Safe and Sound

Mercantile Bank

Quincy, IL
5
Star Rating
Founded in 1906, Mercantile Bank is an FDIC-insured bank headquartered in Quincy, IL. The bank holds equity of $42.2 million on assets of $434.8 million, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 100 full-time employees in 7 offices in multiple states, the bank holds loans and leases worth $280.0 million, $163.8 million of which are for real estate. U.S. bank customers currently have $351.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Mercantile Bank 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 key criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and affords protection for account holders when a bank is experiencing financial instability. It follows then that when it comes to measuring an a bank's financial resilience, capital is essential. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure capital adequacy, Mercantile Bank received a score of 8 out of a possible 30 points, less than the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Mercantile Bank's Tier 1 capital ratio was 11.96 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Mercantile Bank held equity amounting to 9.71 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the impact of problem assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

Having lots of these types of assets could eventually force a bank to use capital to cover losses, cutting down on its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, decreasing earnings and elevating the chances of a future failure.

On Bankrate's test of asset quality, Mercantile Bank 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, 0.40 percent of Mercantile Bank'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 to handle troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Mercantile Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in tough times. However, banks that are losing money are less able to do those things.

On Bankrate's earnings test, Mercantile Bank scored 22 out of a possible 30, better than the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Mercantile Bank was 12.40 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $5.3 million on total equity of $42.2 million. The bank reported an annualized return on average assets, or ROA, of 1.18 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.