Safe and Sound

Bank of Prescott

Prescott, AR
4
Star Rating
Bank of Prescott is a Prescott, AR-based, FDIC-insured bank dating back to 1904. Regulatory filings show the bank having equity of $11.0 million on assets of $73.2 million, as of December 31, 2017.

Thanks to the work of 20 full-time employees, the bank holds loans and leases worth $41.4 million, including real estate loans of $21.3 million. The bank currently holds $61.9 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Prescott 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 evaluate U.S. banks.

WHAT IS
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 as protection for depositors when a bank is struggling financially. When it comes to safety and soundness, more capital is better.

On our test to measure capital adequacy, Bank of Prescott racked up 22 out of a possible 30 points, above the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Bank of Prescott's Tier 1 capital ratio was 20.62 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Bank of Prescott held equity amounting to 15.05 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid mortgages.

Having lots of these types of assets could eventually force a bank to use capital to absorb losses, diminishing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, pushing down earnings and increasing the chances of a failure in the future.

Bank of Prescott fell below the national average of 37.49 on Bankrate's test of asset quality, racking up 28 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 7.06 percent of Bank of Prescott'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 problem assets . Comparing the size of that reserve to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Bank of Prescott's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial trouble. Obviously, banks that are losing money have less ability to do those things.

Bank of Prescott scored 6 out of a possible 30 on Bankrate's earnings test, below the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Bank of Prescott was 2.42 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $269,000 on total equity of $11.0 million. The bank reported an annualized return on average assets, or ROA, of 0.34 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.