Safe and Sound

Farmers & Merchants Bank

Timberville, VA
5
Star Rating
Started in 1908, Farmers & Merchants Bank is an FDIC-insured bank based in Timberville, VA. As of June 30, 2017, the bank held equity of $88.1 million on assets of $743.7 million.

U.S. bank customers have $537.8 million on deposit at 13 offices in VA run by 157 full-time employees. With that footprint, the bank has amassed loans and leases worth $648.0 million, $488.1 million of which are for real estate.

Overall, Bankrate believes that, as of June 30, 2017, Farmers & Merchants 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 key criteria Bankrate used to evaluate American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is crucial. It works as a cushion against losses and as protection for depositors when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.
Farmers & Merchants Bank racked up 14 out of a possible 30 points on our test to measure the adequacy of a bank's capital, exceeding the national average of 13.38.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Farmers & Merchants Bank's Tier 1 capital ratio was 14.10 percent, exceeding the 6 percent level regulators consider adequate, but under the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather economic challenges.

Overall, Farmers & Merchants Bank held equity amounting to 11.77 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

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

A bank with extensive holdings of these types of assets may eventually be required to use capital to cover losses, reducing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, reducing earnings and increasing the chances of a future failure.

Farmers & Merchants Bank came in below the national average of 37.62 on Bankrate's asset quality test, racking up 36 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 June 30, 2017, 0.87 percent of Farmers & Merchants 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 1.04 percent.

Banks maintain a reserve to handle problem 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 troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Farmers & Merchants 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. A bank can retain its earnings, boosting its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand economic trouble. Banks that are losing money, however, are less able to do those things.

Farmers & Merchants Bank scored 20 out of a possible 30 on Bankrate's earnings test, beating the national average of 16.52.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. Farmers & Merchants Bank's most recent annualized quarterly return on equity was 10.52 percent, above the national average of 9.28 percent.

The bank recorded net income of $4.6 million on total equity of $88.1 million for the twelve months ended June 30, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.24 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.14 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.