Safe and Sound

Farmers & Merchants Bank of Colby

Colby, KS
5
Star Rating
Farmers & Merchants Bank of Colby is a Colby, KS-based, FDIC-insured bank dating back to 1998. The bank has equity of $28.8 million on $211.6 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $149.0 million on deposit at 2 offices in KS run by 20 full-time employees. With that footprint, the bank currently holds loans and leases worth $134.7 million, $83.0 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Farmers & Merchants Bank of Colby exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three important criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is essential. It acts as a buffer against losses and affords protection for accountholders when a bank is struggling financially. When looking at safety and soundness, more capital is preferred.

Farmers & Merchants Bank of Colby exceeded the national average of 13.13 points on our test to measure capital adequacy, achieving a score of 18 out of a possible 30 points.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers & Merchants Bank of Colby's Tier 1 capital ratio was 14.72 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial difficulties.

Overall, Farmers & Merchants Bank of Colby held equity amounting to 13.62 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due loans.

A bank with extensive holdings of these types of assets may eventually be forced to use capital to absorb losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the chances of a failure in the future.

Farmers & Merchants Bank of Colby beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 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, 0.17 percent of Farmers & Merchants Bank of Colby'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 to deal with troubled assets known as an "allowance for loan and lease losses." The size of that reserve can be a helpful 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 Colby's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. However, banks that are losing money have less ability to do those things.

Farmers & Merchants Bank of Colby scored 20 out of a possible 30 on Bankrate's earnings test, better than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. Farmers & Merchants Bank of Colby's most recent annualized quarterly return on equity was 12.10 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $3.4 million on total equity of $28.8 million. The bank experienced an annualized return on average assets, or ROA, of 1.65 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.