Safe and Sound

Wells Federal Bank

Wells, MN
4
Star Rating
Wells Federal Bank is a Wells, MN-based, FDIC-insured bank that opened its doors in 1934. As of June 30, 2017, the bank held equity of $25.6 million on $266,528,000 in assets.

With 80 full-time employees in 9 offices in MN, the bank currently holds loans and leases worth $196.9 million, including real estate loans of $172.5 million. U.S. bank customers currently have $239.9 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Wells Federal Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is essential. It acts as a bulwark against losses and as protection for depositors when a bank is experiencing economic trouble. When it comes to safety and soundness, more capital is preferred.
Wells Federal Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach the national average of 13.38.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Wells Federal Bank's Tier 1 capital ratio was 12.74 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.16 percent. A higher capital ratio means the bank will be better able to weather economic challenges.

Overall, Wells Federal Bank held equity amounting to 9.61 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test is intended to estimate 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 a large number of these kinds of assets could eventually require a bank to use capital to absorb losses, shrinking 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, pushing down earnings and elevating the risk of a failure in the future.

Wells Federal Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, falling short of the national average of 37.62.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.83 percent of Wells Federal 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 1.04 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the the size of that reserve to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Wells Federal Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings can be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank better able to withstand economic trouble. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's earnings test, Wells Federal Bank scored 20 out of a possible 30, above the national average of 16.52.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. The most recent annualized quarterly return on equity for Wells Federal Bank was 10.86 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $1.4 million on total equity of $25.6 million. The bank reported an annualized return on average assets, or ROA, of 1.06 percent, above the 1 percent deemed satisfactory in accordance with industry standards, but below the average for U.S. banks of 1.14 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.