Safe and Sound

Farmers & Merchants Bank & Trust

Burlington, IA
2
Star Rating
Burlington, IA-based Farmers & Merchants Bank & Trust is an FDIC-insured bank started in 1916. Regulatory filings show the bank having equity of $17.1 million on assets of $190.8 million, as of December 31, 2017.

With 63 full-time employees in 4 offices in IA, the bank holds loans and leases worth $128.3 million, including real estate loans of $97.6 million. U.S. bank customers currently have $166.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers & Merchants Bank & Trust exhibited a below-average condition, earning 2 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three major criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and provides protection for depositors when a bank is experiencing financial instability. It follows then that when it comes to measuring an a bank's financial strength, capital is crucial. When it comes to safety and soundness, the more capital, the better.

Farmers & Merchants Bank & Trust received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, falling short of the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers & Merchants Bank & Trust's Tier 1 capital ratio was 13.92 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial challenges.

Overall, Farmers & Merchants Bank & Trust held equity amounting to 8.96 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 effect of troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with extensive holdings of these types of assets may eventually have 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, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, Farmers & Merchants Bank & Trust scored 32 out of a possible 40 points, falling short of the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 1.42 percent of Farmers & Merchants Bank & Trust's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." 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 problem assets. Unfortunately, the FDIC did not provide information on Farmers & Merchants Bank & Trust's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, potentially making the bank better able to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

Farmers & Merchants Bank & Trust fell short of the national average on Bankrate's test of earnings, achieving a score of 4 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one widely used measure of a bank's earnings. Farmers & Merchants Bank & Trust's most recent annualized quarterly return on equity was 1.57 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $275,000 on total equity of $17.1 million. The bank experienced an annualized return on average assets, or ROA, of 0.14 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.