Safe and Sound

Priority Bank

Fayetteville, AR
3
Star Rating
Fayetteville, AR-based Priority Bank is an FDIC-insured bank started in 1993. As of December 31, 2017, the bank had equity of $7.1 million on $82.0 million in assets.

U.S. bank customers have $44.4 million on deposit at 3 offices in AR run by 36 full-time employees. With that footprint, the bank holds loans and leases worth $72.5 million, $71.1 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Priority Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three major criteria Bankrate used to evaluate U.S. banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and provides protection for depositors when a bank is experiencing economic instability. Therefore, when it comes to measuring an an institution's financial stability, capital is key. From a safety and soundness perspective, the higher the capital, the better.

Priority Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, below the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Priority Bank's Tier 1 capital ratio was 14.74 percent, higher than the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, Priority Bank held equity amounting to 8.62 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

Having large numbers of these types of assets may eventually force a bank to use capital to absorb losses, reducing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in diminished earnings and potentially more risk of a future failure.

Priority Bank scored 20 out of a possible 40 points on Bankrate's asset quality test, below the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 2.87 percent of Priority Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above 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." 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 at-risk loans. Unfortunately, the FDIC did not provide information on Priority Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital cushion, or be used to deal with problematic loans, likely making the bank better able to withstand financial trouble. Banks that are losing money, however, have less ability to do those things.

Priority Bank did above-average on Bankrate's earnings test, achieving a score of 24 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Priority Bank's most recent annualized quarterly return on equity was 15.87 percent, above the national average of 8.10 percent.

The bank earned net income of $1.1 million on total equity of $7.1 million for the twelve months ended December 31, 2017. 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.