Safe and Sound

First Option Bank

Osawatomie, KS
5
Star Rating
Started in 1923, First Option Bank is an FDIC-insured bank headquartered in Osawatomie, KS. Regulatory filings show the bank having equity of $26.2 million on $329.2 million in assets, as of December 31, 2017.

With 70 full-time employees in 5 offices in KS, the bank has amassed loans and leases worth $124.9 million, including real estate loans of $108.6 million. U.S. bank customers currently have $301.8 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, First Option Bank 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 evaluate 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 an institution's financial strength, capital is crucial. It acts as a cushion against losses and as protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.

First Option Bank came in below the national average of 13.13 on our test to measure capital adequacy, scoring 6 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First Option Bank's Tier 1 capital ratio was 20.45 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 economic downturns.

Overall, First Option Bank held equity amounting to 7.95 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as unpaid mortgages.

A bank with large numbers of these kinds of assets may eventually be forced to use capital to absorb losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, reducing earnings and elevating the chances of a future failure.

First Option Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, exceeding the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.75 percent of First Option Bank'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 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 widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on First Option Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Conversely, losses take away from a bank's ability to do those things.

First Option Bank exceeded the national average on Bankrate's test of earnings, achieving a score of 24 out of a possible 30.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. First Option Bank's most recent annualized quarterly return on equity was 16.19 percent, above the national average of 8.10 percent.

The bank reported net income of $4.2 million on total equity of $26.2 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.34 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.