Safe and Sound

Bank of Zumbrota

Zumbrota, MN
5
Star Rating
Bank of Zumbrota is a Zumbrota, MN-based, FDIC-insured bank that opened its doors in 1925. The bank has equity of $19.7 million on $162.2 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 41 full-time employees in 2 offices in MN, the bank has amassed loans and leases worth $121.8 million, $75.2 million of which are for real estate. The bank currently holds $131.6 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Zumbrota exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three important criteria Bankrate used to score U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial resilience. It works as a cushion against losses and provides protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure capital adequacy, Bank of Zumbrota racked up 14 out of a possible 30 points, beating the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Bank of Zumbrota's Tier 1 capital ratio was 13.11 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial downturns.

Overall, Bank of Zumbrota held equity amounting to 12.14 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 past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

Having a large number of these types of assets suggests a bank may eventually have to use capital to absorb losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and elevating the risk of a failure in the future.

On Bankrate's test of asset quality, Bank of Zumbrota scored 40 out of a possible 40 points, better than 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, 1.16 percent of Bank of Zumbrota'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 to deal with problem assets known as an "allowance for loan and lease losses." That reserve's size can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Bank of Zumbrota's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. However, banks that are losing money have less ability to do those things.

Bank of Zumbrota exceeded the national average on Bankrate's test of earnings, achieving a score of 20 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Bank of Zumbrota's most recent annualized quarterly return on equity was 10.82 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 $19.7 million. The bank reported an annualized return on average assets, or ROA, of 1.31 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.