Safe and Sound

Farmers and Merchants State Bank

Langdon, ND
5
Star Rating
Farmers and Merchants State Bank is an FDIC-insured bank founded in 1974 and currently based in Langdon, ND. The bank has equity of $13.5 million on $101.0 million in assets, according to December 31, 2017, regulatory filings.

With 13 full-time employees, the bank has amassed loans and leases worth $68.5 million, including real estate loans of $33.3 million. U.S. bank customers currently have $80.5 million in deposits with the bank.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and as protection for depositors when a bank is struggling financially. Therefore, when it comes to measuring an a bank's financial resilience, capital is crucial. When looking at safety and soundness, the higher the capital, the better.

Farmers and Merchants State Bank racked up 18 out of a possible 30 points on our test to measure the adequacy of a bank's capital, beating 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 State Bank's Tier 1 capital ratio was 18.97 percent, exceeding the 6 percent level considered adequate by regulators, 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 downturns.

Overall, Farmers and Merchants State Bank held equity amounting to 13.34 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of problem assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with extensive holdings of these types of assets could eventually be required to use capital to cover losses, reducing 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 lower earnings and potentially more risk of a future failure.

On Bankrate's asset quality test, Farmers and Merchants State Bank scored 40 out of a possible 40 points, above 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'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 . Comparing how large that reserve is to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Farmers and Merchants State Bank's loan loss allowance was 19,700.00 percent of its total noncurrent loans, higher than the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or use them to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, diminish a bank's ability to do those things.

On Bankrate's earnings test, Farmers and Merchants State Bank scored 22 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one widely used measure of a bank's earnings. Farmers and Merchants State Bank's most recent annualized quarterly return on equity was 13.36 percent, above the national average of 8.10 percent.

The bank reported net income of $1.7 million on total equity of $13.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.75 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.