Safe and Sound

The Farmers State Bank

Holton, KS
5
Star Rating
Holton, KS-based The Farmers State Bank is an FDIC-insured bank started in 1900. As of December 31, 2017, the bank had equity of $6.2 million on $57.5 million in assets.

Thanks to the work of 18 full-time employees, the bank has amassed loans and leases worth $35.9 million, including $29.6 million worth of real estate loans. The bank currently holds $50.4 million in deposits from U.S. customers.

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. Here's an analysis of how the bank did on the three important criteria Bankrate used to score U.S. 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 fortitude, capital is important. It works as a buffer against losses and provides protection for accountholders when a bank is experiencing financial instability. When looking at safety and soundness, the more capital, the better.

The Farmers State Bank received a score of 12 out of a possible 30 points on our test to measure the adequacy of a bank's capital, below the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. The Farmers State Bank's Tier 1 capital ratio was 18.13 percent, higher than the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, The Farmers State Bank held equity amounting to 10.80 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of problem assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with extensive holdings of these types of assets may eventually be required to use capital to cover losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, diminishing earnings and elevating the risk of a future failure.

The 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 widely used indicator of asset quality.As of December 31, 2017, 0.37 percent of The 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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. 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 long-term survivability. Earnings can be retained by the bank, increasing its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

The Farmers State Bank did above-average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important measure of a bank's earnings. The Farmers State Bank's most recent annualized quarterly return on equity was 9.02 percent, above the national average of 8.10 percent.

The bank earned net income of $540,000 on total equity of $6.2 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.91 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.