Safe and Sound

First State Bank

Hawarden, IA
4
Star Rating
First State Bank is a Hawarden, IA-based, FDIC-insured bank that opened its doors in 1934. The bank has equity of $4.5 million on assets of $47.0 million, according to June 30, 2017, regulatory filings.

Thanks to the work of 9 full-time employees, the bank holds loans and leases worth $37.5 million, including $18.9 million worth of real estate loans. U.S. bank customers currently have $34.9 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, First State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and affords protection for accountholders when a bank is struggling financially. It follows then that a bank's level of capital is a valuable measurement of an institution's financial strength. 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 10 out of a possible 30 points, lower than the national average of 13.38.

One essential measure of this buffer is a bank's Tier 1 capital ratio. First State Bank's Tier 1 capital ratio was 11.55 percent, exceeding the 6 percent level regulators consider adequate, but under the national average of 25.16 percent. A higher capital ratio suggests the bank will be better able to stand up to financial difficulties.

Overall, First State Bank held equity amounting to 9.59 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

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

Having large numbers of these types of assets suggests a bank could have to use capital to cover losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, First State Bank scored 32 out of a possible 40 points, below the national average of 37.62 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 1.74 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 1.04 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 widely used 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 ability to earn money has an effect on its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, potentially making the bank better prepared to withstand economic trouble. Conversely, losses lessen a bank's ability to do those things.

First State Bank scored 18 out of a possible 30 on Bankrate's earnings test, above the national average of 16.52.

One important measure of a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. First State Bank's most recent annualized quarterly return on equity was 9.46 percent, above the national average of 9.28 percent.

The bank reported net income of $213,000 on total equity of $4.5 million for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 0.93 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.