Safe and Sound

United Farmers State Bank

Adams, MN
5
Star Rating
Adams, MN-based United Farmers State Bank is an FDIC-insured bank started in 1914. The bank holds equity of $17.4 million on $154.0 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 20 full-time employees in 3 offices in MN, the bank has amassed loans and leases worth $128.2 million, including real estate loans of $75.4 million. The bank currently holds $118.9 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, United Farmers State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for depositors when a bank is experiencing economic trouble. Therefore, a bank's level of capital is a key measurement of a bank's financial fortitude. When it comes to safety and soundness, more capital is better.

United Farmers State Bank racked up 14 out of a possible 30 points on our test to measure the adequacy of a bank's capital, above the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. United Farmers State Bank's Tier 1 capital ratio was 12.08 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial downturns.

Overall, United Farmers State Bank held equity amounting to 11.28 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 troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

Having large numbers of these kinds of assets may eventually force a bank to use capital to cover losses, decreasing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, pushing down earnings and increasing the chances of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 0.11 percent of United 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 known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. United Farmers State Bank's loan loss allowance was 1,414.86 percent of its total noncurrent loans, higher than the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. However, banks that are losing money are less able to do those things.

United Farmers State Bank scored 28 out of a possible 30 on Bankrate's earnings test, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important way to measure a bank's earnings. United Farmers State Bank's most recent annualized quarterly return on equity was 17.93 percent, above the national average of 8.10 percent.

The bank reported net income of $3.2 million on total equity of $17.4 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 2.16 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.