Safe and Sound

Farmers State Bank

Stickney, SD
5
Star Rating
Stickney, SD-based Farmers State Bank is an FDIC-insured bank started in 1925. The bank has equity of $12.7 million on $116.7 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $95.4 million on deposit at 3 offices in SD run by 12 full-time employees. With that footprint, the bank holds loans and leases worth $92.7 million, including $35.8 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 look at how the bank did on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and affords protection for account holders during periods of economic instability for the bank. It follows then that when it comes to measuring an a bank's financial stability, capital is important. When it comes to safety and soundness, more capital is better.

On our test to measure the adequacy of a bank's capital, Farmers State Bank received a score of 12 out of a possible 30 points, below 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 11.62 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Farmers State Bank held equity amounting to 10.92 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due loans.

A bank with lots of these kinds of assets may eventually be required to use capital to absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, reducing earnings and increasing the risk of a future failure.

Farmers State Bank beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 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, 0.56 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 problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used 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's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings may be retained by the bank, expanding its capital cushion, or be used to deal with problematic loans, potentially making the bank better able to withstand economic trouble. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, Farmers State Bank scored 22 out of a possible 30, beating the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one key measure of a bank's earnings. Farmers State Bank's most recent annualized quarterly return on equity was 13.14 percent, above the national average of 8.10 percent.

The bank earned net income of $1.6 million on total equity of $12.7 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.39 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.