Safe and Sound

The First National Bank of Fairfax

Fairfax, MN
5
Star Rating
Started in 1910, The First National Bank of Fairfax is an FDIC-insured bank headquartered in Fairfax, MN. As of December 31, 2017, the bank had equity of $11.1 million on $31.4 million in assets.

With 7 full-time employees, the bank has amassed loans and leases worth $19.0 million, including real estate loans of $6.3 million. U.S. bank customers currently have $20.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The First National Bank of Fairfax exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three major criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and affords protection for account holders when a bank is experiencing economic trouble. Therefore, a bank's level of capital is a key measurement of a bank's financial strength. From a safety and soundness perspective, the higher the capital, the better.

The First National Bank of Fairfax exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 30 out of a possible 30 points.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. The First National Bank of Fairfax's Tier 1 capital ratio was 34.08 percent, exceeding the 6 percent level considered adequate by regulators, and above the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic headwinds.

Overall, The First National Bank of Fairfax held equity amounting to 35.40 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of problem assets, such as unpaid 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 absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in lower earnings and potentially more risk of a failure in the future.

The First National Bank of Fairfax scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

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, 0.44 percent of The First National Bank of Fairfax'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 known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing how large that reserve is to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on The First National Bank of Fairfax'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 buffer, or use them to deal with problematic loans, likely making the bank more resilient in times of trouble. However, banks that are losing money are less able to do those things.

The First National Bank of Fairfax received below-average marks on Bankrate's earnings test, achieving a score of 8 out of a possible 30.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The First National Bank of Fairfax's most recent annualized quarterly return on equity was 3.26 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $363,000 on total equity of $11.1 million. The bank reported an annualized return on average assets, or ROA, of 1.19 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.