Safe and Sound

Farmers State Bank

Yale, IA
5
Star Rating
Farmers State Bank is a Yale, IA-based, FDIC-insured bank that opened its doors in 1921. Regulatory filings show the bank having equity of $5.4 million on $49.1 million in assets, as of December 31, 2017.

With 7 full-time employees, the bank currently holds loans and leases worth $28.4 million, including real estate loans of $16.0 million. U.S. bank customers currently have $43.3 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. Keep reading for 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 buffer against losses and provides protection for depositors when a bank is experiencing economic trouble. It follows then that a bank's level of capital is a crucial measurement of an institution's financial fortitude. When it comes to safety and soundness, the more capital, the better.

On our test to measure capital adequacy, Farmers State Bank received a score of 12 out of a possible 30 points, below the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank's Tier 1 capital ratio was 15.21 percent, exceeding 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 stand up to economic downturns.

Overall, Farmers State Bank held equity amounting to 10.95 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 troubled assets, such as unpaid mortgages.

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

On Bankrate's test of asset quality, Farmers State Bank scored 40 out of a possible 40 points, exceeding the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none 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 problem assets . How large that reserve is can be a handy 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 safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand economic trouble. Banks that are losing money, however, have less ability to do those things.

On Bankrate's earnings test, Farmers State Bank scored 20 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. The most recent annualized quarterly return on equity for Farmers State Bank was 11.06 percent, above the national average of 8.10 percent.

The bank recorded net income of $571,000 on total equity of $5.4 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.21 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.