Safe and Sound

Farmington State Bank

Farmington, WA
5
Star Rating
Farmington State Bank is a Farmington, WA-based, FDIC-insured bank founded in 1929. Regulatory filings show the bank having equity of $1.6 million on assets of $10.9 million, as of December 31, 2017.

Thanks to the efforts of 3 full-time employees, the bank holds loans and leases worth $4.8 million, $1.4 million of which are for real estate. U.S. bank customers currently have $9.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmington 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 key 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 cushion against losses and affords protection for account holders during periods of economic trouble for the bank. Therefore, a bank's level of capital is an essential measurement of an institution's financial fortitude. From a safety and soundness perspective, the higher the capital, the better.

Farmington State Bank beat out the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 22 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmington State Bank's Tier 1 capital ratio was 23.75 percent, exceeding the 6 percent level regulators consider adequate, 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 difficulties.

Overall, Farmington State Bank held equity amounting to 15.12 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid mortgages.

Having a large number of these types of assets could eventually force a bank to use capital to absorb losses, diminishing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, reducing earnings and elevating the risk of a future failure.

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

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, none of Farmington 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." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Farmington State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

Farmington State Bank scored 10 out of a possible 30 on Bankrate's test of earnings, lower than the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. The most recent annualized quarterly return on equity for Farmington State Bank was 4.53 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $75,000 on total equity of $1.6 million. The bank reported an annualized return on average assets, or ROA, of 0.73 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.