Safe and Sound

First American Bank

Fort Dodge, IA
5
Star Rating
First American Bank is an FDIC-insured bank founded in 1934 and currently headquartered in Fort Dodge, IA. As of December 31, 2017, the bank held equity of $94.4 million on assets of $947.9 million.

U.S. bank customers have $690.9 million on deposit at 13 offices in multiple states run by 193 full-time employees. With that footprint, the bank currently holds loans and leases worth $537.5 million, including $499.7 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, First American Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three important criteria Bankrate used to grade U.S. banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial strength, capital is essential. It acts as a cushion against losses and provides protection for depositors when a bank is experiencing economic instability. When looking at safety and soundness, more capital is preferred.

First American Bank fell short of the national average of 13.13 on our test to measure capital adequacy, achieving a score of 10 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. First American Bank's Tier 1 capital ratio was 17.15 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.

Overall, First American Bank held equity amounting to 9.95 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these types of assets could eventually be forced 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, resulting in lower 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, beating the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.32 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 1.01 percent.

Banks maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of at-risk loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. 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 profitability affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or use them to address problematic loans, potentially making the bank more resilient in times of trouble. Banks that are losing money, however, are less able to do those things.

First American Bank scored 20 out of a possible 30 on Bankrate's test of earnings, better than the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for First American Bank was 10.36 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $10.7 million on total equity of $94.4 million. The bank experienced an annualized return on average assets, or ROA, of 1.12 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.