,000	$ 404,000

XML

Note 3 - Loans and Allowance for Loan Losses - Retail Credit Exposure (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Loans	$ 2,933,013,000	$ 2,753,085,000
Retail Portfolio Segment [Member]
Loans	424,646,000	392,979,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	78,552,000	85,439,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	346,094,000	307,540,000
Originated Loan [Member]
Loans	2,690,177,000	2,452,446,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	348,380,000	300,448,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	63,026,000	65,023,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	285,354,000	235,425,000
Acquired Loan [Member]
Loans	242,836,000	300,639,000
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	76,266,000	92,531,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	15,526,000	20,416,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 60,740,000	$ 72,115,000

XML

Note 10 - Fair Values (Details Textual) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Total	$ 345,533,000	$ 337,366,000
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Ending Balance	$ 12,800,000	1,100,000
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%
Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	$ 100,537,000	102,497,000
Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Inputs, Level 3 [Member] | Municipal General Obligation Bonds [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	1,000,000	1,500,000
Available-for-sale Securities [Member]
SEC Schedule, 12-09, Valuation Allowances and Reserves, Amount, Ending Balance	$ 0	$ 0

XML

Note 11 - Regulatory Matters - Actual Capital Levels and Minimum Levels (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Consolidated Entities [Member]
Total capital, amount	$ 419,424	$ 396,102
Total capital, ratio	12.60%	12.50%
Total capital minimum required for capital adequacy, amount	$ 266,218	$ 253,413
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Tier 1 capital, amount	$ 395,010	$ 373,721
Tier 1 capital, ratio	11.90%	11.80%
Tier 1 capital minimum required for capital adequacy, amount	$ 199,664	$ 190,060
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Common equity tier 1, amount	$ 350,374	$ 329,596
Common equity tier 1, ratio	10.50%	10.40%
Common equity tier 1 minimum required for capital adequacy, amount	$ 149,748	$ 142,545
Common equity tier 1 capital minimum required for capital adequacy, ratio	4.50%	4.50%
Tier 1 capital to average assets, amount	$ 395,010	$ 373,721
Tier 1 capital to average assets, ratio	11.10%	11.40%
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 142,581	$ 131,014
Tier 1 capital to average assets minimum required for capital adequacy, ratio	4.00%	4.00%
Bank [Member]
Total capital, amount	$ 416,302	$ 388,591
Total capital, ratio	12.50%	12.30%
Total capital minimum required for capital adequacy, amount	$ 266,178	$ 253,225
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Total capital to be well capitalized, amount	$ 332,723	$ 316,531
Total capital to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital, amount	$ 391,889	$ 366,211
Tier 1 capital, ratio	11.80%	11.60%
Tier 1 capital minimum required for capital adequacy, amount	$ 199,634	$ 189,919
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Tier 1 capital to be well capitalized, amount	$ 266,178	$ 253,225
Tier 1 capital to be well capitalized, ratio	8.00%	8.00%
Common equity tier 1, amount	$ 391,889	$ 366,211
Common equity tier 1, ratio	11.80%	11.60%
Common equity tier 1 minimum required for capital adequacy, amount	$ 149,725	$ 142,439
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	$ 216,270	$ 205,745
Common equity tier 1 capital to be well capitalized, ratio	6.50%	6.50%
Tier 1 capital to average assets, amount	$ 391,889	$ 366,211
Tier 1 capital to average assets, ratio	11.00%	11.20%
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 142,561	$ 130,913
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	$ 178,201	$ 163,641
Tier 1 capital to average assets to be well capitalized, ratio	5.00%	5.00%

XML

Note 1 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1.

    

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

: The unaudited financial statements for the

nine

months ended

September 30, 2019

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 and Mercantile Insurance Center, Inc. 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

September 30, 2019

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,

2018.

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

260,000

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

three

and

nine

months ended

September 30, 2019.

In addition, stock options for approximately

4,000

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

three

and

nine

months ended

September 30, 2019.

Stock options for approximately

7,000

shares of common stock were antidilutive and

not

included in determining diluted earnings per share for the

three

and

nine

months ended

September 30, 2019.

