Safe and Sound

United Southwest Bank

Cottonwood, MN
4
Star Rating
United Southwest Bank is a Cottonwood, MN-based, FDIC-insured bank dating back to 1916. The bank holds equity of $3.9 million on $47.4 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 13 full-time employees in 4 offices in MN, the bank has amassed loans and leases worth $17.8 million, including real estate loans of $5.2 million. U.S. bank customers currently have $43.4 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, United Southwest Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of a bank's financial fortitude. It acts as a bulwark against losses and provides protection for accountholders when a bank is experiencing economic instability. When looking at safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, United Southwest Bank received a score of 8 out of a possible 30 points, less than the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. United Southwest Bank's Tier 1 capital ratio was 14.61 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.

Overall, United Southwest Bank held equity amounting to 8.31 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due mortgages.

Having a large number of these kinds of assets could eventually require a bank to use capital to cover losses, decreasing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in diminished earnings and potentially more risk of a future failure.

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

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.04 percent of United Southwest 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 keep a reserve to handle problem assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. United Southwest Bank's loan loss allowance was 2,337.50 percent of its total noncurrent loans, exceeding the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or use them to address problematic loans, likely making the bank better able to withstand financial shocks. However, banks that are losing money are less able to do those things.

United Southwest Bank fell short of the national average on Bankrate's test of earnings, achieving a score of 10 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. United Southwest Bank's most recent annualized quarterly return on equity was 4.47 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $175,000 on total equity of $3.9 million. The bank reported an annualized return on average assets, or ROA, of 0.36 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.