Safe and Sound

Charter Bank

Johnston, IA
4
Star Rating
Charter Bank is a Johnston, IA-based, FDIC-insured bank dating back to 1998. As of December 31, 2017, the bank held equity of $17.0 million on assets of $155.6 million.

U.S. bank customers have $138.1 million on deposit at 4 offices in IA run by 23 full-time employees. With that footprint, the bank has amassed loans and leases worth $99.6 million, including real estate loans of $80.9 million.

Overall, Bankrate believes that, as of December 31, 2017, Charter Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to score American banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial resilience. It acts as a bulwark against losses and as protection for depositors during times of economic instability for the bank. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Charter Bank received a score of 12 out of a possible 30 points, falling short of the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Charter Bank's Tier 1 capital ratio was 15.65 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Charter Bank held equity amounting to 10.90 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having extensive holdings of these types of assets means a bank may have to use capital to absorb losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a failure in the future.

Charter Bank did better than the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, none of Charter Bank'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 troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Charter Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. However, banks that are losing money have less ability to do those things.

Charter Bank scored 16 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Charter Bank was 7.72 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.3 million on total equity of $17.0 million. The bank experienced an annualized return on average assets, or ROA, of 0.83 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.