Safe and Sound

United Community Bank

Perham, MN
5
Star Rating
Perham, MN-based United Community Bank is an FDIC-insured bank founded in 1911. As of December 31, 2017, the bank held equity of $26.5 million on $263.4 million in assets.

Thanks to the efforts of 60 full-time employees in 4 offices in MN, the bank holds loans and leases worth $152.0 million, including $112.8 million worth of real estate loans. The bank currently holds $233.2 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, United Community Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to evaluate American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for depositors during periods of economic instability for the bank. Therefore, when it comes to measuring an an institution's financial resilience, capital is crucial. When looking at safety and soundness, the more capital, the better.

United Community Bank received a score of 10 out of a possible 30 points on our test to measure capital adequacy, coming in below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. United Community Bank's Tier 1 capital ratio was 15.99 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 economic downturns.

Overall, United Community Bank held equity amounting to 10.05 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 troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets may eventually force a bank to use capital to absorb losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, reducing earnings and increasing the chances of a failure in the future.

United Community Bank scored above the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

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, 1.08 percent of United Community Bank's loans were noncurrent -- in other words, 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the reserve's size to the total amount of at-risk loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on United Community Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. Earnings may be retained by the bank, increasing its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in times of trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's earnings test, United Community Bank scored 20 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for United Community Bank was 11.68 percent, above the national average of 8.10 percent.

The bank earned net income of $3.0 million on total equity of $26.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.13 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.