Safe and Sound

Farmers and Merchants Bank

Piedmont, AL
4
Star Rating
Started in 1915, Farmers and Merchants Bank is an FDIC-insured bank headquartered in Piedmont, AL. The bank holds equity of $27.8 million on assets of $212.7 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 47 full-time employees in 4 offices in AL, the bank has amassed loans and leases worth $107.6 million, $87.8 million of which are for real estate. U.S. bank customers currently have $181.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is useful. It works as a buffer against losses and as protection for accountholders when a bank is experiencing economic instability. From a safety and soundness perspective, the more capital, the better.

Farmers and Merchants Bank exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 18 out of a possible 30 points.

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 20.55 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Farmers and Merchants Bank held equity amounting to 13.08 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having extensive holdings of these kinds of assets suggests a bank could have to use capital to cover losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a failure in the future.

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

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.09 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 troubled assets . That reserve's size can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Farmers and Merchants Bank's loan loss allowance was 1,293.62 percent of its total noncurrent loans, above 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 affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital buffer, or use them to deal with problematic loans, potentially making the bank better able to withstand economic trouble. Losses, on the other hand, lessen a bank's ability to do those things.

Farmers and Merchants Bank scored 10 out of a possible 30 on Bankrate's earnings test, less than 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 was 4.73 percent, below the national average of 8.10 percent.

The bank recorded net income of $1.3 million on total equity of $27.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.63 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.