WHAT IS
SAFE AND SOUND?
Capital is an essential measurement of an institution's financial resilience. It acts as a cushion against losses and affords protection for depositors when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.
On our test to measure the adequacy of a bank's capital, The Baldwin State Bank received a score of 12 out of a possible 30 points, less than the national average of 13.13.
A bank's Tier 1 capital ratio is a widely followed measure of this buffer. The Baldwin State Bank's Tier 1 capital ratio was 25.60 percent, higher than 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 stand up to financial challenges.
Overall, The Baldwin State Bank held equity amounting to 10.33 percent of its assets, which was lower than the national average of 12.03 percent.
Bankrate uses this test to estimate the effect of problem 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 could eventually force a bank to use capital to absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the risk of a failure in the future.
The Baldwin State Bank beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .
A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.59 percent of The Baldwin State 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 to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on The Baldwin State Bank's loan loss allowance in its most recent filings.
How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses lessen a bank's ability to do those things.
The Baldwin State Bank fell behind the national average on Bankrate's earnings test, achieving a score of 14 out of a possible 30.
One important way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. The most recent annualized quarterly return on equity for The Baldwin State Bank was 6.30 percent, below the national average of 8.10 percent.
The bank reported net income of $489,000 on total equity of $7.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.66 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.
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.
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.