Safe and Sound

Covenant Bank

Doylestown, PA
4
Star Rating
Covenant Bank is an FDIC-insured bank started in 2007 and currently headquartered in Doylestown, PA. Regulatory filings show the bank having equity of $44.9 million on $447.0 million in assets, as of December 31, 2017.

Thanks to the work of 48 full-time employees, the bank currently holds loans and leases worth $372.0 million, $309.4 million of which are for real estate. The bank currently holds $347.8 million in deposits from U.S. customers.

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

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and affords protection for depositors during periods of economic trouble for the bank. It follows then that a bank's level of capital is an important measurement of an institution's financial resilience. From a safety and soundness perspective, the higher the capital, the better.

Covenant Bank fell short of the national average of 13.13 on our test to measure the adequacy of a bank's capital, racking up 10 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Covenant Bank's Tier 1 capital ratio was 11.59 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Covenant Bank held equity amounting to 10.05 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these kinds of assets could eventually be required to use capital to cover losses, shrinking its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, reducing earnings and increasing the chances of a future failure.

On Bankrate's asset quality test, Covenant Bank scored 40 out of a possible 40 points, beating the national average of 37.49 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.80 percent of Covenant 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the reserve's size to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Covenant Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or use them to address problematic loans, likely making the bank better able to withstand financial trouble. Obviously, banks that are losing money have less ability to do those things.

Covenant Bank scored 6 out of a possible 30 on Bankrate's earnings test, less than the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Covenant Bank's most recent annualized quarterly return on equity was 3.57 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 $44.9 million. The bank had an annualized return on average assets, or ROA, of 0.31 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.