Safe and Sound

The First National Bank of Henning

Ottertail, MN
5
Star Rating
Ottertail, MN-based The First National Bank of Henning is an FDIC-insured bank founded in 1903. Regulatory filings show the bank having equity of $14.6 million on assets of $118.9 million, as of December 31, 2017.

With 24 full-time employees in 2 offices in MN, the bank has amassed loans and leases worth $85.4 million, including real estate loans of $59.3 million. U.S. bank customers currently have $104.0 million in deposits with the bank.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of a bank's financial fortitude. It works as a bulwark against losses and affords protection for depositors when a bank is experiencing financial instability. From a safety and soundness perspective, more capital is preferred.

The First National Bank of Henning did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 16 out of a possible 30 points.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. The First National Bank of Henning's Tier 1 capital ratio was 20.75 percent, above the 6 percent level considered adequate by regulators, 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, The First National Bank of Henning held equity amounting to 12.25 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these types of assets could eventually be forced to use capital to absorb losses, reducing its buffer 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, decreasing earnings and increasing the risk of a failure in the future.

On Bankrate's test of asset quality, The First National Bank of Henning scored 36 out of a possible 40 points, less than 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, 1.52 percent of The First National Bank of Henning'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 handle troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful 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 The First National Bank of Henning's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. 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 economic trouble. However, banks that are losing money have less ability to do those things.

The First National Bank of Henning scored 22 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. The First National Bank of Henning's most recent annualized quarterly return on equity was 12.44 percent, above the national average of 8.10 percent.

The bank earned net income of $1.8 million on total equity of $14.6 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.52 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.