Safe and Sound

First State Bank

Hemphill, TX
4
Star Rating
First State Bank is a Hemphill, TX-based, FDIC-insured bank dating back to 1944. As of December 31, 2017, the bank held equity of $8.2 million on assets of $64.3 million.

Thanks to the efforts of 12 full-time employees, the bank has amassed loans and leases worth $13.0 million, including $6.2 million worth of real estate loans. The bank currently holds $56.0 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, First State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three key criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of an institution's financial resilience. It works as a cushion against losses and as protection for accountholders when a bank is experiencing economic instability. When it comes to safety and soundness, the more capital, the better.

First State Bank exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 16 out of a possible 30 points.

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 37.32 percent, exceeding the 6 percent level considered adequate by regulators, and exceeding the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.

Overall, First State Bank held equity amounting to 12.75 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with lots of these kinds of assets may eventually have to use capital to cover losses, reducing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, diminishing earnings and increasing the risk of a failure in the future.

First State Bank did better than the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A handy 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 -- in other words, 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." The size of that reserve 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 State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank better prepared 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 4 out of a possible 30, coming in below the national average of 15.12.

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 State Bank was 1.45 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $119,000 on total equity of $8.2 million. The bank reported an annualized return on average assets, or ROA, of 0.21 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.