Safe and Sound

Houghton State Bank

Red Oak, IA
4
Star Rating
Houghton State Bank is a Red Oak, IA-based, FDIC-insured bank started in 1879. As of December 31, 2017, the bank held equity of $21.4 million on $180.7 million in assets.

Thanks to the efforts of 39 full-time employees in 6 offices in IA, the bank has amassed loans and leases worth $117.9 million, including real estate loans of $34.3 million. U.S. bank customers currently have $159.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Houghton State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three major criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial fortitude, capital is useful. It works as a cushion against losses and as protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the more capital, the better.

Houghton State Bank received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, less than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Houghton State Bank's Tier 1 capital ratio was 13.14 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, Houghton State Bank held equity amounting to 11.82 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid loans.

Having lots of these kinds of assets could eventually force a bank to use capital to cover losses, shrinking its equity cushion. 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, decreasing earnings and elevating the risk of a future failure.

Houghton State Bank did better than 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 useful indicator of asset quality.As of December 31, 2017, 0.24 percent of Houghton 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 how large that reserve is to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Houghton State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. Earnings can be retained by the bank, expanding its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, reduce a bank's ability to do those things.

Houghton State Bank scored 14 out of a possible 30 on Bankrate's earnings test, failing to reach the national average of 15.12.

One important measure of a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. Houghton State Bank's most recent annualized quarterly return on equity was 6.34 percent, below the national average of 8.10 percent.

The bank reported net income of $1.3 million on total equity of $21.4 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.78 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.