Safe and Sound

The First State Bank of Shelby

Shelby, MT
5
Star Rating
The First State Bank of Shelby is a Shelby, MT-based, FDIC-insured bank that opened its doors in 1910. As of December 31, 2017, the bank held equity of $26.7 million on assets of $132.2 million.

With 19 full-time employees, the bank holds loans and leases worth $21.4 million, including real estate loans of $6.5 million. U.S. bank customers currently have $105.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The First State Bank of Shelby exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three key criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is crucial. It works as a buffer against losses and as protection for depositors when a bank is experiencing financial trouble. When looking at safety and soundness, the more capital, the better.

The First State Bank of Shelby scored above 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 State Bank of Shelby's Tier 1 capital ratio was 61.77 percent, higher than the 6 percent level considered adequate by regulators, and higher than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic difficulties.

Overall, The First State Bank of Shelby held equity amounting to 20.22 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

A bank with extensive holdings of these kinds of assets may eventually have to use capital to cover losses, decreasing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, reducing earnings and increasing the risk of a future failure.

The First State Bank of Shelby scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

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, 0.85 percent of The First State Bank of Shelby'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 . 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 problematic loans. Unfortunately, the FDIC did not provide information on The First State Bank of Shelby's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, likely making the bank better prepared to withstand economic trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's test of earnings, The First State Bank of Shelby scored 14 out of a possible 30, lower than the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for The First State Bank of Shelby was 6.78 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.8 million on total equity of $26.7 million. The bank reported an annualized return on average assets, or ROA, of 1.38 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.