Safe and Sound

First State Bank

Lynnville, IA
5
Star Rating
First State Bank is an FDIC-insured bank started in 1912 and currently based in Lynnville, IA. As of December 31, 2017, the bank had equity of $23.1 million on assets of $178.1 million.

U.S. bank customers have $144.4 million on deposit at 5 offices in IA run by 35 full-time employees. With that footprint, the bank currently holds loans and leases worth $137.7 million, including $89.2 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. Keep reading for an analysis of how the bank did on the three major criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of a bank's financial resilience. It works as a buffer against losses and provides protection for accountholders when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.

First State Bank racked up 16 out of a possible 30 points on our test to measure capital adequacy, better than the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. First State Bank's Tier 1 capital ratio was 14.62 percent, above the 6 percent level considered adequate by regulators, 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 State Bank held equity amounting to 12.96 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due mortgages.

A bank with large numbers of these kinds of assets could eventually have to use capital to absorb losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

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

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.47 percent 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 troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem 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 profitability affects its safety and soundness. A bank can retain its earnings, boosting its capital cushion, or use them to deal with problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, reduce a bank's ability to do those things.

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

One important way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The most recent annualized quarterly return on equity for First State Bank was 13.85 percent, above the national average of 8.10 percent.

The bank reported net income of $3.1 million on total equity of $23.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.77 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.