Approximately

230,000

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

three

and

nine

months ended

September 30, 2018.

In addition, stock options for approximately

16,000

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

three

and

nine

months ended

September 30, 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

and

nine

months ended

September 30, 2018.

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. 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 impairment (“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

September 30, 2019

and

December 31, 2018,

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

$12.8

million and

$1.1

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 an interest 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

$678

million as of

September 30, 2019.

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. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. 

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 the derivatives and 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. 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

2017

and

2018,

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 (generally monthly) 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

February 2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU (as subsequently amended by ASU

2018

-

01,

ASU

2018

-

10,

ASU

2018

-

11

and ASU

2018

-

20

) 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.

The adoption of this new standard as of

January 1, 2019

resulted in the recording of a ROU asset and associated lease liability of approximately

$1.3

million.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Measurement of Credit Losses on Financial Instruments

. This ASU (as subsequently amended by ASU

2018

-

19

) 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 have completed our initial framework and developed our initial assumptions. We are now finalizing and documenting new processes and controls, challenging assumptions and outputs, refining the qualitative inputs and drafting policies and disclosures. Additionally, parallel runs will be enhanced throughout the remainder of

2019

as the processes, controls and policies are finalized by year-end

2019.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 01, 2019
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 Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		16,336,221
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Note 5 - Deposits - Summary of Deposits (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Noninterest-bearing	$ 967,189,000	$ 889,784,000
Noninterest-bearing checking, percentage	35.00%	36.10%
Noninterest-bearing checking, percent increase (decrease)	8.70%
Interest-bearing checking	$ 327,679,000	$ 339,089,000
Interest-bearing checking, percentage	11.80%	13.80%
Interest-bearing checking, percent increase (decrease)	(3.40%)
Money market	$ 522,742,000	$ 434,333,000
Money market, percentage	18.90%	17.60%
Money market, percent increase (decrease)	20.40%
Savings	$ 269,958,000	$ 317,014,000
Savings, percentage	9.80%	12.90%
Savings, percent increase (decrease)	(14.80%)
Local Time, under $100,000	$ 204,767,000	$ 160,092,000
Local Time, under $100,000, percentage	7.40%	6.50%
Local Time, under $100,000, percent increase (decrease)	27.90%
Local Time, $100,000 and over	$ 321,311,000	$ 210,164,000
Local Time, $100,000 and over, percentage	11.60%	8.50%
Local Time, $100,000 and over, percent increase (decrease)	52.90%
Total local deposits	$ 2,613,646,000	$ 2,350,476,000
Total local deposits, percentage	94.50%	95.40%
Total local deposits, percent increase (decrease)	11.20%
Out-of-area time, under $100,000	$ 0	$ 0
Out-of-area time, under $100,000, percentage
Out-of-area time, under $100,000, percent increase (decrease)
Out-of-area time, $100,000 and over	$ 153,445,000	$ 113,232,000
Out-of-area time, $100,000 and over, percentage	5.50%	4.60%
Out-of-area time, $100,000 and over, percent increase (decrease)	35.50%
Total out-of-area deposits	$ 153,445,000	$ 113,232,000
Total out-of-area deposits, percentage	5.50%	4.60%
Total out-of-area deposits, percent increase (decrease)	35.50%
Total deposits	$ 2,767,091,000	$ 2,463,708,000
Total deposits, percentage	100.00%	100.00%
Total deposits, percent increase (decrease)	12.30%

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances - Maturities of Currently Outstanding FHLB Advances (Details)	Sep. 30, 2019 USD ($)
2019	$ 10,000,000
2020	40,000,000
2021	70,000,000
2022	94,000,000
2023	80,000,000
Thereafter	$ 70,000,000

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 12,600,000	$ 10,123,000	$ 36,139,000	$ 30,450,000
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	1,809,000	(3,125,000)	15,821,000	(10,699,000)
Fair value of interest rate swap	0	0	0	2,000
Total other comprehensive income (loss)	1,809,000	(3,125,000)	15,821,000	(10,697,000)
Tax effect of unrealized holding gains (losses) on securities available for sale	(380,000)	656,000	(3,323,000)	2,205,000
Tax effect of fair value of interest rate swap	0	0	0	(1,000)
Total tax effect of other comprehensive income	(380,000)	656,000	(3,323,000)	2,204,000
Other comprehensive income (loss), net of tax	1,429,000	(2,469,000)	12,498,000	(8,493,000)
Comprehensive income	$ 14,029,000	$ 7,654,000	$ 48,637,000	$ 21,957,000

