Safe and Sound

Pocahontas State Bank

Pocahontas, IA
5
Star Rating
Pocahontas, IA-based Pocahontas State Bank is an FDIC-insured bank founded in 1926. The bank has equity of $25.4 million on assets of $96.8 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $71.3 million on deposit at 3 offices in IA run by 9 full-time employees. With that footprint, the bank has amassed loans and leases worth $44.5 million, including real estate loans of $20.5 million.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial fortitude, capital is crucial. It acts as a bulwark against losses and as protection for depositors when a bank is struggling financially. When looking at safety and soundness, the higher the capital, the better.

Pocahontas State Bank scored 30 out of a possible 30 points on our test to measure the adequacy of a bank's capital, beating out the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Pocahontas State Bank's Tier 1 capital ratio was 37.84 percent, above the 6 percent level considered adequate by regulators, and above the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Pocahontas State Bank held equity amounting to 26.19 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with lots of these types of assets could eventually have to use capital to absorb losses, diminishing its buffer of equity. 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, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Pocahontas State Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 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, none of Pocahontas 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 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 . That reserve's size can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Pocahontas 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. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. However, banks that are losing money have less ability to do those things.

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

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. Pocahontas State Bank's most recent annualized quarterly return on equity was 9.33 percent, above the national average of 8.10 percent.

The bank reported net income of $2.3 million on total equity of $25.4 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 2.33 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.