Safe and Sound

Union Federal Savings and Loan Association

Kewanee, IL
4
Star Rating
Union Federal Savings and Loan Association is an FDIC-insured bank started in 1890 and currently headquartered in Kewanee, IL. As of December 31, 2017, the bank had equity of $20.8 million on $149.3 million in assets.

With 35 full-time employees in 6 offices in multiple states, the bank has amassed loans and leases worth $104.1 million, including real estate loans of $102.5 million. U.S. bank customers currently have $128.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Union Federal Savings and Loan Association exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three important criteria Bankrate used to grade American banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for account holders during periods of economic instability for the bank. It follows then that when it comes to measuring an a bank's financial fortitude, capital is key. When it comes to safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, Union Federal Savings and Loan Association scored 18 out of a possible 30 points, exceeding the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Union Federal Savings and Loan Association's Tier 1 capital ratio was 24.36 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic downturns.

Overall, Union Federal Savings and Loan Association held equity amounting to 13.93 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

A bank with extensive holdings of these kinds of assets could eventually be required to use capital to cover losses, decreasing its cushion of equity. 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, resulting in depressed earnings and potentially more risk of a future failure.

Union Federal Savings and Loan Association came in below the national average of 37.49 on Bankrate's test of asset quality, racking up 36 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, 0.96 percent of Union Federal Savings and Loan Association'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 known as an "allowance for loan and lease losses" to deal with problem assets . How large that reserve is can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Union Federal Savings and Loan Association's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank better prepared to withstand financial trouble. However, banks that are losing money are less able to do those things.

On Bankrate's earnings test, Union Federal Savings and Loan Association scored 8 out of a possible 30, failing to reach the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. Union Federal Savings and Loan Association's most recent annualized quarterly return on equity was 4.03 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $820,000 on total equity of $20.8 million. The bank experienced an annualized return on average assets, or ROA, of 0.54 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.