Safe and Sound

Deerwood Bank

Deerwood, MN
5
Star Rating
Deerwood, MN-based Deerwood Bank is an FDIC-insured bank founded in 1910. The bank holds equity of $60.6 million on assets of $504.5 million, according to December 31, 2017, regulatory filings.

With 126 full-time employees in 11 offices in MN, the bank holds loans and leases worth $385.8 million, including real estate loans of $271.8 million. U.S. bank customers currently have $432.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Deerwood Bank 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

When it comes to measuring an a bank's financial fortitude, capital is key. It acts as a cushion against losses and affords protection for depositors when a bank is experiencing financial instability. When it comes to safety and soundness, more capital is preferred.

On our test to measure the adequacy of a bank's capital, Deerwood Bank received a score of 12 out of a possible 30 points, lower than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Deerwood Bank's Tier 1 capital ratio was 13.99 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial challenges.

Overall, Deerwood Bank held equity amounting to 12.01 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 troubled assets, such as past-due mortgages.

Having lots of these kinds of assets could eventually force a bank to use capital to cover losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, pushing down earnings and elevating the risk of a failure in the future.

Deerwood Bank did better than 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, 0.11 percent of Deerwood 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Deerwood Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its safety and soundness. Earnings can be retained by the bank, boosting its capital cushion, or be used to address problematic loans, likely making the bank better prepared to withstand economic trouble. Losses, on the other hand, take away from a bank's ability to do those things.

Deerwood Bank scored 22 out of a possible 30 on Bankrate's test of earnings, better than the national average of 15.12.

One important measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. Deerwood Bank's most recent annualized quarterly return on equity was 12.80 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $7.5 million on total equity of $60.6 million. The bank experienced 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.