Safe and Sound

Farmers State Bank

Algona, IA
5
Star Rating
Started in 1895, Farmers State Bank is an FDIC-insured bank based in Algona, IA. The bank holds equity of $11.5 million on $109.2 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $86.9 million on deposit at 3 offices in IA run by 21 full-time employees. With that footprint, the bank has amassed loans and leases worth $81.0 million, including real estate loans of $52.6 million.

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 an analysis of how the bank fared on the three major criteria Bankrate used to grade U.S. 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 valuable. It works as a bulwark against losses and affords protection for depositors during times of economic instability for the bank. When it comes to safety and soundness, the more capital, the better.

Farmers State Bank fell below the national average of 13.13 on our test to measure the adequacy of a bank's capital, achieving a score of 12 out of a possible 30 points.

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 13.57 percent, higher than the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic challenges.

Overall, Farmers State Bank held equity amounting to 10.57 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as past-due mortgages.

A bank with extensive holdings of these types of assets may eventually be required to use capital to absorb losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a future failure.

Farmers State Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating out 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, 0.07 percent of Farmers State Bank's loans were noncurrent, meaning 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 keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the size of that reserve to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Farmers State Bank's loan loss allowance was 1,638.60 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, potentially 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 scored 20 out of a possible 30 on Bankrate's earnings test, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers State Bank was 11.61 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.3 million on total equity of $11.5 million. The bank had an annualized return on average assets, or ROA, of 1.23 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.