Safe and Sound

Farmers and Merchants Bank

Lafayette, AL
5
Star Rating
Lafayette, AL-based Farmers and Merchants Bank is an FDIC-insured bank started in 1934. Regulatory filings show the bank having equity of $20.6 million on $155.9 million in assets, as of December 31, 2017.

With 34 full-time employees in 3 offices in AL, the bank has amassed loans and leases worth $55.7 million, including real estate loans of $30.0 million. U.S. bank customers currently have $133.8 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 did on the three important criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and as protection for account holders when a bank is struggling financially. It follows then that a bank's level of capital is an important measurement of an institution's financial resilience. When looking at safety and soundness, more capital is better.

Farmers and Merchants Bank scored above the national average of 13.13 points on our test to measure capital adequacy, receiving a score of 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 21.43 percent, higher than the 6 percent level regulators consider adequate, but less than 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 held equity amounting to 13.19 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having lots of these types of assets could eventually force a bank to use capital to absorb losses, decreasing its cushion 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, diminishing earnings and increasing the chances of a future failure.

Farmers and Merchants Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, above 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, 1.39 percent of Farmers and Merchants Bank'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 keep a reserve known as an "allowance for loan and lease losses" to deal with troubled 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's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. Earnings can be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand economic trouble. Obviously, banks that are losing money have less ability to do those things.

On Bankrate's earnings test, Farmers and Merchants Bank scored 14 out of a possible 30, lower 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. Farmers and Merchants Bank's most recent annualized quarterly return on equity was 6.77 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.4 million on total equity of $20.6 million. The bank experienced an annualized return on average assets, or ROA, of 0.94 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.