Safe and Sound

Exchange State Bank

Lanark, IL
5
Star Rating
Exchange State Bank is an FDIC-insured bank started in 1878 and currently based in Lanark, IL. The bank holds equity of $11.1 million on assets of $94.3 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 15 full-time employees, the bank currently holds loans and leases worth $41.7 million, $24.9 million of which are for real estate. U.S. bank customers currently have $75.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Exchange State 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 score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and as protection for account holders when a bank is struggling financially. Therefore, a bank's level of capital is a useful measurement of a bank's financial resilience. When it comes to safety and soundness, more capital is better.

Exchange State Bank beat out the national average of 13.13 points on our test to measure capital adequacy, racking up 14 out of a possible 30 points.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Exchange State Bank's Tier 1 capital ratio was 19.05 percent, exceeding the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial headwinds.

Overall, Exchange State Bank held equity amounting to 11.78 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of troubled assets, such as past-due loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with extensive holdings of these types of assets could eventually have to use capital to absorb losses, shrinking its cushion of equity. 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 reduced earnings and potentially more risk of a failure in the future.

Exchange State Bank beat out the national average of 37.49 on Bankrate's asset quality test, 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, 0.46 percent of Exchange 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 . That reserve's size can be a handy 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 Exchange State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial trouble. Obviously, banks that are losing money have less ability to do those things.

Exchange State Bank did above-average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one widely used measure of a bank's earnings. Exchange State Bank's most recent annualized quarterly return on equity was 8.33 percent, above the national average of 8.10 percent.

The bank earned net income of $906,000 on total equity of $11.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.94 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.