Safe and Sound

Farmers State Bank of Newcastle

Newcastle, TX
5
Star Rating
Founded in 1909, Farmers State Bank of Newcastle is an FDIC-insured bank headquartered in Newcastle, TX. Regulatory filings show the bank having equity of $4.1 million on assets of $43.5 million, as of December 31, 2017.

With 8 full-time employees, the bank holds loans and leases worth $24.1 million, including real estate loans of $10.5 million. U.S. bank customers currently have $38.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank of Newcastle exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three major criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for depositors during times of economic trouble for the bank. Therefore, when it comes to measuring an an institution's financial stability, capital is valuable. When it comes to safety and soundness, the higher the capital, the better.

Farmers State Bank of Newcastle finished 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.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Farmers State Bank of Newcastle's Tier 1 capital ratio was 14.05 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial difficulties.

Overall, Farmers State Bank of Newcastle held equity amounting to 9.37 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due mortgages.

A bank with large numbers of these kinds of assets could eventually have to use capital to absorb losses, diminishing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Farmers State Bank of Newcastle scored 40 out of a possible 40 points, beating 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, 0.59 percent of Farmers State Bank of Newcastle'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 . The size of that reserve can be a useful 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 State Bank of Newcastle's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to deal with problematic loans, potentially making the bank better able to withstand economic shocks. Conversely, losses reduce a bank's ability to do those things.

Farmers State Bank of Newcastle scored 22 out of a possible 30 on Bankrate's earnings test, better than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for Farmers State Bank of Newcastle was 12.48 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $499,000 on total equity of $4.1 million. The bank had an annualized return on average assets, or ROA, of 1.18 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.