Safe and Sound

The Farmers State Bank

Wathena, KS
5
Star Rating
Started in 1903, The Farmers State Bank is an FDIC-insured bank based in Wathena, KS. As of December 31, 2017, the bank held equity of $10.3 million on assets of $61.7 million.

Thanks to the work of 14 full-time employees, the bank has amassed loans and leases worth $29.7 million, including real estate loans of $16.9 million. U.S. bank customers currently have $51.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Farmers State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three key criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is important. It works as a bulwark against losses and as protection for depositors when a bank is experiencing financial instability. When looking at safety and soundness, the higher the capital, the better.

The Farmers State Bank racked up 24 out of a possible 30 points on our test to measure capital adequacy, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The Farmers State Bank's Tier 1 capital ratio was 30.14 percent, exceeding the 6 percent level considered adequate by regulators, and higher than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic challenges.

Overall, The Farmers State Bank held equity amounting to 16.73 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid loans.

A bank with extensive holdings of these types of assets may eventually be forced to use capital to absorb losses, cutting down on 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, reducing earnings and increasing the chances of a failure in the future.

The Farmers State Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, better than 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, 0.74 percent of The 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." The size of that reserve can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on The 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, expanding its capital cushion, or put them to work addressing problematic loans, potentially making the bank better able to withstand financial shocks. However, banks that are losing money have less ability to do those things.

The Farmers State Bank underperformed the average on Bankrate's earnings test, achieving a score of 10 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. The Farmers State Bank's most recent annualized quarterly return on equity was 4.71 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $485,000 on total equity of $10.3 million. The bank had an annualized return on average assets, or ROA, of 0.77 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.