Safe and Sound

Union State Bank

Pell City, AL
1
Star Rating
Union State Bank is a Pell City, AL-based, FDIC-insured bank started in 1903. As of December 31, 2017, the bank held equity of $13.1 million on assets of $221.4 million.

Thanks to the efforts of 116 full-time employees in 13 offices in multiple states, the bank has amassed loans and leases worth $79.4 million, including $62.0 million worth of real estate loans. U.S. bank customers currently have $207.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Union State Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Here's a look at how the bank fared on the three key criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for depositors during times of financial trouble for the bank. Therefore, when it comes to measuring an a bank's financial resilience, capital is important. From a safety and soundness perspective, the higher the capital, the better.

Union State Bank scored below the national average of 13.13 on our test to measure capital adequacy, scoring 2 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Union State Bank's Tier 1 capital ratio was 10.32 percent, higher than the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial headwinds.

Overall, Union State Bank held equity amounting to 5.94 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of problem assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having extensive holdings of these kinds of assets could eventually force a bank to use capital to cover losses, decreasing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a future failure.

Union State Bank scored 12 out of a possible 40 points on Bankrate's asset quality test, less 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, 4.90 percent of Union State Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above 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." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Union 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. Earnings may be retained by the bank, increasing its capital buffer, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's test of earnings, Union State Bank scored 0 out of a possible 30, less than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by total equity. Union State Bank's most recent annualized quarterly return on equity was -0.71 percent, below the national average of 8.10 percent.

The bank reported net income of $-94,000 on total equity of $13.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of -0.04 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.