Safe and Sound

Preferred Bank

Rothville, MO
4
Star Rating
Preferred Bank is an FDIC-insured bank founded in 1904 and currently headquartered in Rothville, MO. As of December 31, 2017, the bank held equity of $8.1 million on $110.8 million in assets.

With 26 full-time employees in 5 offices in MO, the bank currently holds loans and leases worth $39.7 million, including real estate loans of $26.0 million. U.S. bank customers currently have $102.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Preferred Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three key criteria Bankrate used to score American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for depositors during periods 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 strength. From a safety and soundness perspective, the higher the capital, the better.

Preferred Bank received a score of 6 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Preferred Bank's Tier 1 capital ratio was 18.68 percent, exceeding the 6 percent level considered adequate by regulators, 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 economic difficulties.

Overall, Preferred Bank held equity amounting to 7.31 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due loans.

Having lots of these types of assets may eventually require a bank to use capital to absorb losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and elevating the risk of a future failure.

On Bankrate's test of asset quality, Preferred Bank scored 36 out of a possible 40 points, less than the national average of 37.49 points.

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, 0.30 percent of Preferred 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 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 at-risk loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Preferred Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

Preferred Bank received above-average marks on Bankrate's test of earnings, achieving a score of 22 out of a possible 30.

One important way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. Preferred Bank's most recent annualized quarterly return on equity was 12.62 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $1.1 million on total equity of $8.1 million. The bank reported an annualized return on average assets, or ROA, of 0.95 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.