Safe and Sound

Alliance Bank

Lake City, MN
4
Star Rating
Alliance Bank is an FDIC-insured bank founded in 1867 and currently headquartered in Lake City, MN. As of December 31, 2017, the bank held equity of $66.1 million on $594.7 million in assets.

U.S. bank customers have $489.9 million on deposit at 7 offices in MN run by 124 full-time employees. With that footprint, the bank currently holds loans and leases worth $483.7 million, including real estate loans of $353.0 million.

Overall, Bankrate believes that, as of December 31, 2017, Alliance Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three major criteria Bankrate used to score American banks.

WHAT IS
SAFE AND SOUND?

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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 struggling financially. It follows then that when it comes to measuring an a bank's financial resilience, capital is valuable. When looking at safety and soundness, more capital is preferred.

Alliance Bank fell short of the national average of 13.13 on our test to measure capital adequacy, scoring 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Alliance Bank's Tier 1 capital ratio was 11.95 percent, higher than the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, Alliance Bank held equity amounting to 11.12 percent of its assets, which was lower than 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.

Having extensive holdings of these kinds of assets could eventually require a bank to use capital to absorb losses, reducing its equity buffer. 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 diminished earnings and potentially more risk of a failure in the future.

Alliance Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, below the national average of 37.49.

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, 0.37 percent of Alliance Bank'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 handle problem assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Alliance Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, likely making the bank better prepared to withstand financial trouble. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's earnings test, Alliance Bank scored 18 out of a possible 30, better than the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. The most recent annualized quarterly return on equity for Alliance Bank was 9.41 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $6.2 million on total equity of $66.1 million. The bank had an annualized return on average assets, or ROA, of 1.05 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.