Safe and Sound

First Cahawba Bank

Selma, AL
4
Star Rating
Selma, AL-based First Cahawba Bank is an FDIC-insured bank started in 2007. As of December 31, 2017, the bank had equity of $13.2 million on $102.7 million in assets.

U.S. bank customers have $86.2 million on deposit at 2 offices in AL run by 28 full-time employees. With that footprint, the bank has amassed loans and leases worth $72.4 million, $49.7 million of which are for real estate.

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

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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of a bank's financial fortitude. It works as a bulwark against losses and as protection for depositors when a bank is experiencing economic trouble. When it comes to safety and soundness, more capital is preferred.

First Cahawba Bank did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 16 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First Cahawba Bank's Tier 1 capital ratio was 18.22 percent, above 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 weather economic downturns.

Overall, First Cahawba Bank held equity amounting to 12.89 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate 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 may eventually require a bank to use capital to cover losses, diminishing 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, resulting in depressed earnings and potentially more risk of a future failure.

First Cahawba Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

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, 0.02 percent of First Cahawba 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 to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. First Cahawba Bank's loan loss allowance was 4,625.00 percent of its total noncurrent loans, higher than the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or use them to address problematic loans, potentially making the bank more resilient in tough times. Conversely, losses diminish a bank's ability to do those things.

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

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one widely used measure of a bank's earnings. First Cahawba Bank's most recent annualized quarterly return on equity was 2.09 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $278,000 on total equity of $13.2 million. The bank reported an annualized return on average assets, or ROA, of 0.27 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.