Safe and Sound

Farmers State Bank

Mountain City, TN
4
Star Rating
Mountain City, TN-based Farmers State Bank is an FDIC-insured bank founded in 1934. As of December 31, 2017, the bank held equity of $21.6 million on $143.3 million in assets.

Thanks to the work of 45 full-time employees in 3 offices in TN, the bank holds loans and leases worth $88.5 million, including $71.3 million worth of real estate loans. U.S. bank customers currently have $117.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to grade American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is valuable. It acts as a cushion against losses and affords protection for depositors during periods of financial trouble for the bank. When it comes to safety and soundness, more capital is better.

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

One essential measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank's Tier 1 capital ratio was 23.54 percent, higher than 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 economic difficulties.

Overall, Farmers State Bank held equity amounting to 15.10 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of problem assets, such as unpaid mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with extensive holdings of these kinds of assets may eventually be required to use capital to cover losses, diminishing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

Farmers State Bank scored 36 out of a possible 40 points on Bankrate's test of asset quality, failing to reach the national average of 37.49.

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, 1.30 percent of Farmers State Bank'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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Farmers State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand financial trouble. Banks that are losing money, however, have less ability to do those things.

Farmers State Bank scored 8 out of a possible 30 on Bankrate's earnings test, failing to reach the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one key measure of a bank's earnings. Farmers State Bank's most recent annualized quarterly return on equity was 3.20 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $687,000 on total equity of $21.6 million. The bank had an annualized return on average assets, or ROA, of 0.48 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.