Safe and Sound

The First National Bank of Sparta

Sparta, IL
4
Star Rating
Sparta, IL-based The First National Bank of Sparta is an FDIC-insured bank founded in 1885. As of December 31, 2017, the bank held equity of $9.7 million on assets of $78.6 million.

With 21 full-time employees, the bank holds loans and leases worth $38.0 million, including real estate loans of $25.4 million. U.S. bank customers currently have $67.8 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The First National Bank of Sparta exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three key criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of a bank's financial resilience. It works as a bulwark against losses and provides protection for accountholders during times of financial trouble for the bank. When looking at safety and soundness, the higher the capital, the better.

The First National Bank of Sparta scored above the national average of 13.13 points on our test to measure capital adequacy, achieving a score of 16 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The First National Bank of Sparta's Tier 1 capital ratio was 25.04 percent, exceeding the 6 percent level considered adequate by regulators, but less 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 challenges.

Overall, The First National Bank of Sparta held equity amounting to 12.34 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due loans.

A bank with extensive holdings of these kinds of assets may eventually have to use capital to cover losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

The First National Bank of Sparta fell short of the national average of 37.49 on Bankrate's asset quality test, racking up 36 out of a possible 40 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, 1.72 percent of The First National Bank of Sparta'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 keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on The First National Bank of Sparta's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or use them to deal with problematic loans, potentially making the bank better able to withstand financial trouble. Losses, on the other hand, reduce a bank's ability to do those things.

The First National Bank of Sparta scored 16 out of a possible 30 on Bankrate's test of earnings, better than the national average of 15.12.

One important measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The most recent annualized quarterly return on equity for The First National Bank of Sparta was 8.03 percent, below the national average of 8.10 percent.

The bank earned net income of $774,000 on total equity of $9.7 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.01 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.