Safe and Sound

First Covenant Bank

Commerce, GA
2
Star Rating
Started in 2006, First Covenant Bank is an FDIC-insured bank based in Commerce, GA. The bank has equity of $17.8 million on $176.3 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 65 full-time employees, the bank has amassed loans and leases worth $34.6 million, $30.2 million of which are for real estate. The bank currently holds $158.2 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, First Covenant Bank exhibited a below-average condition, earning 2 out of 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial resilience. It acts as a cushion against losses and provides protection for depositors when a bank is experiencing economic trouble. When looking at safety and soundness, the more capital, the better.

First Covenant Bank received a score of 12 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. First Covenant Bank's Tier 1 capital ratio was 24.32 percent, exceeding the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic downturns.

Overall, First Covenant Bank held equity amounting to 10.10 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having large numbers of these kinds of assets may eventually require a bank to use capital to cover losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, First Covenant Bank scored 4 out of a possible 40 points, lower than the national average of 37.49 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, 0.27 percent of First Covenant 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve 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. Unfortunately, the FDIC did not provide information on First Covenant Bank's loan loss allowance in its most recent filings.

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, likely making the bank better prepared to withstand economic trouble. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, First Covenant Bank scored 24 out of a possible 30, exceeding the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. First Covenant Bank's most recent annualized quarterly return on equity was 17.45 percent, above the national average of 8.10 percent.

The bank earned net income of $2.8 million on total equity of $17.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.49 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.