XML

Note 2 - Securities

9 Months Ended

Sep. 30, 2019

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
September 30, 2019
U.S. Government agency debt obligations	$	195,926,000	$	3,151,000	$	(958,000	)	$	198,119,000
Mortgage-backed securities		42,563,000		524,000		(116,000	)		42,971,000
Municipal general obligation bonds		97,806,000		2,753,000		(22,000	)		100,537,000
Municipal revenue bonds		3,346,000		61,000		(1,000	)		3,406,000
Other investments		500,000		0		0			500,000
	$	340,141,000	$	6,489,000	$	(1,097,000	)	$	345,533,000
December 31, 201 8
U.S. Government agency debt obligations	$	196,109,000	$	310,000	$	(9,342,000	)	$	187,077,000
Mortgage-backed securities		44,263,000		187,000		(792,000	)		43,658,000
Municipal general obligation bonds		103,235,000		427,000		(1,165,000	)		102,497,000
Municipal revenue bonds		3,688,000		4,000		(58,000	)		3,634,000
Other investments		500,000		0		0			500,000
	$	347,795,000	$	928,000	$	(11,357,000	)	$	337,366,000

Securities with unrealized losses at

September 30, 2019

and

December 31, 2018,

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 Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2019
U.S. Government agency debt obligations	$	15,630,000	$	370,000	$	53,935,000	$	588,000	$	69,565,000	$	958,000
Mortgage-backed securities		0		0		17,049,000		116,000		17,049,000		116,000
Municipal general obligation bonds		1,848,000		4,000		2,758,000		18,000		4,606,000		22,000
Municipal revenue bonds		0		0		554,000		1,000		554,000		1,000
Other investments		0		0		0		0		0		0
	$	17,478,000	$	374,000	$	74,296,000	$	723,000	$	91,774,000	$	1,097,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2018
U.S. Government agency debt obligations	$	31,220,000	$	1,136,000	$	136,445,000	$	8,206,000	$	167,665,000	$	9,342,000
Mortgage-backed securities		11,460,000		136,000		23,762,000		656,000		35,222,000		792,000
Municipal general obligation bonds		28,923,000		299,000		43,961,000		866,000		72,884,000		1,165,000
Municipal revenue bonds		1,188,000		11,000		1,372,000		47,000		2,560,000		58,000
Other investments		0		0		0		0		0		0
	$	72,791,000	$	1,582,000	$	205,540,000	$	9,775,000	$	278,331,000	$	11,357,000

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 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

September 30, 2019,

94

debt securities with fair values totaling

$91.8

million have unrealized losses aggregating

$1.1

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

September 30, 2019,

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 Yield		Amortized Cost		Fair Value
Due in 2019		1.92%	$	3,487,000	$	3,488,000
Due in 2020 through 2024		2.31		67,321,000		67,802,000
Due in 2025 through 2029		2.70		113,584,000		115,696,000
Due in 2030 and beyond		3.11		112,686,000		115,076,000
Mortgage-backed securities		2.87		42,563,000		42,971,000
Other investments		4.50		500,000		500,000
Total available for sale securities		2.78%	$	340,141,000	$	345,533,000

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

$94.3

million and

$98.2

million at

September 30, 2019

and

December 31, 2018,

respectively, with estimated market values of

$97.0

million and

$97.4

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

$6.9

million and

$8.7

million at

September 30, 2019

and

December 31, 2018,

respectively, with estimated market values of

$6.9

million and

$8.7

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 that are pledged to secure repurchase agreements was

$104

million at

September 30, 2019

and

December 31, 2018.

Investments in Federal Home Loan Bank stock are restricted and

may

only be resold or redeemed by the issuer.

