Safe and Sound

Decorah Bank & Trust Company

Decorah, IA
5
Star Rating
Decorah Bank & Trust Company is an FDIC-insured bank started in 1935 and currently based in Decorah, IA. As of December 31, 2017, the bank held equity of $53.8 million on assets of $439.4 million.

U.S. bank customers have $364.7 million on deposit at 3 offices in IA run by 94 full-time employees. With that footprint, the bank holds loans and leases worth $321.4 million, including $203.7 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Decorah Bank & Trust Company exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of a bank's financial strength. It works as a cushion against losses and provides protection for accountholders during times of economic instability for the bank. When looking at safety and soundness, the higher the capital, the better.

Decorah Bank & Trust Company received a score of 12 out of a possible 30 points on our test to measure capital adequacy, failing to reach the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Decorah Bank & Trust Company's Tier 1 capital ratio was 13.63 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Decorah Bank & Trust Company held equity amounting to 12.24 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 problem assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with a large number of these kinds of assets could eventually be forced to use capital to cover losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, reducing earnings and increasing the risk of a future failure.

Decorah Bank & Trust Company scored above the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.61 percent of Decorah Bank & Trust Company'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 deal with problem assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Decorah Bank & Trust Company's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. Earnings can be retained by the bank, boosting its capital cushion, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

Decorah Bank & Trust Company scored 22 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 15.12.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. The most recent annualized quarterly return on equity for Decorah Bank & Trust Company was 12.41 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $6.6 million on total equity of $53.8 million. The bank reported an annualized return on average assets, or ROA, of 1.55 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.