Safe and Sound

Farmers and Merchants Bank

Axtell, NE
3
Star Rating
Started in 1907, Farmers and Merchants Bank is an FDIC-insured bank based in Axtell, NE. As of December 31, 2017, the bank had equity of $719,000 on $7.8 million in assets.

Thanks to the efforts of 2 full-time employees, the bank currently holds loans and leases worth $1.8 million, $905,000 of which are for real estate. U.S. bank customers currently have $7.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Here's a look at 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

Capital works as a buffer against losses and provides protection for account holders when a bank is experiencing economic instability. Therefore, when it comes to measuring an an institution's financial resilience, capital is important. When looking at safety and soundness, the more capital, the better.

Farmers and Merchants Bank received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach 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 35.08 percent, higher than the 6 percent level considered adequate by regulators, and higher than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Farmers and Merchants Bank held equity amounting to 9.22 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate 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 loans.

Having extensive holdings of these kinds of assets may eventually force a bank to use capital to absorb 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, resulting in diminished earnings and potentially more risk of a future failure.

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

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none 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 maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage problem 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

A bank's earnings performance has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or use them to address problematic loans, likely making the bank better prepared to withstand economic trouble. Losses, on the other hand, take away from a bank's ability to do those things.

Farmers and Merchants Bank received below-average marks on Bankrate's earnings test, achieving a score of 2 out of a possible 30.

One important measure of a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. Farmers and Merchants Bank's most recent annualized quarterly return on equity was 0.14 percent, below the national average of 8.10 percent.

The bank recorded net income of $1,000 on total equity of $719,000 for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.01 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.