Safe and Sound

Farmers State Bank of Hoffman

Hoffman, MN
5
Star Rating
Hoffman, MN-based Farmers State Bank of Hoffman is an FDIC-insured bank started in 1911. The bank holds equity of $3.9 million on assets of $30.2 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 6 full-time employees, the bank has amassed loans and leases worth $14.8 million, including $7.7 million worth of real estate loans. U.S. bank customers currently have $24.7 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank of Hoffman exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three major criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is a valuable measurement of an institution's financial strength. When looking at safety and soundness, the more capital, the better.

Farmers State Bank of Hoffman 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.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Farmers State Bank of Hoffman's Tier 1 capital ratio was 23.13 percent, exceeding the 6 percent level considered adequate by regulators, but below 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, Farmers State Bank of Hoffman held equity amounting to 12.93 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid mortgages.

Having extensive holdings of these types of assets may eventually require a bank to use capital to cover losses, diminishing 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, decreasing earnings and elevating the chances of a failure in the future.

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

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, none of Farmers State Bank of Hoffman's loans were noncurrent, meaning 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 problem assets . Comparing how large that reserve is to the total amount of at-risk 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 Farmers State Bank of Hoffman'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, increasing its capital buffer, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Obviously, banks that are losing money are less able to do those things.

Farmers State Bank of Hoffman did above-average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. Farmers State Bank of Hoffman's most recent annualized quarterly return on equity was 8.67 percent, above the national average of 8.10 percent.

The bank recorded net income of $350,000 on total equity of $3.9 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.15 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.