Safe and Sound

Farmers State Bank

Booneville, KY
5
Star Rating
Farmers State Bank is a Booneville, KY-based, FDIC-insured bank that opened its doors in 1931. The bank has equity of $5.8 million on $50.9 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $40.8 million on deposit at 2 offices in KY run by 16 full-time employees. With that footprint, the bank currently holds loans and leases worth $22.6 million, including $18.9 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Farmers State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three key criteria Bankrate used to score American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is crucial. It works as a bulwark against losses and provides protection for depositors when a bank is experiencing economic instability. From a safety and soundness perspective, more capital is preferred.

On our test to measure capital adequacy, Farmers State Bank scored 14 out of a possible 30 points, beating out 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 18.35 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic difficulties.

Overall, Farmers State Bank held equity amounting to 11.45 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid loans.

Having a large number of these kinds of assets means a bank may eventually have to use capital to absorb losses, cutting down on its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, Farmers State Bank scored 40 out of a possible 40 points, above 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, 1.47 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 useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem 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 affects its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, diminish a bank's ability to do those things.

On Bankrate's earnings test, Farmers State Bank scored 20 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers State Bank was 11.02 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $635,000 on total equity of $5.8 million. The bank had an annualized return on average assets, or ROA, of 1.25 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.