Safe and Sound

First National Bank

2
Star Rating
First National Bank is a Rotan, TX-based, FDIC-insured bank founded in 1997. Regulatory filings show the bank having equity of $7.5 million on assets of $72.7 million, as of December 31, 2017.

Thanks to the work of 16 full-time employees, the bank currently holds loans and leases worth $32.9 million, including $7.4 million worth of real estate loans. The bank currently holds $64.0 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, First National Bank exhibited a below-average condition, earning 2 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three major criteria Bankrate used to grade American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of an institution's financial strength. It acts as a bulwark against losses and provides protection for depositors when a bank is experiencing economic instability. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, First National Bank received a score of 12 out of a possible 30 points, failing to reach the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. First National Bank's Tier 1 capital ratio was 21.99 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic difficulties.

Overall, First National Bank held equity amounting to 10.33 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of troubled assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with large numbers of these types of assets could eventually have to use capital to absorb losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in diminished earnings and potentially more risk of a future failure.

On Bankrate's asset quality test, First National Bank scored 24 out of a possible 40 points, less than the national average of 37.49 points.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 7.26 percent of First National Bank'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 to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on First National Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, likely making the bank better able to withstand financial trouble. Conversely, losses take away from a bank's ability to do those things.

First National Bank fell behind the national average on Bankrate's earnings test, achieving a score of 0 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for First National Bank was -4.07 percent, below the national average of 8.10 percent.

The bank reported net income of $-311,000 on total equity of $7.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of -0.44 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.