Safe and Sound

Exchange State Bank

Adair, IA
5
Star Rating
Started in 1879, Exchange State Bank is an FDIC-insured bank headquartered in Adair, IA. As of December 31, 2017, the bank held equity of $5.4 million on $36.6 million in assets.

Thanks to the efforts of 10 full-time employees, the bank has amassed loans and leases worth $20.1 million, including $11.8 million worth of real estate loans. The bank currently holds $29.1 million in deposits from U.S. customers.

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. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for account holders when a bank is experiencing financial trouble. Therefore, a bank's level of capital is a useful measurement of a bank's financial resilience. When looking at safety and soundness, more capital is preferred.

On our test to measure the adequacy of a bank's capital, Exchange State Bank achieved a score of 16 out of a possible 30 points, beating the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Exchange State Bank's Tier 1 capital ratio was 19.74 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic difficulties.

Overall, Exchange State Bank held equity amounting to 14.76 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 mortgages, on the bank's capitalization and allocated loan loss reserves.

Having large numbers of these kinds of assets suggests a bank may have to use capital to cover losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, Exchange State Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the reserve's size to the total amount of problem loans can be a helpful indicator when evaluating a bank's ability to manage problem assets. 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 cushion, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, Exchange State Bank scored 16 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one widely used measure of a bank's earnings. Exchange State Bank's most recent annualized quarterly return on equity was 7.48 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $411,000 on total equity of $5.4 million. The bank reported an annualized return on average assets, or ROA, of 1.10 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.