Safe and Sound

Farmers State Bank of Canton

Canton, SD
4
Star Rating
Founded in 1901, Farmers State Bank of Canton is an FDIC-insured bank based in Canton, SD. The bank holds equity of $5.5 million on $47.0 million in assets, according to December 31, 2017, regulatory filings.

With 13 full-time employees, the bank has amassed loans and leases worth $32.2 million, including real estate loans of $22.2 million. U.S. bank customers currently have $39.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank of Canton exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three key criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is a useful measurement of an institution's financial resilience. When it comes to safety and soundness, the more capital, the better.

Farmers State Bank of Canton scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 14 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank of Canton's Tier 1 capital ratio was 15.74 percent, above 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 weather economic challenges.

Overall, Farmers State Bank of Canton held equity amounting to 11.64 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

Having extensive holdings of these kinds of assets could eventually require a bank to use capital to cover losses, diminishing 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, decreasing earnings and increasing the chances of a future failure.

On Bankrate's test of asset quality, Farmers State Bank of Canton scored 40 out of a possible 40 points, above the national average of 37.49 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.02 percent of Farmers State Bank of Canton'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 to handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Farmers State Bank of Canton's loan loss allowance was 5,983.33 percent of its total noncurrent loans, higher than the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

A bank's earnings performance has an effect on its safety and soundness. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial shocks. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's test of earnings, Farmers State Bank of Canton scored 12 out of a possible 30, lower than the national average of 15.12.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Farmers State Bank of Canton's most recent annualized quarterly return on equity was 5.15 percent, below the national average of 8.10 percent.

The bank recorded net income of $278,000 on total equity of $5.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.59 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.