Safe and Sound

Farmers State Bank

Lagrange, IN
4
Star Rating
Farmers State Bank is an FDIC-insured bank founded in 1934 and currently headquartered in Lagrange, IN. The bank has equity of $61.9 million on assets of $732.4 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $619.6 million on deposit at 11 offices in multiple states run by 154 full-time employees. With that footprint, the bank has amassed loans and leases worth $502.8 million, including real estate loans of $440.2 million.

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. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial strength, capital is valuable. It acts as a bulwark against losses and affords protection for accountholders when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.

On our test to measure capital adequacy, Farmers State Bank received a score of 8 out of a possible 30 points, failing to reach the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers State Bank's Tier 1 capital ratio was 13.06 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic headwinds.

Overall, Farmers State Bank held equity amounting to 8.44 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 unpaid mortgages.

A bank with a large number of these kinds of assets could eventually be required to use capital to absorb 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, resulting in depressed earnings and potentially more risk of a failure in the future.

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

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.24 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 below the national average of 1.01 percent.

Banks maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problem loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. 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 profitability has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand financial trouble. Conversely, losses reduce a bank's ability to do those things.

Farmers State Bank exceeded the national average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. Farmers State Bank's most recent annualized quarterly return on equity was 11.23 percent, above the national average of 8.10 percent.

The bank earned net income of $6.9 million on total equity of $61.9 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.03 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.