Safe and Sound

The First State Bank

Abernathy, TX
4
Star Rating
The First State Bank is an Abernathy, TX-based, FDIC-insured bank started in 1909. Regulatory filings show the bank having equity of $4.5 million on $42.8 million in assets, as of December 31, 2017.

Thanks to the efforts of 10 full-time employees, the bank holds loans and leases worth $16.9 million, $3.3 million of which are for real estate. U.S. bank customers currently have $37.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The First State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and affords protection for depositors during periods of financial trouble for the bank. It follows then that when it comes to measuring an a bank's financial resilience, capital is useful. From a safety and soundness perspective, more capital is preferred.

The First State Bank fell below the national average of 13.13 on our test to measure capital adequacy, achieving a score of 10 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The First State Bank's Tier 1 capital ratio was 20.39 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial difficulties.

Overall, The First State Bank held equity amounting to 10.42 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 troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

Having lots of these types of assets suggests a bank could eventually have to use capital to absorb losses, reducing its cushion 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, pushing down earnings and elevating the chances of a future failure.

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

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.17 percent of The First State Bank'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 . That reserve's size can be a useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The First State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital cushion, or be used to deal with problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's test of earnings, The First State Bank scored 18 out of a possible 30, beating the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The First State Bank's most recent annualized quarterly return on equity was 9.28 percent, above the national average of 8.10 percent.

The bank recorded net income of $406,000 on total equity of $4.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.09 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.