Safe and Sound

Farmers State Bank

Carroll, NE
3
Star Rating
Carroll, NE-based Farmers State Bank is an FDIC-insured bank founded in 1945. Regulatory filings show the bank having equity of $2.6 million on assets of $27.5 million, as of June 30, 2017.

Thanks to the work of 3 full-time employees, the bank has amassed loans and leases worth $8.7 million, $2.5 million of which are for real estate. The bank currently holds $24.7 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of June 30, 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 faired on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and as protection for accountholders when a bank is experiencing financial trouble. Therefore, a bank's level of capital is a useful measurement of a bank's financial fortitude. From a safety and soundness perspective, the higher the capital, the better.
Farmers State Bank fell short of the national average of 13.38 on our test to measure the adequacy of a bank's capital, scoring 10 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank's Tier 1 capital ratio was 20.81 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to stand up to economic difficulties.

Overall, Farmers State Bank held equity amounting to 9.58 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

Having lots of these types of assets means a bank could eventually have to use capital to absorb losses, decreasing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, decreasing earnings and increasing the risk of a future failure.

On Bankrate's asset quality test, Farmers State Bank scored 40 out of a possible 40 points, exceeding the national average of 37.62 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.19 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 1.04 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the that reserve's size to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Farmers State Bank's loan loss allowance was 1,176.47 percent of its total noncurrent loans, exceeding the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's profitability affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, potentially making the bank better prepared to withstand financial shocks. However, banks that are losing money have less ability to do those things.

On Bankrate's test of earnings, Farmers State Bank scored 6 out of a possible 30, failing to reach the national average of 16.52.

Return on equity, calculated by dividing net income (profit, basically) 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 3.04 percent, below the national average of 9.28 percent.

The bank earned net income of $39,000 on total equity of $2.6 million for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 0.28 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.