Safe and Sound

The First National Bank of Lipan

Lipan, TX
3
Star Rating
Lipan, TX-based The First National Bank of Lipan is an FDIC-insured bank founded in 1907. The bank holds equity of $1.8 million on $21.0 million in assets, according to December 31, 2017, regulatory filings.

With 5 full-time employees, the bank holds loans and leases worth $7.2 million, including real estate loans of $3.2 million. U.S. bank customers currently have $19.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The First National Bank of Lipan exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three key criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of a bank's financial fortitude. It acts as a bulwark against losses and provides protection for depositors during times of financial trouble for the bank. When looking at safety and soundness, the more capital, the better.

The First National Bank of Lipan received a score of 8 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The First National Bank of Lipan's Tier 1 capital ratio was 22.39 percent, higher than the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial difficulties.

Overall, The First National Bank of Lipan held equity amounting to 8.74 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having lots of these kinds of assets suggests a bank may eventually have to use capital to absorb losses, decreasing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

The First National Bank of Lipan scored 40 out of a possible 40 points on Bankrate's asset quality test, above 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, none of The First National Bank of Lipan'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 known as an "allowance for loan and lease losses" to deal with troubled assets . The size of that reserve can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The First National Bank of Lipan's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand economic trouble. Banks that are losing money, however, have less ability to do those things.

The First National Bank of Lipan fell behind the national average on Bankrate's test of earnings, achieving a score of 4 out of a possible 30.

One key way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. The most recent annualized quarterly return on equity for The First National Bank of Lipan was 1.64 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $30,000 on total equity of $1.8 million. The bank had an annualized return on average assets, or ROA, of 0.14 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.