Safe and Sound

Peoples State Bank

Summit, SD
5
Star Rating
Peoples State Bank is a Summit, SD-based, FDIC-insured bank started in 1927. As of December 31, 2017, the bank had equity of $8.0 million on $71.8 million in assets.

Thanks to the efforts of 13 full-time employees in 3 offices in SD, the bank holds loans and leases worth $53.8 million, $12.1 million of which are for real estate. The bank currently holds $61.3 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Peoples State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three important criteria Bankrate used to grade U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for account holders during times of financial instability for the bank. It follows then that a bank's level of capital is a valuable measurement of an institution's financial fortitude. From a safety and soundness perspective, the higher the capital, the better.

Peoples State Bank did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 14 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Peoples State Bank's Tier 1 capital ratio was 10.84 percent, exceeding the 6 percent level regulators consider adequate, but less 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 challenges.

Overall, Peoples State Bank held equity amounting to 11.16 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

A bank with a large number of these types of assets could eventually have to use capital to cover losses, reducing its buffer of equity. 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 reduced earnings and potentially more risk of a future failure.

Peoples State Bank scored 32 out of a possible 40 points on Bankrate's test of asset quality, coming in below the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 2.68 percent of Peoples 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 keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Peoples State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or use them to address problematic loans, potentially making the bank better able to withstand economic shocks. Losses, on the other hand, diminish a bank's ability to do those things.

On Bankrate's test of earnings, Peoples State Bank scored 30 out of a possible 30, better than the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Peoples State Bank was 26.20 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $2.0 million on total equity of $8.0 million. The bank had an annualized return on average assets, or ROA, of 2.92 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.