Safe and Sound

First State Bank

Farnam, NE
5
Star Rating
Farnam, NE-based First State Bank is an FDIC-insured bank founded in 1904. As of December 31, 2017, the bank had equity of $17.1 million on $146.1 million in assets.

U.S. bank customers have $92.9 million on deposit at 5 offices in NE run by 30 full-time employees. With that footprint, the bank holds loans and leases worth $87.8 million, including $37.1 million worth of real estate loans.

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 major criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is useful. It acts as a bulwark against losses and affords protection for depositors when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.

First State Bank fell short of the national average of 13.13 on our test to measure capital adequacy, achieving a score of 12 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. First State Bank's Tier 1 capital ratio was 13.74 percent, higher than the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic headwinds.

Overall, First State Bank held equity amounting to 11.74 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 problem assets, such as unpaid mortgages.

A bank with extensive holdings of these kinds of assets could eventually be forced to use capital to absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a future failure.

First State Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, failing to reach the national average of 37.49.

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, 1.40 percent of First State 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." Comparing the size of that reserve to the total amount of problematic loans can be a handy 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, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Obviously, banks that are losing money are less able to do those things.

On Bankrate's earnings test, First State Bank scored 24 out of a possible 30, beating the national average of 15.12.

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 State Bank was 15.03 percent, above the national average of 8.10 percent.

The bank recorded net income of $2.5 million on total equity of $17.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.80 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.