Asset Quality Score
In this test, Bankrate tries to determine the impact of troubled assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.
A bank with a large number of these types of assets could eventually be required to use capital to absorb losses, cutting down on its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the risk of a failure in the future.
On Bankrate's asset quality test, Farmers & Merchants Bank scored 36 out of a possible 40 points, less than the national average of 37.49 points.
The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.44 percent of Farmers & Merchants 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 to handle troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Farmers & Merchants Bank's loan loss allowance in its most recent filings.