Safe and Sound

Preferred Bank

Casey, IL
3
Star Rating
Preferred Bank is an FDIC-insured bank started in 1999 and currently based in Casey, IL. The bank has equity of $5.4 million on $53.9 million in assets, according to December 31, 2017, regulatory filings.

With 12 full-time employees, the bank currently holds loans and leases worth $37.3 million, including real estate loans of $22.0 million. U.S. bank customers currently have $48.4 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Preferred Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial fortitude. It works as a buffer against losses and provides protection for depositors when a bank is struggling financially. When it comes to safety and soundness, the more capital, the better.

Preferred Bank received a score of 12 out of a possible 30 points on our test to measure the adequacy of a bank's capital, less than the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Preferred Bank's Tier 1 capital ratio was 14.15 percent, higher than 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 stand up to financial headwinds.

Overall, Preferred Bank held equity amounting to 10.11 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets means a bank may have to use capital to cover losses, shrinking 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 money, decreasing earnings and increasing the risk of a future failure.

Preferred Bank came in below the national average of 37.49 on Bankrate's asset quality test, racking up 32 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 2.71 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 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." Comparing the size of that reserve to the total amount of problematic loans can be a handy 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 affects its safety and soundness. Earnings can be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank better able to withstand economic trouble. Conversely, losses diminish a bank's ability to do those things.

Preferred Bank received below-average marks on Bankrate's earnings test, achieving a score of 8 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one key measure of a bank's earnings. Preferred Bank's most recent annualized quarterly return on equity was 3.56 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $194,000 on total equity of $5.4 million. The bank experienced an annualized return on average assets, or ROA, of 0.37 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.