Safe and Sound

Farmers and Merchants State Bank of Appleton

Appleton, MN
5
Star Rating
Farmers and Merchants State Bank of Appleton is an Appleton, MN-based, FDIC-insured bank that opened its doors in 1915. Regulatory filings show the bank having equity of $6.4 million on $44.6 million in assets, as of December 31, 2017.

With 11 full-time employees, the bank currently holds loans and leases worth $31.9 million, including real estate loans of $14.4 million. U.S. bank customers currently have $38.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants State Bank of Appleton exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is essential. It acts as a bulwark against losses and provides protection for accountholders when a bank is experiencing economic instability. From a safety and soundness perspective, the more capital, the better.

On our test to measure capital adequacy, Farmers and Merchants State Bank of Appleton racked up 20 out of a possible 30 points, better than the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Farmers and Merchants State Bank of Appleton's Tier 1 capital ratio was 16.77 percent, higher than the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic headwinds.

Overall, Farmers and Merchants State Bank of Appleton held equity amounting to 14.32 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having extensive holdings of these types of assets could eventually require a bank 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 interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

Farmers and Merchants State Bank of Appleton beat out 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, 0.92 percent of Farmers and Merchants State Bank of Appleton'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 known as an "allowance for loan and lease losses" to deal with troubled assets . The size of that reserve can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Farmers and Merchants State Bank of Appleton'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 may be retained by the bank, increasing its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand economic shocks. Obviously, banks that are losing money have less ability to do those things.

Farmers and Merchants State Bank of Appleton beat the national average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Farmers and Merchants State Bank of Appleton's most recent annualized quarterly return on equity was 11.54 percent, above the national average of 8.10 percent.

The bank recorded net income of $726,000 on total equity of $6.4 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.58 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.