Safe and Sound

Farmers and Merchants Bank

Baldwyn, MS
5
Star Rating
Started in 1941, Farmers and Merchants Bank is an FDIC-insured bank headquartered in Baldwyn, MS. As of December 31, 2017, the bank held equity of $42.9 million on assets of $316.5 million.

U.S. bank customers have $264.6 million on deposit at 10 offices in MS run by 106 full-time employees. With that footprint, the bank holds loans and leases worth $167.1 million, $122.4 million of which are for real estate.

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

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for depositors when a bank is experiencing economic instability. It follows then that when it comes to measuring an an institution's financial fortitude, capital is key. When looking at safety and soundness, the higher the capital, the better.

Farmers and Merchants Bank scored 18 out of a possible 30 points on our test to measure capital adequacy, exceeding the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Farmers and Merchants Bank's Tier 1 capital ratio was 20.86 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial headwinds.

Overall, Farmers and Merchants Bank held equity amounting to 13.56 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due loans.

A bank with large numbers of these types of assets may eventually have to use capital to absorb losses, decreasing 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.

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

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.89 percent of Farmers and 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 1.01 percent.

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

Earnings score

A bank's profitability affects its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, potentially making the bank better able to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

Farmers and Merchants Bank beat the national average on Bankrate's test of earnings, achieving a score of 16 out of a possible 30.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for Farmers and Merchants Bank was 7.70 percent, below the national average of 8.10 percent.

The bank reported net income of $3.3 million on total equity of $42.9 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.06 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.