Safe and Sound

Pinnacle Bank

Keene, TX
4
Star Rating
Pinnacle Bank is a Keene, TX-based, FDIC-insured bank started in 1970. The bank holds equity of $176.2 million on $1.30 billion in assets, according to December 31, 2017, regulatory filings.

With 232 full-time employees in 22 offices in TX, the bank currently holds loans and leases worth $861.6 million, including real estate loans of $729.4 million. U.S. bank customers currently have $1.08 billion in deposits with the bank.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for depositors when a bank is experiencing economic instability. It follows then that a bank's level of capital is a crucial measurement of an institution's financial strength. When looking at safety and soundness, more capital is preferred.

Pinnacle Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, falling short of the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Pinnacle Bank's Tier 1 capital ratio was 12.34 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, Pinnacle Bank held equity amounting to 13.51 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due mortgages.

Having a large number of these types of assets means a bank may eventually have to use capital to absorb losses, reducing its equity buffer. 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, diminishing earnings and elevating the risk of a future failure.

Pinnacle Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, falling short of the national average of 37.49.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.73 percent of Pinnacle 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 Pinnacle Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, likely making the bank better able to withstand economic trouble. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, Pinnacle Bank scored 18 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, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for Pinnacle Bank was 9.57 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $17.3 million on total equity of $176.2 million. The bank reported an annualized return on average assets, or ROA, of 1.33 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.