Asset Quality Score
Bankrate uses this test to estimate the effect of troubled assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.
Having a large number of these types of assets may eventually require a bank to use capital to absorb losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in reduced earnings and potentially more risk of a failure in the future.
The Mercantile Bank of Louisiana, Missouri scored above the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .
The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.10 percent of The Mercantile Bank of Louisiana, Missouri's loans were noncurrent -- in other words, 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 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 useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. The Mercantile Bank of Louisiana, Missouri's loan loss allowance was 3,740.30 percent of its total noncurrent loans, above the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.