Safe and Sound

North Alabama Bank

Hazel Green, AL
3
Star Rating
Hazel Green, AL-based North Alabama Bank is an FDIC-insured bank started in 1989. The bank has equity of $12.0 million on $92.8 million in assets, according to December 31, 2017, regulatory filings.

With 30 full-time employees in 3 offices in AL, the bank currently holds loans and leases worth $63.9 million, including real estate loans of $57.3 million. U.S. bank customers currently have $80.7 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, North Alabama Bank exhibited a generally satisfactory condition, earning 3 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 acts as a bulwark against losses and provides protection for depositors when a bank is experiencing financial trouble. It follows then that when it comes to measuring an a bank's financial stability, capital is essential. From a safety and soundness perspective, the higher the capital, the better.

North Alabama Bank scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 16 out of a possible 30 points.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. North Alabama Bank's Tier 1 capital ratio was 14.88 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic headwinds.

Overall, North Alabama Bank held equity amounting to 12.92 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid mortgages.

A bank with large numbers of these types of assets could eventually have to use capital to cover losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in reduced earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, North Alabama Bank scored 32 out of a possible 40 points, below 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, 3.01 percent of North Alabama Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the size of that reserve to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on North Alabama Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. However, banks that are losing money are less able to do those things.

On Bankrate's earnings test, North Alabama Bank scored 6 out of a possible 30, lower than the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. North Alabama Bank's most recent annualized quarterly return on equity was 2.41 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $290,000 on total equity of $12.0 million. The bank experienced 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.