Safe and Sound

Farmers & Merchants Bank of Central California

Lodi, CA
4
Star Rating
Started in 1916, Farmers & Merchants Bank of Central California is an FDIC-insured bank headquartered in Lodi, CA. Regulatory filings show the bank having equity of $297.6 million on assets of $3.06 billion, as of December 31, 2017.

With 331 full-time employees in 32 offices in CA, the bank has amassed loans and leases worth $2.16 billion, including real estate loans of $1.59 billion. U.S. bank customers currently have $2.72 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers & Merchants Bank of Central California exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three important criteria Bankrate used to evaluate American banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial strength, capital is valuable. It acts as a cushion against losses and affords protection for accountholders when a bank is experiencing financial instability. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Farmers & Merchants Bank of Central California received a score of 10 out of a possible 30 points, less than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers & Merchants Bank of Central California's Tier 1 capital ratio was 11.40 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, Farmers & Merchants Bank of Central California held equity amounting to 9.71 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due loans.

Having large numbers of these types of assets means a bank may eventually have to use capital to cover losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, diminishing earnings and increasing the risk of a failure in the future.

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

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of Farmers & Merchants Bank of Central California'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 widely used 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 & Merchants Bank of Central California's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Banks that are losing money, however, have less ability to do those things.

Farmers & Merchants Bank of Central California beat the national average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for Farmers & Merchants Bank of Central California was 9.80 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $29.1 million on total equity of $297.6 million. The bank experienced an annualized return on average assets, or ROA, of 0.97 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.