Safe and Sound

First American Bank

Artesia, NM
5
Star Rating
First American Bank is an Artesia, NM-based, FDIC-insured bank started in 1903. Regulatory filings show the bank having equity of $110.2 million on $1,088,653,000 in assets, as of June 30, 2017.

With 243 full-time employees in 19 offices in NM, the bank currently holds loans and leases worth $609.9 million, including real estate loans of $484.3 million. U.S. bank customers currently have $915.1 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, First American Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three key criteria Bankrate used to grade American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of an institution's financial resilience. It works as a bulwark against losses and affords protection for depositors during times of financial trouble for the bank. From a safety and soundness perspective, the more capital, the better.
On our test to measure capital adequacy, First American Bank received a score of 10 out of a possible 30 points, less than the national average of 13.38.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. First American Bank's Tier 1 capital ratio was 15.96 percent, exceeding the 6 percent level regulators consider adequate, but less than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, First American Bank held equity amounting to 10.12 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 loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid loans.

A bank with extensive holdings of these kinds of assets may eventually be forced to use capital to cover losses, reducing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a future failure.

First American Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, better than the national average of 37.62.

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of June 30, 2017, 0.37 percent of First American Bank's loans were noncurrent -- in other words, 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 maintain a reserve to deal with problem 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 problematic loans. Unfortunately, the FDIC did not provide information on First American Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. Earnings may be retained by the bank, expanding its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, lessen a bank's ability to do those things.

First American Bank outperformed the average on Bankrate's earnings test, achieving a score of 26 out of a possible 30.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. The most recent annualized quarterly return on equity for First American Bank was 16.21 percent, above the national average of 9.28 percent.

The bank reported net income of $8.8 million on total equity of $110.2 million for the twelve months ended June 30, 2017. The bank reported an annualized return on average assets, or ROA, of 1.62 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.