Safe and Sound

Farmers State Bank of Western Illinois

Alpha, IL
4
Star Rating
Farmers State Bank of Western Illinois is an FDIC-insured bank founded in 1910 and currently headquartered in Alpha, IL. The bank holds equity of $16.1 million on assets of $130.1 million, according to June 30, 2017, regulatory filings.

U.S. bank customers have $111.8 million on deposit at 6 offices in IL run by 48 full-time employees. With that footprint, the bank holds loans and leases worth $75.4 million, $36.1 million of which are for real estate.

Overall, Bankrate believes that, as of June 30, 2017, Farmers State Bank of Western Illinois exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank faired on the three major criteria Bankrate used to evaluate U.S. banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is important. It works as a cushion against losses and affords protection for depositors during times of financial trouble for the bank. When looking at safety and soundness, the more capital, the better.
Farmers State Bank of Western Illinois achieved a score of 16 out of a possible 30 points on our test to measure the adequacy of a bank's capital, exceeding the national average of 13.38.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank of Western Illinois's Tier 1 capital ratio was 17.84 percent, higher than the 6 percent level regulators consider adequate, but less than the national average of 25.16 percent. A higher capital ratio means the bank will be better able to stand up to economic headwinds.

Overall, Farmers State Bank of Western Illinois held equity amounting to 12.39 percent of its assets, which exceeded the national average of 12.10 percent.

Asset Quality Score

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

A bank with extensive holdings of these types of assets could eventually be forced to use capital to absorb losses, reducing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in diminished earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, Farmers State Bank of Western Illinois scored 40 out of a possible 40 points, above the national average of 37.62 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.86 percent of Farmers State Bank of Western Illinois'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 1.04 percent.

Banks keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Farmers State Bank of Western Illinois's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. However, banks that are losing money have less ability to do those things.

Farmers State Bank of Western Illinois scored 10 out of a possible 30 on Bankrate's test of earnings, less than the national average of 16.52.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important way to measure a bank's earnings. Farmers State Bank of Western Illinois's most recent annualized quarterly return on equity was 4.35 percent, below the national average of 9.28 percent.

The bank earned net income of $346,000 on total equity of $16.1 million for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 0.54 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.