Safe and Sound

Farmers Savings Bank & Trust

Traer, IA
5
Star Rating
Traer, IA-based Farmers Savings Bank & Trust is an FDIC-insured bank started in 1915. As of December 31, 2017, the bank had equity of $14.3 million on assets of $159.5 million.

U.S. bank customers have $139.6 million on deposit at 2 offices in IA run by 28 full-time employees. With that footprint, the bank holds loans and leases worth $89.8 million, including $56.0 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Farmers Savings Bank & Trust 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 grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is valuable. It works as a bulwark against losses and as protection for accountholders when a bank is experiencing economic instability. From a safety and soundness perspective, the more capital, the better.

Farmers Savings Bank & Trust fell below the national average of 13.13 on our test to measure capital adequacy, receiving a score of 8 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers Savings Bank & Trust's Tier 1 capital ratio was 15.28 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 economic downturns.

Overall, Farmers Savings Bank & Trust held equity amounting to 8.99 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 impact of problem assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

A bank with lots of these types of assets could eventually be required to use capital to cover losses, cutting down on its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, pushing down earnings and elevating the risk of a future failure.

Farmers Savings Bank & Trust scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

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, 0.09 percent of Farmers Savings Bank & Trust'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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a widely used 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 Farmers Savings Bank & Trust's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital cushion, or put them to work addressing problematic loans, potentially making the bank better prepared to withstand financial trouble. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Farmers Savings Bank & Trust scored 24 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers Savings Bank & Trust was 15.85 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $2.2 million on total equity of $14.3 million. The bank experienced an annualized return on average assets, or ROA, of 1.36 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.