Safe and Sound

Bank of Star City

Star City, AR
5
Star Rating
Founded in 1925, Bank of Star City is an FDIC-insured bank based in Star City, AR. As of December 31, 2017, the bank had equity of $13.7 million on $92.0 million in assets.

With 28 full-time employees in 5 offices in AR, the bank has amassed loans and leases worth $61.3 million, including real estate loans of $47.8 million. U.S. bank customers currently have $77.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Star City exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to score American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is valuable. It acts as a buffer against losses and affords protection for accountholders when a bank is experiencing economic trouble. From a safety and soundness perspective, the more capital, the better.

Bank of Star City exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 20 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Bank of Star City's Tier 1 capital ratio was 21.47 percent, higher than 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 weather financial downturns.

Overall, Bank of Star City held equity amounting to 14.88 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

A bank with lots of these types of assets may eventually be required to use capital to absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

Bank of Star City scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

A widely used 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 Bank of Star City'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 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 helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Bank of Star City's loan loss allowance was 6,192.31 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's earnings performance has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses diminish a bank's ability to do those things.

Bank of Star City did above-average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

One key measure of a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. Bank of Star City's most recent annualized quarterly return on equity was 9.94 percent, above the national average of 8.10 percent.

The bank recorded net income of $1.4 million on total equity of $13.7 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.51 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.