Safe and Sound

Farmers and Merchants Savings Bank

Iowa City, IA
4
Star Rating
Farmers and Merchants Savings Bank is an Iowa City, IA-based, FDIC-insured bank that opened its doors in 1901. As of December 31, 2017, the bank held equity of $11.7 million on assets of $83.9 million.

U.S. bank customers have $67.6 million on deposit at 3 offices in IA run by 18 full-time employees. With that footprint, the bank has amassed loans and leases worth $52.1 million, $39.6 million of which are for real estate.

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

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for account holders when a bank is experiencing economic trouble. It follows then that when it comes to measuring an a bank's financial strength, capital is useful. From a safety and soundness perspective, the higher the capital, the better.

Farmers and Merchants Savings Bank racked up 16 out of a possible 30 points on our test to measure the adequacy of a bank's capital, beating out the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Farmers and Merchants Savings Bank's Tier 1 capital ratio was 15.81 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial headwinds.

Overall, Farmers and Merchants Savings Bank held equity amounting to 13.95 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

A bank with lots of these kinds of assets could eventually be required to use capital to absorb losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, reducing earnings and elevating the chances of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.04 percent of Farmers and Merchants Savings 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 deal with problem assets known as an "allowance for loan and lease losses." The size of that reserve can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Farmers and Merchants Savings Bank's loan loss allowance was 1,568.18 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 has an effect on its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to deal with problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, lessen a bank's ability to do those things.

Farmers and Merchants Savings Bank scored 6 out of a possible 30 on Bankrate's test of earnings, below the national average of 15.12.

One key measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Farmers and Merchants Savings Bank's most recent annualized quarterly return on equity was 2.48 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $291,000 on total equity of $11.7 million. The bank experienced an annualized return on average assets, or ROA, of 0.35 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.