Safe and Sound

5Star Bank

Colorado Springs, CO
5
Star Rating
5Star Bank is a Colorado Springs, CO-based, FDIC-insured bank dating back to 1980. As of December 31, 2017, the bank held equity of $35.1 million on assets of $193.1 million.

With 35 full-time employees in 5 offices in CO, the bank currently holds loans and leases worth $144.1 million, including real estate loans of $129.0 million. U.S. bank customers currently have $157.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, 5Star Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of a bank's financial strength. It works as a bulwark against losses and as protection for accountholders when a bank is struggling financially. When it comes to safety and soundness, more capital is better.

5Star Bank did better than the national average of 13.13 points on our test to measure capital adequacy, receiving a score of 26 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. 5Star Bank's Tier 1 capital ratio was 22.78 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic challenges.

Overall, 5Star Bank held equity amounting to 18.19 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with extensive holdings of these kinds of assets may eventually be forced to use capital to absorb losses, shrinking its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, reducing earnings and increasing the chances of a failure in the future.

5Star Bank beat out the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.01 percent of 5Star Bank's loans were noncurrent, meaning 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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. 5Star Bank's loan loss allowance was 8,730.00 percent of its total noncurrent loans, exceeding the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

A bank's profitability has an effect on its safety and soundness. Earnings can be retained by the bank, expanding its capital cushion, or be used to address problematic loans, likely making the bank better able to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's test of earnings, 5Star Bank scored 12 out of a possible 30, below the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. 5Star Bank's most recent annualized quarterly return on equity was 5.79 percent, below the national average of 8.10 percent.

The bank recorded net income of $1.8 million on total equity of $35.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.98 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.