Safe and Sound

The Freeport State Bank

Harper, KS
1
Star Rating
Harper, KS-based The Freeport State Bank is an FDIC-insured bank founded in 1902. The bank has equity of $1.0 million on assets of $22.0 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $19.8 million on deposit at 2 offices in KS run by 9 full-time employees. With that footprint, the bank currently holds loans and leases worth $13.8 million, including $9.2 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, The Freeport State Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to grade U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for account holders when a bank is experiencing economic instability. Therefore, a bank's level of capital is a key measurement of an institution's financial resilience. When looking at safety and soundness, the higher the capital, the better.

The Freeport State Bank received a score of 0 out of a possible 30 points on our test to measure the adequacy of a bank's capital, less than the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. The Freeport State Bank's Tier 1 capital ratio was 8.44 percent, exceeding the 6 percent level considered adequate by regulators, but lower 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 Freeport State Bank held equity amounting to 4.73 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the impact of problem assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets may eventually require a bank to use capital to absorb losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a future failure.

The Freeport State Bank scored 20 out of a possible 40 points on Bankrate's test of asset quality, coming in below the national average of 37.49.

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, 2.18 percent of The Freeport 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 above the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on The Freeport State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. Earnings can be retained by the bank, boosting its capital cushion, or be used to address problematic loans, likely making the bank better prepared to withstand economic trouble. Banks that are losing money, however, are less able to do those things.

The Freeport State Bank fell short of the national average on Bankrate's earnings test, achieving a score of 0 out of a possible 30.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. The Freeport State Bank's most recent annualized quarterly return on equity was -33.19 percent, below the national average of 8.10 percent.

The bank reported net income of $-450,000 on total equity of $1.0 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of -1.96 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.