Safe and Sound

The Exchange Bank of Alabama

Altoona, AL
5
Star Rating
The Exchange Bank of Alabama is an Altoona, AL-based, FDIC-insured bank dating back to 1909. As of December 31, 2017, the bank had equity of $36.3 million on $279.8 million in assets.

Thanks to the work of 74 full-time employees in 5 offices in AL, the bank has amassed loans and leases worth $179.5 million, including real estate loans of $153.8 million. U.S. bank customers currently have $236.8 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Exchange Bank of Alabama exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did 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 times of economic instability for the bank. Therefore, a bank's level of capital is a useful measurement of a bank's financial strength. When it comes to safety and soundness, the higher the capital, the better.

The Exchange Bank of Alabama achieved a score of 16 out of a possible 30 points on our test to measure capital adequacy, beating the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. The Exchange Bank of Alabama's Tier 1 capital ratio was 18.68 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic challenges.

Overall, The Exchange Bank of Alabama held equity amounting to 12.96 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due loans.

A bank with extensive holdings of these types of assets could eventually have to use capital to absorb losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, The Exchange Bank of Alabama scored 40 out of a possible 40 points, above 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, 0.22 percent of The 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 . That reserve's size 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 The Exchange Bank of Alabama's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, reduce a bank's ability to do those things.

The Exchange Bank of Alabama scored 16 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The Exchange Bank of Alabama's most recent annualized quarterly return on equity was 8.07 percent, below the national average of 8.10 percent.

The bank recorded net income of $2.8 million on total equity of $36.3 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.01 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.