Safe and Sound

Five Star Bank

Warsaw, NY
4
Star Rating
Warsaw, NY-based Five Star Bank is an FDIC-insured bank founded in 1881. The bank has equity of $382.5 million on $4.07 billion in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $3.22 billion on deposit at 53 offices in NY run by 588 full-time employees. With that footprint, the bank currently holds loans and leases worth $2.70 billion, including $1.41 billion worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Five Star Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank fared on the three important criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders when a bank is struggling financially. It follows then that a bank's level of capital is an essential measurement of a bank's financial fortitude. When it comes to safety and soundness, the higher the capital, the better.

Five Star Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, less than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Five Star Bank's Tier 1 capital ratio was 11.57 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 financial headwinds.

Overall, Five Star Bank held equity amounting to 9.40 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid loans.

A bank with a large number of these types of assets could eventually be forced to use capital to absorb losses, cutting down on its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and increasing the risk of a failure in the future.

On Bankrate's test of asset quality, Five Star Bank scored 40 out of a possible 40 points, beating 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, 0.46 percent of Five Star 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Five Star Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, potentially making the bank better able to withstand economic trouble. Losses, on the other hand, lessen a bank's ability to do those things.

Five Star Bank received above-average marks on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important measure of a bank's earnings. Five Star Bank's most recent annualized quarterly return on equity was 10.21 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $35.5 million on total equity of $382.5 million. The bank had an annualized return on average assets, or ROA, of 0.92 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.