Safe and Sound

Independent Bank

Mckinney, TX
4
Star Rating
Independent Bank is a Mckinney, TX-based, FDIC-insured bank started in 1913. As of December 31, 2017, the bank held equity of $1.48 billion on assets of $8.67 billion.

With 901 full-time employees in 72 offices in multiple states, the bank holds loans and leases worth $6.47 billion, including real estate loans of $5.40 billion. U.S. bank customers currently have $6.64 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Independent Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three important criteria Bankrate used to grade U.S. banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for account holders when a bank is experiencing economic instability. It follows then that a bank's level of capital is a key measurement of a bank's financial fortitude. When looking at safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, Independent Bank received a score of 12 out of a possible 30 points, falling short of the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Independent Bank's Tier 1 capital ratio was 11.59 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic downturns.

Overall, Independent Bank held equity amounting to 17.03 percent of its assets, which exceeded 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 troubled assets, such as past-due mortgages.

Having extensive holdings of these types of assets may eventually force a bank to use capital to cover losses, cutting down on its equity cushion. 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, decreasing earnings and increasing the risk of a future failure.

On Bankrate's test of asset quality, Independent Bank scored 40 out of a possible 40 points, exceeding the national average of 37.49 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, 0.30 percent of Independent 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 known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the size of that reserve to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Independent Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to address problematic loans, potentially making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

Independent Bank fell behind the national average on Bankrate's test of earnings, achieving a score of 14 out of a possible 30.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for Independent Bank was 8.21 percent, above the national average of 8.10 percent.

The bank reported net income of $95.7 million on total equity of $1.48 billion for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.26 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.