Safe and Sound

First Exchange Bank of Alabama

Louisville, AL
3
Star Rating
First Exchange Bank of Alabama is a Louisville, AL-based, FDIC-insured bank that opened its doors in 1917. Regulatory filings show the bank having equity of $13.2 million on assets of $136.2 million, as of December 31, 2017.

Thanks to the efforts of 39 full-time employees in 4 offices in AL, the bank currently holds loans and leases worth $93.9 million, $72.4 million of which are for real estate. The bank currently holds $122.8 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, First Exchange Bank of Alabama exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three important criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for depositors when a bank is struggling financially. Therefore, a bank's level of capital is a valuable measurement of an institution's financial fortitude. When looking at safety and soundness, more capital is better.

On our test to measure the adequacy of a bank's capital, First Exchange Bank of Alabama received a score of 10 out of a possible 30 points, falling short of the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. First Exchange Bank of Alabama's Tier 1 capital ratio was 15.32 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic downturns.

Overall, First Exchange Bank of Alabama held equity amounting to 9.71 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid loans.

Having lots of these kinds of assets could eventually require a bank to use capital to absorb losses, decreasing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, First Exchange Bank of Alabama scored 36 out of a possible 40 points, falling short of the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.45 percent of First Exchange Bank of Alabama'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 problem assets . 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 problematic loans. Unfortunately, the FDIC did not provide information on First Exchange Bank of Alabama's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, lessen a bank's ability to do those things.

First Exchange Bank of Alabama underperformed the average on Bankrate's earnings test, achieving a score of 6 out of a possible 30.

One important measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. The most recent annualized quarterly return on equity for First Exchange Bank of Alabama was 2.93 percent, below the national average of 8.10 percent.

The bank reported net income of $383,000 on total equity of $13.2 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.28 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.