Safe and Sound

Defiance State Bank

Defiance, IA
5
Star Rating
Defiance State Bank is an FDIC-insured bank founded in 1951 and currently based in Defiance, IA. Regulatory filings show the bank having equity of $3.1 million on $33.8 million in assets, as of December 31, 2017.

Thanks to the work of 7 full-time employees in 2 offices in IA, the bank currently holds loans and leases worth $23.0 million, including $10.8 million worth of real estate loans. The bank currently holds $26.6 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Defiance State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial fortitude. It acts as a buffer against losses and as protection for accountholders when a bank is experiencing economic trouble. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, Defiance State Bank received a score of 10 out of a possible 30 points, falling short of the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Defiance State Bank's Tier 1 capital ratio was 11.00 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic difficulties.

Overall, Defiance State Bank held equity amounting to 9.09 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as past-due loans.

A bank with a large number of these types of assets may eventually be required to use capital to cover losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in reduced earnings and potentially more risk of a failure in the future.

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

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, 0.57 percent of Defiance State 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Defiance State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand economic trouble. Obviously, banks that are losing money have less ability to do those things.

Defiance State Bank scored 20 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. Defiance State Bank's most recent annualized quarterly return on equity was 11.71 percent, above the national average of 8.10 percent.

The bank earned net income of $342,000 on total equity of $3.1 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.01 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.