KBRA assigns ratings to Mercantile Bank Corporation


NEW YORK, December 01, 2021– (BUSINESS WIRE) – Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB- and a short term debt rating of K3 to Mercantile Bank, based in Grand Rapids, Michigan Corporation (NASDAQ: MBWM) (“Mercantile” or “the Company”). In addition, KBRA assigns senior unsecured deposit and debt ratings of BBB +, a subordinated debt rating of BBB and short term deposit and debt ratings of K2 to Mercantile Bank of Michigan (“the Bank”), the main subsidiary. The outlook for all long-term ratings is stable.

Ratings are supported by Mercantile’s strong earnings performance in recent years, with a core ROA of around 1.30% on average since 2018, which was more recently bolstered by strong contributions to non-interest income. (nearly 30% of income) since the start of the pandemic, helped in particular by the very favorable mortgage banking environment. While the recent improvement in income diversity is viewed as positive, we recognize that non-interest income has been concentrated in mortgage origination fees; generally a more cyclical revenue component, which should moderate somewhat after record production and GoS margins. That said, mortgage banking has been a valuable contributor to the bottom line, serving to offset the significant compression in the NIM resulting from low interest rates and excess global liquidity. Before the pandemic, returns were driven by a healthy NIM that enjoyed a reasonably priced deposit base and a lucrative asset mix that included a fairly high loan component (+ 85%), which is likely to be the case in the future once the cash flows. redeployment in loans and mortgage banking activity is normalized. Like many peers, Mercantile reflected some challenges related to asset quality during the global financial crisis, however, the company’s favorable credit performance since that time has been supported by a more conservative stance on stock selection. borrowers and lending concentration, as well as stricter underwriting standards. when necessary. In recent years, both NPA and NCO ratios have been consistently lower than their peer levels, which have averaged 0.19% and 0.00%, respectively, since 2016. Core capital ratios of MBWM have historically followed somewhat less than most peers. While recent TCE levels are expected to increase as the balance sheet normalizes (8.2% in 3Q21 vs. 10.1% in YE19), the CET1 metric could remain slightly below the peer average (10.3% in 3Q21) if the relatively high RWA of the company the density reappears. Prior to the pandemic, Mercantile’s liquidity position had been managed relatively more aggressively, as evidenced by a core loan-to-deposit ratio peaking above 120%. Positively, the cost of the company’s deposits – benefiting from a significant non-interest bearing component (43% in 3Q21, although on average 35% in the years preceding the pandemic) – remained favorable in the less favorable pricing environment of 2019. Finally, KBRA also recognizes the long-standing and cohesive management team of the company, which implemented a cautious growth strategy focused more on organic initiatives than on mergers and acquisitions.

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Ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology released on October 16, 2019 and KBRA’s Global ESG Rating Methodology released on June 16, 2021.

Disclosures

A description of all substantially significant sources that were used to prepare the credit rating and information about the method (s) (including significant models and sensitivity analyzes of the relevant key rating assumptions, if any) used to determine The credit rating is available in the Information Disclosure Form (s) located here.

Here you will find information about the meaning of each rating category.

Further information relating to this rating measure is available in the information disclosure form (s) referenced above. Additional information regarding KBRA’s policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the United States Securities and Exchange Commission as NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a credit rating agency with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a credit rating agency with the Financial Conduct Authority of the United Kingdom under the temporary registration regime. In addition, KBRA is appointed as the designated rating agency by the Ontario Securities Commission for issuers of asset-backed securities to file a simplified prospectus or a shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a credit rating provider.

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Contacts

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John Rempe, Director (Senior Analyst)
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Ian Jaffe, Managing Director
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Joe Scott, Senior Managing Director (Chairman of the Rating Committee)
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