Safe and Sound

Prairie Sun Bank

Milan, MN
3
Star Rating
Prairie Sun Bank is an FDIC-insured bank founded in 1915 and currently headquartered in Milan, MN. As of December 31, 2017, the bank held equity of $2.4 million on assets of $30.7 million.

Thanks to the efforts of 9 full-time employees in 2 offices in MN, the bank currently holds loans and leases worth $20.6 million, including real estate loans of $10.3 million. The bank currently holds $27.3 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Prairie Sun Bank exhibited a generally satisfactory condition, earning 3 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 grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is valuable. It works as a buffer against losses and affords protection for accountholders during periods of economic trouble for the bank. When it comes to safety and soundness, the higher the capital, the better.

Prairie Sun Bank finished below the national average of 13.13 on our test to measure the adequacy of a bank's capital, achieving a score of 6 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Prairie Sun Bank's Tier 1 capital ratio was 10.57 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic difficulties.

Overall, Prairie Sun Bank held equity amounting to 7.86 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the impact of problem 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 be forced to use capital to cover losses, reducing its cushion 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 reduced earnings and potentially more risk of a failure in the future.

Prairie Sun Bank scored 28 out of a possible 40 points on Bankrate's test of asset quality, lower than the national average of 37.49.

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, 2.50 percent of Prairie Sun 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." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Prairie Sun Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or use them to deal with problematic loans, likely making the bank more resilient in tough times. Banks that are losing money, however, have less ability to do those things.

On Bankrate's earnings test, Prairie Sun Bank scored 18 out of a possible 30, exceeding the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Prairie Sun Bank's most recent annualized quarterly return on equity was 8.61 percent, above the national average of 8.10 percent.

The bank earned net income of $207,000 on total equity of $2.4 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.66 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.