Safe and Sound

Farmers State Bank of Medora

Medora, IL
5
Star Rating
Farmers State Bank of Medora is a Medora, IL-based, FDIC-insured bank started in 1912. Regulatory filings show the bank having equity of $3.3 million on $21.2 million in assets, as of December 31, 2017.

With 5 full-time employees, the bank has amassed loans and leases worth $7.0 million, including real estate loans of $1.3 million. U.S. bank customers currently have $17.7 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank of Medora exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three important 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 resilience, capital is key. It works as a buffer against losses and affords protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the more capital, the better.

Farmers State Bank of Medora exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 22 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank of Medora's Tier 1 capital ratio was 28.00 percent, exceeding the 6 percent level regulators consider adequate, and above 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 Medora held equity amounting to 15.73 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

Having large numbers of these kinds of assets means a bank could have to use capital to absorb losses, decreasing its equity buffer. 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, resulting in reduced earnings and potentially more risk of a failure in the future.

Farmers State Bank of Medora beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 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, 3.30 percent of Farmers State Bank of Medora's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above 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 . Comparing how large that reserve is to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Farmers State Bank of Medora'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, expanding its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's earnings test, Farmers State Bank of Medora scored 8 out of a possible 30, less than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. The most recent annualized quarterly return on equity for Farmers State Bank of Medora was 3.69 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $125,000 on total equity of $3.3 million. The bank had an annualized return on average assets, or ROA, of 0.62 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.