Safe and Sound

First State Bank Southwest

Pipestone, MN
5
Star Rating
First State Bank Southwest is an FDIC-insured bank started in 1903 and currently headquartered in Pipestone, MN. The bank has equity of $27.6 million on assets of $285.9 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $237.2 million on deposit at 6 offices in MN run by 53 full-time employees. With that footprint, the bank currently holds loans and leases worth $145.7 million, $62.6 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, First State Bank Southwest 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 evaluate American 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 essential measurement of a bank's financial strength. It works as a cushion against losses and provides protection for depositors during periods of economic trouble for the bank. When it comes to safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, First State Bank Southwest received a score of 10 out of a possible 30 points, failing to reach the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First State Bank Southwest's Tier 1 capital ratio was 16.51 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial headwinds.

Overall, First State Bank Southwest held equity amounting to 9.64 percent of its assets, which was lower than 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 extensive holdings of these types of assets could eventually require a bank to use capital to absorb losses, reducing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, resulting in reduced earnings and potentially more risk of a future failure.

First State Bank Southwest scored 40 out of a possible 40 points on Bankrate's test of asset quality, exceeding the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.45 percent of First State Bank Southwest'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 deal with problem assets known as an "allowance for loan and lease losses." 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 problematic loans. Unfortunately, the FDIC did not provide information on First State Bank Southwest's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings may be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in times of trouble. Conversely, losses diminish a bank's ability to do those things.

First State Bank Southwest scored 26 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for First State Bank Southwest was 17.34 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $4.7 million on total equity of $27.6 million. The bank experienced an annualized return on average assets, or ROA, of 1.79 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.