Safe and Sound

Raccoon Valley Bank

Perry, IA
4
Star Rating
Raccoon Valley Bank is a Perry, IA-based, FDIC-insured bank founded in 1927. The bank has equity of $19.1 million on $265.3 million in assets, according to December 31, 2017, regulatory filings.

With 46 full-time employees in 4 offices in IA, the bank holds loans and leases worth $181.6 million, including real estate loans of $125.2 million. U.S. bank customers currently have $241.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Raccoon Valley Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three major criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for depositors when a bank is struggling financially. Therefore, when it comes to measuring an a bank's financial stability, capital is crucial. When it comes to safety and soundness, more capital is better.

Raccoon Valley Bank fell below the national average of 13.13 on our test to measure the adequacy of a bank's capital, receiving a score of 6 out of a possible 30 points.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Raccoon Valley Bank's Tier 1 capital ratio was 9.15 percent, above 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 difficulties.

Overall, Raccoon Valley Bank held equity amounting to 7.22 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 effect of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets means a bank could eventually have to use capital to cover losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in reduced earnings and potentially more risk of a future failure.

Raccoon Valley Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

A helpful 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 Raccoon Valley 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 known as an "allowance for loan and lease losses" to deal with problem assets . 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. Raccoon Valley Bank's loan loss allowance was 108,600.00 percent of its total noncurrent loans, above the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, boosting its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in times of trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's earnings test, Raccoon Valley Bank scored 20 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Raccoon Valley Bank was 12.03 percent, above the national average of 8.10 percent.

The bank earned net income of $2.3 million on total equity of $19.1 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.90 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.