XML

Note 6 - Securities Sold Under Agreements to Repurchase

9 Months Ended

Sep. 30, 2019

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:

	Nine Months Ended September 30, 2019			Twelve Months Ended December 31, 2018
Outstanding balance at end of period	$	103,990,000		$	103,519,000
Average interest rate at end of period		0.21	%		0.26	%
Average daily balance during the period	$	106,396,000		$	101,005,000
Average interest rate during the period		0.25	%		0.24	%
Maximum daily balance during the period	$	133,411,000		$	123,046,000

Repurchase agreements generally have maturities of

one

business day. 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 10 - Fair Values

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

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

10.

  

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, and municipal general obligation and revenue bonds. 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

September 30, 2019

or

December 31, 2018.

We have

no

Level

1

securities available for sale.

Derivatives

. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves.

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

September 30, 2019

and

December 31, 2018,

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

$12.8

million and

$1.1

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. The fair values of impaired loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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

September 30, 2019

are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	198,119,000	$	0	$	198,119,000	$	0
Mortgage-backed securities		42,971,000		0		42,971,000		0
Municipal general obligation bonds		100,537,000		0		97,842,000		2,695,000
Municipal revenue bonds		3,406,000		0		3,406,000		0
Other investments		500,000		0		500,000		0
Total	$	345,533,000	$	0	$	342,838,000	$	2,695,000

There were

no

transfers in or out of Level

1,

Level

2,

or Level

3

during the

first

nine

months of

2019.

The

$1.0

million reduction in Level

3

municipal general obligation bonds during the

first

nine

months of

2019

reflects the scheduled maturities of such bonds.

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

December 31, 2018

are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	187,077,000	$	0	$	187,077,000	$	0
Mortgage-backed securities		43,658,000		0		43,658,000		0
Municipal general obligation bonds		102,497,000		0		98,768,000		3,729,000
Municipal revenue bonds		3,634,000		0		3,634,000		0
Other investments		500,000		0		500,000		0
Total	$	337,366,000	$	0	$	333,637,000	$	3,729,000

There were

no

transfers in or out of Level

1,

Level

2

or Level

3

during

2018.

The

$1.5

million reduction in Level

3

municipal general obligation bonds during

2018

reflects the scheduled maturities of such bonds.

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

September 30, 2019

are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	24,193,000	$	0	$	0	$	24,193,000
Foreclosed assets		243,000		0		0		243,000
Total	$	24,436,000	$	0	$	0	$	24,436,000

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

December 31, 2018

are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	8,181,000	$	0	$	0	$	8,181,000
Foreclosed assets		811,000		0		0		811,000
Total	$	8,992,000	$	0	$	0	$	8,992,000

