Safe and Sound

Bank of the Federated States of Micronesia

Pohnpei, FM
5
Star Rating
Pohnpei, FM-based Bank of the Federated States of Micronesia is an FDIC-insured bank started in 1986. The bank holds equity of $22.3 million on $144.4 million in assets, according to December 31, 2017, regulatory filings.

With 84 full-time employees, the bank has amassed loans and leases worth $45.0 million, including real estate loans of $17.9 million. U.S. bank customers currently have $121.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Bank of the Federated States of Micronesia 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 U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of a bank's financial resilience. It acts as a cushion against losses and provides protection for depositors when a bank is struggling financially. When it comes to safety and soundness, the more capital, the better.

Bank of the Federated States of Micronesia scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 22 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Bank of the Federated States of Micronesia's Tier 1 capital ratio was 39.14 percent, higher than the 6 percent level regulators consider adequate, and higher than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial challenges.

Overall, Bank of the Federated States of Micronesia held equity amounting to 15.44 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine 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 lots of these kinds of assets means a bank may eventually have to use capital to absorb losses, decreasing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Bank of the Federated States of Micronesia scored 40 out of a possible 40 points, above the national average of 37.49 points.

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, 1.30 percent of Bank of the Federated States of Micronesia'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 known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing how large that reserve is to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Bank of the Federated States of Micronesia'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, giving a boost to its capital buffer, or put them to work addressing problematic loans, potentially making the bank better able to withstand economic shocks. Losses, on the other hand, diminish a bank's ability to do those things.

Bank of the Federated States of Micronesia beat the national average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Bank of the Federated States of Micronesia's most recent annualized quarterly return on equity was 9.67 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $2.1 million on total equity of $22.3 million. The bank had an annualized return on average assets, or ROA, of 1.37 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.