Safe and Sound

Sterling State Bank

Austin, MN
4
Star Rating
Founded in 1958, Sterling State Bank is an FDIC-insured bank headquartered in Austin, MN. Regulatory filings show the bank having equity of $28.1 million on $367.3 million in assets, as of December 31, 2017.

U.S. bank customers have $263.5 million on deposit at 9 offices in MN run by 72 full-time employees. With that footprint, the bank holds loans and leases worth $187.7 million, including real estate loans of $158.5 million.

Overall, Bankrate believes that, as of December 31, 2017, Sterling State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to grade American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of a bank's financial fortitude. It acts as a buffer against losses and provides protection for accountholders when a bank is experiencing financial trouble. When it comes to safety and soundness, more capital is preferred.

Sterling State Bank received a score of 6 out of a possible 30 points on our test to measure the adequacy of a bank's capital, below the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Sterling State Bank's Tier 1 capital ratio was 14.62 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial challenges.

Overall, Sterling State Bank held equity amounting to 7.66 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 troubled assets, such as unpaid mortgages.

Having extensive holdings of these kinds of assets could eventually require a bank to use capital to cover losses, shrinking its equity cushion. 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, reducing earnings and elevating the chances of a failure in the future.

Sterling State Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, better than the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.16 percent of Sterling 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 to handle problem 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 helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Sterling State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, potentially making the bank better able to withstand financial trouble. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Sterling State Bank scored 14 out of a possible 30, lower than the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Sterling State Bank was 6.80 percent, below the national average of 8.10 percent.

The bank recorded net income of $1.9 million on total equity of $28.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.52 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.