Safe and Sound

Farmers State Bank

Waterloo, IA
5
Star Rating
Started in 1903, Farmers State Bank is an FDIC-insured bank headquartered in Waterloo, IA. Regulatory filings show the bank having equity of $77.6 million on $954.3 million in assets, as of December 31, 2017.

Thanks to the work of 100 full-time employees in 10 offices in IA, the bank has amassed loans and leases worth $768.2 million, $571.2 million of which are for real estate. U.S. bank customers currently have $780.9 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 breakdown of how the bank fared on the three key criteria Bankrate used to score American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial strength, capital is valuable. It acts as a buffer against losses and affords protection for accountholders when a bank is experiencing economic trouble. When it comes to safety and soundness, more capital is better.

On our test to measure the adequacy of a bank's capital, Farmers State Bank received a score of 8 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 10.25 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic challenges.

Overall, Farmers State Bank held equity amounting to 8.13 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 past-due loans.

A bank with large numbers of these types of assets may eventually have to use capital to cover losses, shrinking its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, diminishing earnings and elevating the chances of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 0.08 percent of Farmers State Bank's loans were noncurrent -- in other words, 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 handle troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful 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

A bank's earnings performance has an effect on its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, lessen a bank's ability to do those things.

Farmers State Bank scored 24 out of a possible 30 on Bankrate's test of earnings, above the national average of 15.12.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Farmers State Bank's most recent annualized quarterly return on equity was 16.94 percent, above the national average of 8.10 percent.

The bank reported net income of $12.2 million on total equity of $77.6 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.37 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.