Safe and Sound

Farmers-Merchants National Bank of Paxton

Paxton, IL
4
Star Rating
Farmers-Merchants National Bank of Paxton is an FDIC-insured bank started in 1914 and currently based in Paxton, IL. Regulatory filings show the bank having equity of $13.6 million on assets of $112.5 million, as of December 31, 2017.

U.S. bank customers have $97.1 million on deposit at 3 offices in IL run by 22 full-time employees. With that footprint, the bank has amassed loans and leases worth $35.2 million, $25.2 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Farmers-Merchants National Bank of Paxton exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three important criteria Bankrate used to score American banks.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for account holders during times of economic instability for the bank. It follows then that when it comes to measuring an a bank's financial stability, capital is essential. When looking at safety and soundness, the more capital, the better.

On our test to measure capital adequacy, Farmers-Merchants National Bank of Paxton racked up 16 out of a possible 30 points, beating out the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers-Merchants National Bank of Paxton's Tier 1 capital ratio was 27.02 percent, higher than the 6 percent level considered adequate by regulators, and exceeding the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic challenges.

Overall, Farmers-Merchants National Bank of Paxton held equity amounting to 12.10 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

Having lots of these types of assets may eventually force a bank to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and elevating the risk of a failure in the future.

On Bankrate's asset quality test, Farmers-Merchants National Bank of Paxton scored 36 out of a possible 40 points, failing to reach the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 2.12 percent of Farmers-Merchants National Bank of Paxton'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 known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a handy 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 National Bank of Paxton's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's test of earnings, Farmers-Merchants National Bank of Paxton scored 16 out of a possible 30, above the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for Farmers-Merchants National Bank of Paxton was 7.08 percent, below the national average of 8.10 percent.

The bank earned net income of $966,000 on total equity of $13.6 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.83 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.