Safe and Sound

Farmers and Merchants Union Bank

Columbus, WI
5
Star Rating
Columbus, WI-based Farmers and Merchants Union Bank is an FDIC-insured bank founded in 1861. Regulatory filings show the bank having equity of $38.9 million on $394.9 million in assets, as of December 31, 2017.

U.S. bank customers have $352.7 million on deposit at 6 offices in WI run by 57 full-time employees. With that footprint, the bank holds loans and leases worth $338.4 million, including $254.6 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Farmers and Merchants Union Bank 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 score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and affords protection for depositors during times of economic trouble for the bank. It follows then that a bank's level of capital is a useful measurement of a bank's financial fortitude. When it comes to safety and soundness, the more capital, the better.

Farmers and Merchants Union Bank received a score of 10 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Farmers and Merchants Union Bank's Tier 1 capital ratio was 10.77 percent, exceeding the 6 percent level regulators consider adequate, 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 Union Bank held equity amounting to 9.84 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

Having large numbers of these kinds of assets means a bank could eventually have to use capital to cover losses, reducing its equity buffer. 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, pushing down earnings and increasing the chances of a failure in the future.

On Bankrate's asset quality test, Farmers and Merchants Union Bank scored 40 out of a possible 40 points, beating 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, 0.08 percent of Farmers and Merchants Union 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Farmers and Merchants Union Bank's loan loss allowance was 4,119.05 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

A bank's profitability affects its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Farmers and Merchants Union Bank scored 20 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers and Merchants Union Bank was 10.41 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $3.9 million on total equity of $38.9 million. The bank had an annualized return on average assets, or ROA, of 1.04 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.