Safe and Sound

Frost State Bank

Frost, MN
4
Star Rating
Founded in 1985, Frost State Bank is an FDIC-insured bank headquartered in Frost, MN. As of December 31, 2017, the bank held equity of $6.1 million on $51.6 million in assets.

Thanks to the work of 7 full-time employees, the bank has amassed loans and leases worth $42.9 million, including real estate loans of $16.7 million. U.S. bank customers currently have $45.3 million in deposits with the bank.

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

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is essential. It acts as a buffer against losses and provides protection for depositors when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure capital adequacy, Frost State Bank achieved a score of 14 out of a possible 30 points, above the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Frost State Bank's Tier 1 capital ratio was 13.88 percent, exceeding the 6 percent level considered adequate by regulators, but lower than 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, Frost State Bank held equity amounting to 11.83 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 troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets suggests a bank could have 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 no longer earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

Frost State Bank fell below the national average of 37.49 on Bankrate's asset quality test, racking up 32 out of a possible 40 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, 2.22 percent of Frost 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 above 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 helpful 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 Frost State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

Frost State Bank scored 18 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. Frost State Bank's most recent annualized quarterly return on equity was 10.38 percent, above the national average of 8.10 percent.

The bank reported net income of $605,000 on total equity of $6.1 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.21 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.