Safe and Sound

Farmers and Merchants Bank of Long Beach

Long Beach, CA
5
Star Rating
Long Beach, CA-based Farmers and Merchants Bank of Long Beach is an FDIC-insured bank started in 1907. The bank holds equity of $959.1 million on $6.99 billion in assets, according to December 31, 2017, regulatory filings.

With 747 full-time employees in 24 offices in CA, the bank currently holds loans and leases worth $3.85 billion, including real estate loans of $3.79 billion. U.S. bank customers currently have $5.39 billion in deposits with the bank.

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

WHAT IS
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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 struggling financially. It follows then that a bank's level of capital is a useful measurement of a bank's financial resilience. From a safety and soundness perspective, the more capital, the better.

Farmers and Merchants Bank of Long Beach achieved a score of 18 out of a possible 30 points on our test to measure capital adequacy, above the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers and Merchants Bank of Long Beach's Tier 1 capital ratio was 18.72 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Farmers and Merchants Bank of Long Beach held equity amounting to 13.72 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these kinds of assets could eventually be forced to use capital to cover losses, diminishing 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, pushing down earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, Farmers and Merchants Bank of Long Beach 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 handy indicator of asset quality.As of December 31, 2017, 0.38 percent of Farmers and Merchants Bank of Long Beach'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 . How large that reserve is 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. Unfortunately, the FDIC did not provide information on Farmers and Merchants Bank of Long Beach'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, giving a boost to its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, reduce a bank's ability to do those things.

On Bankrate's earnings test, Farmers and Merchants Bank of Long Beach scored 14 out of a possible 30, falling short of the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Farmers and Merchants Bank of Long Beach was 6.90 percent, below the national average of 8.10 percent.

The bank earned net income of $64.8 million on total equity of $959.1 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.93 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.