Safe and Sound

First State Bank

Britt, IA
5
Star Rating
First State Bank is a Britt, IA-based, FDIC-insured bank that opened its doors in 1927. As of December 31, 2017, the bank held equity of $13.4 million on assets of $111.2 million.

U.S. bank customers have $88.4 million on deposit at 2 offices in IA run by 12 full-time employees. With that footprint, the bank has amassed loans and leases worth $52.1 million, including $33.2 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 a breakdown of how the bank fared on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is useful. It acts as a buffer against losses and affords protection for depositors during periods of economic trouble for the bank. When looking at safety and soundness, the higher the capital, the better.

First State Bank did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 16 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. First State Bank's Tier 1 capital ratio was 21.00 percent, exceeding 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 challenges.

Overall, First State Bank held equity amounting to 12.07 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having lots of these types of assets could eventually force a bank to use capital to cover 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 reduced earnings and potentially more risk of a future failure.

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

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, 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 maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage problem 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 long-term survivability. A bank can retain its earnings, expanding its capital buffer, or use them to deal with problematic loans, potentially making the bank better able to withstand financial shocks. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's test of earnings, First State Bank scored 20 out of a possible 30, beating the national average of 15.12.

One key 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 11.56 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $1.5 million on total equity of $13.4 million. The bank reported an annualized return on average assets, or ROA, of 1.40 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.