Safe and Sound

Farmers & Merchants Bank

Monticello, FL
4
Star Rating
Founded in 1907, Farmers & Merchants Bank is an FDIC-insured bank headquartered in Monticello, FL. Regulatory filings show the bank having equity of $44.0 million on assets of $471.5 million, as of December 31, 2017.

Thanks to the work of 102 full-time employees in 6 offices in multiple states, the bank has amassed loans and leases worth $326.5 million, $260.1 million of which are for real estate. The bank currently holds $409.0 million in deposits from U.S. customers.

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

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial fortitude. It works as a cushion against losses and as protection for depositors when a bank is struggling financially. When it comes to safety and soundness, more capital is preferred.

Farmers & Merchants Bank received a score of 10 out of a possible 30 points on our test to measure capital adequacy, failing to reach 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's Tier 1 capital ratio was 13.13 percent, above 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 economic difficulties.

Overall, Farmers & Merchants Bank held equity amounting to 9.32 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 problem assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets suggests a bank may have to use capital to cover losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, reducing earnings and elevating the chances of a failure in the future.

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

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 2.67 percent of Farmers & Merchants Bank'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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Farmers & Merchants Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

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

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one widely used measure of a bank's earnings. Farmers & Merchants Bank's most recent annualized quarterly return on equity was 11.64 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $5.0 million on total equity of $44.0 million. The bank reported an annualized return on average assets, or ROA, of 1.07 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.