Safe and Sound

Farmers and Merchants Bank

Milligan, NE
5
Star Rating
Farmers and Merchants Bank is a Milligan, NE-based, FDIC-insured bank founded in 1903. Regulatory filings show the bank having equity of $12.8 million on $108.7 million in assets, as of December 31, 2017.

U.S. bank customers have $90.9 million on deposit at 2 offices in multiple states run by 15 full-time employees. With that footprint, the bank currently holds loans and leases worth $98.7 million, including real estate loans of $49.8 million.

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 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 bulwark against losses and provides protection for depositors when a bank is struggling financially. It follows then that when it comes to measuring an a bank's financial stability, capital is useful. When looking at safety and soundness, the higher the capital, the better.

Farmers and Merchants Bank scored below the national average of 13.13 on our test to measure capital adequacy, racking up 10 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Farmers and Merchants Bank's Tier 1 capital ratio was 11.45 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 weather economic headwinds.

Overall, Farmers and Merchants Bank held equity amounting to 11.74 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of troubled assets, such as unpaid mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these kinds of assets may eventually be forced to use capital to cover losses, cutting down on its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, reducing earnings and elevating the chances 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 useful indicator of asset quality.As of December 31, 2017, 0.01 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 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." The size of that reserve can be a helpful 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 6,133.33 percent of its total noncurrent loans, higher than the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

A bank's earnings performance affects its long-term survivability. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's test of earnings, Farmers and Merchants Bank scored 22 out of a possible 30, better than 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. The most recent annualized quarterly return on equity for Farmers and Merchants Bank was 14.48 percent, above the national average of 8.10 percent.

The bank recorded net income of $1.7 million on total equity of $12.8 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.68 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.