Safe and Sound

Farmers and Merchants Bank of Kendall

Kendall, WI
5
Star Rating
Farmers and Merchants Bank of Kendall is a Kendall, WI-based, FDIC-insured bank started in 1913. Regulatory filings show the bank having equity of $10.4 million on assets of $73.9 million, as of December 31, 2017.

U.S. bank customers have $62.9 million on deposit at 4 offices in WI run by 16 full-time employees. With that footprint, the bank has amassed loans and leases worth $62.3 million, including $41.0 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants Bank of Kendall exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three key criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of an institution's financial strength. It works as a buffer against losses and as protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, more capital is preferred.

Farmers and Merchants Bank of Kendall scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 18 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. Farmers and Merchants Bank of Kendall's Tier 1 capital ratio was 16.59 percent, higher than the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic downturns.

Overall, Farmers and Merchants Bank of Kendall held equity amounting to 14.08 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having large numbers of these kinds of assets means a bank could eventually have to use capital to cover losses, decreasing its equity buffer. 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, resulting in reduced earnings and potentially more risk of a failure in the future.

Farmers and Merchants Bank of Kendall scored 32 out of a possible 40 points on Bankrate's asset quality test, failing to reach the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 3.43 percent of Farmers and Merchants Bank of Kendall'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 troubled assets . The size of that reserve can be a helpful 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 Farmers and Merchants Bank of Kendall's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

Farmers and Merchants Bank of Kendall beat the national average on Bankrate's earnings test, achieving a score of 26 out of a possible 30.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for Farmers and Merchants Bank of Kendall was 16.07 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.7 million on total equity of $10.4 million. The bank reported an annualized return on average assets, or ROA, of 2.25 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.