Safe and Sound

Exchange State Bank

Luverne, MN
4
Star Rating
Exchange State Bank is an FDIC-insured bank founded in 1900 and currently based in Luverne, MN. The bank holds equity of $16.6 million on $186.4 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $158.3 million on deposit at 3 offices in MN run by 29 full-time employees. With that footprint, the bank holds loans and leases worth $125.8 million, $72.5 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Exchange State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial strength. It works as a bulwark against losses and as protection for depositors when a bank is struggling financially. From a safety and soundness perspective, the more capital, the better.

On our test to measure the adequacy of a bank's capital, Exchange State Bank received a score of 8 out of a possible 30 points, below the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Exchange State Bank's Tier 1 capital ratio was 12.20 percent, higher than the 6 percent level considered adequate by regulators, 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 difficulties.

Overall, Exchange State Bank held equity amounting to 8.93 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

Having large numbers of these types of assets could eventually force a bank to use capital to absorb losses, cutting down on its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, decreasing earnings and increasing the risk of a failure in the future.

Exchange State Bank exceeded 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 widely used indicator of asset quality.As of December 31, 2017, none of Exchange State Bank'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 maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem 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 long-term survivability. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, potentially making the bank better able to withstand financial shocks. Losses, on the other hand, diminish a bank's ability to do those things.

Exchange State Bank received above-average marks on Bankrate's earnings test, 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 9.03 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.5 million on total equity of $16.6 million. The bank experienced an annualized return on average assets, or ROA, of 0.87 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.