Safe and Sound

Round Top State Bank

Round Top, TX
5
Star Rating
Round Top State Bank is a Round Top, TX-based, FDIC-insured bank dating back to 1912. The bank has equity of $55.6 million on assets of $525.2 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $467.2 million on deposit at 6 offices in TX run by 72 full-time employees. With that footprint, the bank holds loans and leases worth $345.1 million, including real estate loans of $304.3 million.

Overall, Bankrate believes that, as of December 31, 2017, Round Top State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three major criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for depositors when a bank is experiencing economic trouble. Therefore, a bank's level of capital is a useful measurement of an institution's financial strength. When it comes to safety and soundness, the higher the capital, the better.

Round Top State Bank fell short of the national average of 13.13 on our test to measure the adequacy of a bank's capital, receiving a score of 12 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Round Top State Bank's Tier 1 capital ratio was 17.60 percent, higher than the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial difficulties.

Overall, Round Top State Bank held equity amounting to 10.59 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

A bank with extensive holdings of these kinds of assets may eventually be forced to use capital to cover losses, shrinking its cushion 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 depressed earnings and potentially more risk of a future failure.

Round Top State Bank exceeded the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.01 percent of Round Top State 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 maintain a reserve to deal with problem 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 problem loans. Round Top State Bank's loan loss allowance was 14,505.26 percent of its total noncurrent loans, exceeding the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's profitability has an effect on its safety and soundness. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

Round Top State Bank beat the national average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by total equity. Round Top State Bank's most recent annualized quarterly return on equity was 10.13 percent, above the national average of 8.10 percent.

The bank reported net income of $5.5 million on total equity of $55.6 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.07 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.