Safe and Sound

The First State Bank of Red Wing

Red Wing, MN
3
Star Rating
The First State Bank of Red Wing is an FDIC-insured bank founded in 1915 and currently based in Red Wing, MN. As of December 31, 2017, the bank held equity of $6.8 million on $78.4 million in assets.

Thanks to the efforts of 13 full-time employees in 3 offices in MN, the bank has amassed loans and leases worth $22.8 million, including real estate loans of $13.8 million. The bank currently holds $71.4 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, The First State Bank of Red Wing exhibited a generally satisfactory condition, earning 3 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 score American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is important. It acts as a buffer against losses and affords protection for depositors when a bank is struggling financially. When it comes to safety and soundness, the more capital, the better.

On our test to measure capital adequacy, The First State Bank of Red Wing received a score of 8 out of a possible 30 points, lower than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. The First State Bank of Red Wing's Tier 1 capital ratio was 23.41 percent, higher than the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, The First State Bank of Red Wing held equity amounting to 8.61 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as past-due mortgages.

A bank with lots of these kinds of assets could eventually be forced to use capital to absorb losses, reducing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

The First State Bank of Red Wing beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

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, 0.29 percent of The First State Bank of Red Wing'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 deal with 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 useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on The First State Bank of Red Wing's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses lessen a bank's ability to do those things.

The First State Bank of Red Wing underperformed the average on Bankrate's earnings test, achieving a score of 6 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for The First State Bank of Red Wing was 2.50 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $170,000 on total equity of $6.8 million. The bank had an annualized return on average assets, or ROA, of 0.22 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.