Safe and Sound

First National Bank

Milnor, ND
4
Star Rating
First National Bank is a Milnor, ND-based, FDIC-insured bank dating back to 1906. As of June 30, 2017, the bank held equity of $9.4 million on assets of $68.0 million.

U.S. bank customers have $58.3 million on deposit at 2 offices in ND run by 16 full-time employees. With that footprint, the bank has amassed loans and leases worth $30.5 million, including real estate loans of $14.0 million.

Overall, Bankrate believes that, as of June 30, 2017, First National Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to evaluate American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and provides protection for accountholders when a bank is experiencing economic instability. It follows then that when it comes to measuring an a bank's financial resilience, capital is valuable. When looking at safety and soundness, the more capital, the better.
First National Bank fell short of the national average of 13.38 on our test to measure the adequacy of a bank's capital, achieving a score of 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First National Bank's Tier 1 capital ratio was 17.30 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.16 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, First National Bank held equity amounting to 13.84 percent of its assets, which exceeded the national average of 12.10 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with large numbers of these kinds of assets may eventually have to use capital to absorb losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, diminishing earnings and elevating the chances of a future failure.

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

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 1.06 percent of First National Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.04 percent.

Banks keep a reserve to deal with problem 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

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, potentially making the bank more resilient in times of trouble. However, banks that are losing money are less able to do those things.

First National Bank scored 6 out of a possible 30 on Bankrate's earnings test, below the national average of 16.52.

Return on equity, calculated by dividing net income (profit, essentially) 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 2.58 percent, below the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $125,000 on total equity of $9.4 million. The bank had an annualized return on average assets, or ROA, of 0.35 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.