Safe and Sound

Merchants Commercial Bank

St Thomas, VI
1
Star Rating
St Thomas, VI-based Merchants Commercial Bank is an FDIC-insured bank founded in 2006. As of June 30, 2017, the bank had equity of $14.0 million on assets of $192.5 million.

With 26 full-time employees, the bank currently holds loans and leases worth $93.0 million, including real estate loans of $80.4 million. U.S. bank customers currently have $177.9 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Merchants Commercial Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Here's an analysis of how the bank faired on the three key criteria Bankrate used to grade American banks.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is useful. It acts as a cushion against losses and provides protection for depositors when a bank is struggling financially. When it comes to safety and soundness, the more capital, the better.
Merchants Commercial Bank received a score of 6 out of a possible 30 points on our test to measure the adequacy of a bank's capital, falling short of the national average of 13.38.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Merchants Commercial Bank's Tier 1 capital ratio was 13.96 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather economic challenges.

Overall, Merchants Commercial Bank held equity amounting to 7.29 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid loans.

A bank with a large number of these kinds of assets may eventually have to use capital to cover losses, reducing its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the risk of a future failure.

On Bankrate's asset quality test, Merchants Commercial Bank scored 0 out of a possible 40 points, less than the national average of 37.62 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 10.59 percent of Merchants Commercial Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.04 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with problem 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 problem loans. Unfortunately, the FDIC did not provide information on Merchants Commercial Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

On Bankrate's earnings test, Merchants Commercial Bank scored 20 out of a possible 30, better than the national average of 16.52.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one widely used measure of a bank's earnings. Merchants Commercial Bank's most recent annualized quarterly return on equity was 12.26 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank earned net income of $824,000 on total equity of $14.0 million. The bank reported an annualized return on average assets, or ROA, of 0.86 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.