Safe and Sound

Farmers State Bank

Northwood, IA
5
Star Rating
Northwood, IA-based Farmers State Bank is an FDIC-insured bank founded in 1921. As of December 31, 2017, the bank held equity of $21.3 million on assets of $187.3 million.

With 43 full-time employees in 8 offices in IA, the bank has amassed loans and leases worth $91.6 million, including real estate loans of $59.7 million. U.S. bank customers currently have $158.3 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 an analysis of how the bank did on the three important criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for account holders when a bank is struggling financially. It follows then that when it comes to measuring an a bank's financial resilience, capital is key. When looking at safety and soundness, the more capital, the better.

On our test to measure capital adequacy, Farmers State Bank racked up 14 out of a possible 30 points, exceeding the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Farmers State Bank's Tier 1 capital ratio was 20.73 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Farmers State Bank held equity amounting to 11.40 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 loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid loans.

Having large numbers of these types of assets suggests a bank may have to use capital to absorb losses, diminishing its equity buffer. 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 future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.31 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 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 helpful 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

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, potentially making the bank more resilient in tough times. However, banks that are losing money are less able to do those things.

Farmers State Bank scored 18 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one widely used measure of a bank's earnings. Farmers State Bank's most recent annualized quarterly return on equity was 9.12 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $1.9 million on total equity of $21.3 million. The bank had an annualized return on average assets, or ROA, of 1.04 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.