WHAT IS
SAFE AND SOUND?
Capital acts as a cushion against losses and provides protection for depositors during times of financial instability for the bank. It follows then that when it comes to measuring an an institution's financial strength, capital is valuable. When it comes to safety and soundness, the higher the capital, the better.
The Piqua State Bank came in below the national average of 13.13 on our test to measure capital adequacy, achieving a score of 10 out of a possible 30 points.
A bank's Tier 1 capital ratio is an important measure of this buffer. The Piqua State Bank's Tier 1 capital ratio was 16.96 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic headwinds.
Overall, The Piqua State Bank held equity amounting to 9.01 percent of its assets, which was lower than the national average of 12.03 percent.
This test is intended to try to understand 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.
Having lots of these kinds of assets suggests a bank could have to use capital to absorb losses, cutting down on 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 lower earnings and potentially more risk of a failure in the future.
The Piqua State Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating out the national average of 37.49.
A widely used 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 The Piqua State Bank's loans were noncurrent, meaning 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 deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The Piqua State Bank's loan loss allowance in its most recent filings.
A bank's profitability affects 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 more resilient in tough times. Obviously, banks that are losing money are less able to do those things.
The Piqua State Bank did below-average on Bankrate's earnings test, achieving a score of 10 out of a possible 30.
Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for The Piqua State Bank was 4.15 percent, below the national average of 8.10 percent.
The bank reported net income of $113,000 on total equity of $2.7 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.41 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.
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.
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.