Safe and Sound

Farmers and Merchants State Bank of Blooming Prairie

Blooming Prairie, MN
4
Star Rating
Farmers and Merchants State Bank of Blooming Prairie is an FDIC-insured bank started in 1904 and currently based in Blooming Prairie, MN. As of December 31, 2017, the bank held equity of $5.9 million on assets of $82.9 million.

U.S. bank customers have $75.3 million on deposit at 2 offices in MN run by 20 full-time employees. With that footprint, the bank has amassed loans and leases worth $67.2 million, including real estate loans of $38.1 million.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants State Bank of Blooming Prairie exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is a crucial measurement of an institution's financial resilience. When looking at safety and soundness, the more capital, the better.

On our test to measure capital adequacy, Farmers and Merchants State Bank of Blooming Prairie received a score of 6 out of a possible 30 points, falling short of the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers and Merchants State Bank of Blooming Prairie's Tier 1 capital ratio was 9.61 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.

Overall, Farmers and Merchants State Bank of Blooming Prairie held equity amounting to 7.14 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid loans.

Having a large number of these kinds of assets could eventually require a bank to use capital to absorb losses, shrinking its cushion of equity. 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 depressed earnings and potentially more risk of a future failure.

Farmers and Merchants State Bank of Blooming Prairie scored below the national average of 37.49 on Bankrate's asset quality test, racking up 32 out of a possible 40 points .

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.08 percent of Farmers and Merchants State Bank of Blooming Prairie's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Farmers and Merchants State Bank of Blooming Prairie's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. A bank can retain its earnings, expanding its capital cushion, or use them to address problematic loans, potentially making the bank better prepared to withstand economic shocks. Losses, on the other hand, lessen a bank's ability to do those things.

Farmers and Merchants State Bank of Blooming Prairie scored 30 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Farmers and Merchants State Bank of Blooming Prairie's most recent annualized quarterly return on equity was 22.83 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $1.3 million on total equity of $5.9 million. The bank reported an annualized return on average assets, or ROA, of 1.56 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.