Safe and Sound

Farmers and Merchants Bank

Arnett, OK
5
Star Rating
Arnett, OK-based Farmers and Merchants Bank is an FDIC-insured bank founded in 1908. The bank has equity of $6.8 million on assets of $54.3 million, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 8 full-time employees, the bank holds loans and leases worth $17.3 million, including real estate loans of $4.4 million. U.S. bank customers currently have $47.4 million in deposits with the bank.

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. Keep reading for a look at how the bank fared on the three important criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and provides protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is a key measurement of a bank's financial resilience. From a safety and soundness perspective, the more capital, the better.

On our test to measure capital adequacy, Farmers and Merchants Bank scored 16 out of a possible 30 points, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers and Merchants Bank's Tier 1 capital ratio was 29.86 percent, above the 6 percent level considered adequate by regulators, and above the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic headwinds.

Overall, Farmers and Merchants Bank held equity amounting to 12.52 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 mortgages.

A bank with lots of these types of assets may eventually have to use capital to cover losses, cutting down on its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and increasing the risk of a failure in the future.

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

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.15 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Farmers and Merchants Bank's loan loss allowance was 1,785.19 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings can be retained by the bank, expanding its capital cushion, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

Farmers and Merchants Bank scored 16 out of a possible 30 on Bankrate's test of earnings, above the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Farmers and Merchants Bank's most recent annualized quarterly return on equity was 7.87 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $533,000 on total equity of $6.8 million. The bank had an annualized return on average assets, or ROA, of 1.02 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.