Safe and Sound

Montezuma State Bank

Montezuma, IA
4
Star Rating
Started in 1891, Montezuma State Bank is an FDIC-insured bank based in Montezuma, IA. Regulatory filings show the bank having equity of $4.7 million on assets of $35.2 million, as of December 31, 2017.

With 8 full-time employees, the bank has amassed loans and leases worth $18.8 million, including real estate loans of $10.5 million. U.S. bank customers currently have $30.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Montezuma State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank fared on the three important criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and affords protection for depositors during times of financial trouble for the bank. It follows then that a bank's level of capital is a valuable measurement of an institution's financial resilience. When it comes to safety and soundness, the more capital, the better.

Montezuma State Bank did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, receiving a score of 16 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Montezuma State Bank's Tier 1 capital ratio was 20.50 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic difficulties.

Overall, Montezuma State Bank held equity amounting to 13.23 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having lots of these kinds of assets could eventually force a bank to use capital to absorb losses, reducing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in diminished earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, Montezuma State Bank scored 36 out of a possible 40 points, failing to reach the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.15 percent of Montezuma State Bank's loans were noncurrent, meaning 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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Montezuma State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital buffer, or use them to deal with problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's test of earnings, Montezuma State Bank scored 12 out of a possible 30, failing to reach the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. Montezuma State Bank's most recent annualized quarterly return on equity was 5.87 percent, below the national average of 8.10 percent.

The bank reported net income of $267,000 on total equity of $4.7 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.74 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.