Safe and Sound

Mercantile Bank of Michigan

Grand Rapids, MI
5
Star Rating
Mercantile Bank of Michigan is an FDIC-insured bank started in 1997 and currently headquartered in Grand Rapids, MI. The bank holds equity of $383.9 million on $3.27 billion in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $2.53 billion on deposit at 51 offices in MI run by 641 full-time employees. With that footprint, the bank currently holds loans and leases worth $2.54 billion, including real estate loans of $1.77 billion.

Overall, Bankrate believes that, as of December 31, 2017, Mercantile Bank of Michigan exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders when a bank is struggling financially. Therefore, when it comes to measuring an a bank's financial resilience, capital is valuable. When looking at safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Mercantile Bank of Michigan received a score of 12 out of a possible 30 points, below the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Mercantile Bank of Michigan's Tier 1 capital ratio was 11.92 percent, higher than the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Mercantile Bank of Michigan held equity amounting to 11.75 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid loans.

Having lots of these kinds of assets may eventually force a bank to use capital to absorb losses, diminishing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, pushing down earnings and increasing the chances of a future failure.

On Bankrate's test of asset quality, Mercantile Bank of Michigan scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.29 percent of Mercantile Bank of Michigan's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . The size of that reserve can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Mercantile Bank of Michigan's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, potentially making the bank better able to withstand economic trouble. Losses, on the other hand, take away from a bank's ability to do those things.

Mercantile Bank of Michigan did above-average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Mercantile Bank of Michigan was 8.84 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $33.3 million on total equity of $383.9 million. The bank reported an annualized return on average assets, or ROA, of 1.06 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.