Safe and Sound

Farmers State Bank

Groesbeck, TX
5
Star Rating
Farmers State Bank is an FDIC-insured bank founded in 1913 and currently based in Groesbeck, TX. As of December 31, 2017, the bank had equity of $12.4 million on $133.7 million in assets.

Thanks to the work of 38 full-time employees in 6 offices in TX, the bank has amassed loans and leases worth $64.6 million, including $43.7 million worth of real estate loans. U.S. bank customers currently have $120.6 million in deposits with the bank.

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. Here's a look at how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and affords protection for account holders during times of financial trouble for the bank. Therefore, when it comes to measuring an a bank's financial strength, capital is important. When it comes to safety and soundness, the higher the capital, the better.

Farmers State Bank received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, 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 17.60 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic headwinds.

Overall, Farmers State Bank held equity amounting to 9.24 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

Having a large number of these kinds of assets suggests a bank could have to use capital to cover losses, reducing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in reduced 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, 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, 0.13 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage problem assets. 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 affects its long-term survivability. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank better prepared to withstand financial shocks. However, banks that are losing money are less able to do those things.

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

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Farmers State Bank's most recent annualized quarterly return on equity was 12.40 percent, above the national average of 8.10 percent.

The bank recorded net income of $1.5 million on total equity of $12.4 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.18 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.