Safe and Sound

The Chesapeake Bank & Trust Co.

Chestertown, MD
5
Star Rating
The Chesapeake Bank & Trust Co. is a Chestertown, MD-based, FDIC-insured bank dating back to 1986. Regulatory filings show the bank having equity of $10.0 million on assets of $108.5 million, as of December 31, 2017.

Thanks to the work of 21 full-time employees in 3 offices in MD, the bank holds loans and leases worth $69.4 million, $62.5 million of which are for real estate. U.S. bank customers currently have $74.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Chesapeake Bank & Trust Co. exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three important criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for depositors during periods of economic trouble for the bank. It follows then that when it comes to measuring an a bank's financial resilience, capital is valuable. When it comes to safety and soundness, the more capital, the better.

The Chesapeake Bank & Trust Co. came in below the national average of 13.13 on our test to measure capital adequacy, scoring 10 out of a possible 30 points.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. The Chesapeake Bank & Trust Co.'s Tier 1 capital ratio was 13.97 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.

Overall, The Chesapeake Bank & Trust Co. held equity amounting to 9.18 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

A bank with large numbers of these types of assets could eventually be required to use capital to absorb losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

The Chesapeake Bank & Trust Co. scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.86 percent of The Chesapeake Bank & Trust Co.'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 troubled 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 problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The Chesapeake Bank & Trust Co.'s loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its safety and soundness. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank better prepared to withstand economic shocks. However, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, The Chesapeake Bank & Trust Co. scored 28 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for The Chesapeake Bank & Trust Co. was 18.50 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.8 million on total equity of $10.0 million. The bank had an annualized return on average assets, or ROA, of 1.65 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.