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 3 - Loans and Allowance for Loan Losses - Components of Loan Portfolio (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Loans	$ 2,933,013,000	$ 2,753,085,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	6.50%
Commercial Portfolio Segment [Member]
Loans	$ 2,508,367,000	$ 2,360,106,000
Percent of portfolio	85.50%	85.70%
Period increase (decrease)	6.30%
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 882,748,000	$ 822,723,000
Percent of portfolio	30.10%	29.90%
Period increase (decrease)	7.30%
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 48,417,000	$ 44,885,000
Percent of portfolio	1.70%	1.60%
Period increase (decrease)	7.90%
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 567,267,000	$ 548,619,000
Percent of portfolio	19.30%	19.90%
Period increase (decrease)	3.40%
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 883,080,000	$ 816,282,000
Percent of portfolio	30.10%	29.70%
Period increase (decrease)	8.20%
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 126,855,000	$ 127,597,000
Percent of portfolio	4.30%	4.60%
Period increase (decrease)	(0.60%)
Retail Portfolio Segment [Member]
Loans	$ 424,646,000	$ 392,979,000
Percent of portfolio	14.50%	14.30%
Period increase (decrease)	8.10%
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 78,552,000	$ 85,439,000
Percent of portfolio	2.70%	3.10%
Period increase (decrease)	(8.10%)
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 346,094,000	$ 307,540,000
Percent of portfolio	11.80%	11.20%
Period increase (decrease)	12.50%
Originated Loan [Member]
Loans	$ 2,690,177,000	$ 2,452,446,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	9.70%
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 2,341,797,000	$ 2,151,998,000
Percent of portfolio	87.00%	87.70%
Period increase (decrease)	8.80%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 848,659,000	$ 768,698,000
Percent of portfolio	31.50%	31.30%
Period increase (decrease)	10.40%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 44,016,000	$ 39,950,000
Percent of portfolio	1.60%	1.60%
Period increase (decrease)	10.20%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 527,580,000	$ 500,188,000
Percent of portfolio	19.60%	20.40%
Period increase (decrease)	5.50%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 819,743,000	$ 745,127,000
Percent of portfolio	30.50%	30.40%
Period increase (decrease)	10.00%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 101,799,000	$ 98,035,000
Percent of portfolio	3.80%	4.00%
Period increase (decrease)	3.80%
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 348,380,000	$ 300,448,000
Percent of portfolio	13.00%	12.30%
Period increase (decrease)	16.00%
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 63,026,000	$ 65,023,000
Percent of portfolio	2.40%	2.70%
Period increase (decrease)	(3.10%)
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 285,354,000	$ 235,425,000
Percent of portfolio	10.60%	9.60%
Period increase (decrease)	21.20%
Acquired Loan [Member]
Loans	$ 242,836,000	$ 300,639,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	(19.20%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 166,570,000	$ 208,108,000
Percent of portfolio	68.60%	69.20%
Period increase (decrease)	(20.00%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 34,089,000	$ 54,025,000
Percent of portfolio	14.10%	18.00%
Period increase (decrease)	(36.90%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 4,401,000	$ 4,935,000
Percent of portfolio	1.80%	1.60%
Period increase (decrease)	(10.80%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 39,687,000	$ 48,431,000
Percent of portfolio	16.30%	16.10%
Period increase (decrease)	(18.10%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 63,337,000	$ 71,155,000
Percent of portfolio	26.10%	23.70%
Period increase (decrease)	(11.00%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 25,056,000	$ 29,562,000
Percent of portfolio	10.30%	9.80%
Period increase (decrease)	(15.20%)
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 76,266,000	$ 92,531,000
Percent of portfolio	31.40%	30.80%
Period increase (decrease)	(17.60%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 15,526,000	$ 20,416,000
Percent of portfolio	6.40%	6.80%
Period increase (decrease)	(24.00%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 60,740,000	$ 72,115,000
Percent of portfolio	25.00%	24.00%
Period increase (decrease)	(15.80%)

XML

Note 2 - Securities - Available-for-sale Securities (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Securities available for sale, amortized cost	$ 340,141,000	$ 347,795,000
Securities available for sale, gross unrealized gains	6,489,000	928,000
Securities available for sale, gross unrealized losses	(1,097,000)	(11,357,000)
Fair value	345,533,000	337,366,000
US Government Agencies Debt Securities [Member]
Securities available for sale, amortized cost	195,926,000	196,109,000
Securities available for sale, gross unrealized gains	3,151,000	310,000
Securities available for sale, gross unrealized losses	(958,000)	(9,342,000)
Fair value	198,119,000	187,077,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, amortized cost	42,563,000	44,263,000
Securities available for sale, gross unrealized gains	524,000	187,000
Securities available for sale, gross unrealized losses	(116,000)	(792,000)
Fair value	42,971,000	43,658,000
Municipal General Obligation Bonds [Member]
Securities available for sale, amortized cost	97,806,000	103,235,000
Securities available for sale, gross unrealized gains	2,753,000	427,000
Securities available for sale, gross unrealized losses	(22,000)	(1,165,000)
Fair value	100,537,000	102,497,000
Municipal Revenue Bonds [Member]
Securities available for sale, amortized cost	3,346,000	3,688,000
Securities available for sale, gross unrealized gains	61,000	4,000
Securities available for sale, gross unrealized losses	(1,000)	(58,000)
Fair value	3,406,000	3,634,000
Other Debt and Equity Securities [Member]
Securities available for sale, amortized cost	500,000	500,000
Securities available for sale, gross unrealized gains	0	0
Securities available for sale, gross unrealized losses	0	0
Fair value	$ 500,000	$ 500,000