Safe and Sound

Farmers and Merchants State Bank of Springfield

Springfield, MN
4
Star Rating
Started in 1918, Farmers and Merchants State Bank of Springfield is an FDIC-insured bank based in Springfield, MN. As of December 31, 2017, the bank had equity of $10.1 million on $118.5 million in assets.

U.S. bank customers have $99.7 million on deposit at 2 offices in MN run by 24 full-time employees. With that footprint, the bank currently holds loans and leases worth $81.1 million, including $35.9 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants State Bank of Springfield 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 key criteria Bankrate used to grade American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders during times of economic trouble for the bank. Therefore, when it comes to measuring an a bank's financial stability, capital is useful. From a safety and soundness perspective, the more capital, the better.

On our test to measure capital adequacy, Farmers and Merchants State Bank of Springfield received a score of 8 out of a possible 30 points, less than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Farmers and Merchants State Bank of Springfield's Tier 1 capital ratio was 11.91 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Farmers and Merchants State Bank of Springfield held equity amounting to 8.53 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of troubled assets, such as past-due loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having extensive holdings of these kinds of assets suggests a bank may eventually have to use capital to cover losses, decreasing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Farmers and Merchants State Bank of Springfield scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.01 percent of Farmers and Merchants State Bank of Springfield'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 keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing how large that reserve is to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Farmers and Merchants State Bank of Springfield's loan loss allowance was 9,590.00 percent of its total noncurrent loans, exceeding the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

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 put them to work addressing problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses take away from a bank's ability to do those things.

On Bankrate's test of earnings, Farmers and Merchants State Bank of Springfield scored 12 out of a possible 30, below the national average of 15.12.

One important way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The most recent annualized quarterly return on equity for Farmers and Merchants State Bank of Springfield was 5.43 percent, below the national average of 8.10 percent.

The bank earned net income of $547,000 on total equity of $10.1 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.48 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.