Safe and Sound

Cheaha Bank

Oxford, AL
5
Star Rating
Cheaha Bank is an Oxford, AL-based, FDIC-insured bank that opened its doors in 2000. The bank has equity of $26.2 million on assets of $201.1 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $171.3 million on deposit at 4 offices in AL run by 46 full-time employees. With that footprint, the bank currently holds loans and leases worth $105.8 million, including real estate loans of $82.5 million.

Overall, Bankrate believes that, as of December 31, 2017, Cheaha Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three important criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is an essential measurement of a bank's financial fortitude. From a safety and soundness perspective, more capital is better.

Cheaha Bank achieved a score of 18 out of a possible 30 points on our test to measure capital adequacy, beating the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Cheaha Bank's Tier 1 capital ratio was 20.72 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 headwinds.

Overall, Cheaha Bank held equity amounting to 13.04 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets suggests a bank may eventually have to use capital to absorb losses, cutting down on its buffer 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 diminished earnings and potentially more risk of a future failure.

Cheaha Bank exceeded the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.06 percent of Cheaha Bank's loans were noncurrent, meaning 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Cheaha Bank's loan loss allowance was 2,665.63 percent of its total noncurrent loans, higher than the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is 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. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, Cheaha Bank scored 20 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. Cheaha Bank's most recent annualized quarterly return on equity was 12.05 percent, above the national average of 8.10 percent.

The bank earned net income of $3.1 million on total equity of $26.2 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.51 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.