Safe and Sound

Commercial Bank

Harrogate, TN
4
Star Rating
Commercial Bank is a Harrogate, TN-based, FDIC-insured bank founded in 1976. As of December 31, 2017, the bank held equity of $100.2 million on $981.2 million in assets.

With 218 full-time employees in 23 offices in multiple states, the bank holds loans and leases worth $740.4 million, including real estate loans of $628.5 million. U.S. bank customers currently have $797.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Commercial Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three important criteria Bankrate used to grade U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and as protection for depositors when a bank is experiencing economic trouble. Therefore, a bank's level of capital is a crucial measurement of an institution's financial resilience. When it comes to safety and soundness, more capital is better.

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

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Commercial Bank's Tier 1 capital ratio was 13.48 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial downturns.

Overall, Commercial Bank held equity amounting to 10.21 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid loans.

Having extensive holdings of these types of assets suggests a bank could eventually have to use capital to cover losses, cutting down on its cushion 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, diminishing earnings and elevating the risk of a future failure.

Commercial Bank scored below the national average of 37.49 on Bankrate's test of asset quality, racking up 28 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 1.61 percent of 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 1.01 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . How large that reserve is can be a helpful 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 Commercial Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its long-term survivability. Earnings can be retained by the bank, expanding its capital cushion, or be used to deal with problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses take away from a bank's ability to do those things.

Commercial Bank scored 18 out of a possible 30 on Bankrate's earnings test, better than the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. The most recent annualized quarterly return on equity for Commercial Bank was 9.70 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $9.5 million on total equity of $100.2 million. The bank had an annualized return on average assets, or ROA, of 1.00 percent, right at the level deemed satisfactory in accordance with industry standards, and equal to 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.