Safe and Sound

State Bank of Fairmont

Fairmont, MN
4
Star Rating
State Bank of Fairmont is a Fairmont, MN-based, FDIC-insured bank started in 1917. As of December 31, 2017, the bank had equity of $11.1 million on assets of $103.9 million.

Thanks to the work of 17 full-time employees, the bank currently holds loans and leases worth $75.4 million, $33.5 million of which are for real estate. The bank currently holds $89.0 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, State Bank of Fairmont exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three key criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of a bank's financial strength. It acts as a cushion against losses and affords protection for depositors during periods of financial instability for the bank. When looking at safety and soundness, the higher the capital, the better.

State Bank of Fairmont received a score of 12 out of a possible 30 points on our test to measure capital adequacy, failing to reach the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. State Bank of Fairmont's Tier 1 capital ratio was 14.34 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial headwinds.

Overall, State Bank of Fairmont held equity amounting to 10.69 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

Having large numbers of these kinds of assets could eventually require a bank to use capital to cover losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

State Bank of Fairmont scored 32 out of a possible 40 points on Bankrate's asset quality test, falling short of the national average of 37.49.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.58 percent of State Bank of Fairmont's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . 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 State Bank of Fairmont's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, diminish a bank's ability to do those things.

State Bank of Fairmont scored 16 out of a possible 30 on Bankrate's earnings test, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. State Bank of Fairmont's most recent annualized quarterly return on equity was 7.47 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $845,000 on total equity of $11.1 million. The bank reported an annualized return on average assets, or ROA, of 0.80 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.