Safe and Sound

Farmers and Merchants Bank

Upperco, MD
4
Star Rating
Founded in 1919, Farmers and Merchants Bank is an FDIC-insured bank based in Upperco, MD. Regulatory filings show the bank having equity of $41.2 million on $403.7 million in assets, as of December 31, 2017.

With 79 full-time employees in 7 offices in MD, the bank currently holds loans and leases worth $332.9 million, including real estate loans of $311.8 million. U.S. bank customers currently have $321.2 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 look at how the bank did on the three key criteria Bankrate used to score American banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for account holders during periods of financial trouble for the bank. It follows then that a bank's level of capital is a key measurement of a bank's financial strength. When it comes to safety and soundness, the more capital, the better.

Farmers and Merchants Bank received a score of 12 out of a possible 30 points on our test to measure capital adequacy, coming in below 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 11.84 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial downturns.

Overall, Farmers and Merchants Bank held equity amounting to 10.21 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

A bank with large numbers of these kinds of assets may eventually be forced to use capital to cover losses, decreasing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, pushing down earnings and elevating the chances of a future failure.

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

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.71 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 keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk 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 affects its long-term survivability. Earnings can be retained by the bank, expanding its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Obviously, banks that are losing money are less able to do those things.

On Bankrate's earnings test, Farmers and Merchants Bank scored 14 out of a possible 30, less than the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers and Merchants Bank was 6.72 percent, below the national average of 8.10 percent.

The bank recorded net income of $2.7 million on total equity of $41.2 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.68 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.