Safe and Sound

Palo Savings Bank

Palo, IA
5
Star Rating
Palo Savings Bank is an FDIC-insured bank started in 1908 and currently based in Palo, IA. As of December 31, 2017, the bank had equity of $4.3 million on assets of $32.8 million.

With 7 full-time employees, the bank has amassed loans and leases worth $17.4 million, including real estate loans of $13.7 million. U.S. bank customers currently have $28.5 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Palo Savings Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for account holders during periods of financial instability for the bank. It follows then that a bank's level of capital is a crucial measurement of an institution's financial resilience. When it comes to safety and soundness, more capital is better.

On our test to measure capital adequacy, Palo Savings Bank scored 18 out of a possible 30 points, beating the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Palo Savings Bank's Tier 1 capital ratio was 39.29 percent, exceeding the 6 percent level regulators consider adequate, and exceeding the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial difficulties.

Overall, Palo Savings Bank held equity amounting to 13.03 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as unpaid mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with extensive holdings of these kinds of assets may eventually be required to use capital to absorb losses, shrinking its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, reducing earnings and increasing the risk of a future failure.

On Bankrate's test of asset quality, Palo Savings Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.02 percent of Palo Savings 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 keep a reserve to handle problem assets known as an "allowance for loan and lease losses." The size of that reserve can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Palo Savings Bank's loan loss allowance was 6,666.67 percent of its total noncurrent loans, exceeding the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's profitability affects its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or use them to address problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

Palo Savings Bank did above-average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Palo Savings Bank was 9.25 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $409,000 on total equity of $4.3 million. The bank reported an annualized return on average assets, or ROA, of 1.26 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.