Safe and Sound

First State Bank

Stratford, TX
5
Star Rating
Stratford, TX-based First State Bank is an FDIC-insured bank founded in 1948. Regulatory filings show the bank having equity of $26.2 million on $235.8 million in assets, as of December 31, 2017.

With 42 full-time employees in 3 offices in TX, the bank currently holds loans and leases worth $129.7 million, including real estate loans of $55.8 million. U.S. bank customers currently have $199.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, First State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to score U.S. banks on safety and soundness.

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 depositors when a bank is experiencing economic instability. It follows then that when it comes to measuring an a bank's financial stability, capital is key. When it comes to safety and soundness, the higher the capital, the better.

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

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First State Bank's Tier 1 capital ratio was 15.22 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, First State Bank held equity amounting to 11.12 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

A bank with lots of these types of assets may eventually be required to use capital to cover losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, diminishing earnings and increasing the risk of a failure in the future.

On Bankrate's test of asset quality, First State Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of First State 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." 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 problem assets. Unfortunately, the FDIC did not provide information on First State 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, giving a boost to its capital buffer, or put them to work addressing problematic loans, potentially making the bank better prepared to withstand financial trouble. Losses, on the other hand, reduce a bank's ability to do those things.

On Bankrate's earnings test, First State Bank scored 22 out of a possible 30, exceeding the national average of 15.12.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for First State Bank was 14.31 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $3.6 million on total equity of $26.2 million. The bank had an annualized return on average assets, or ROA, of 1.53 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.