Safe and Sound

Farmers & Merchants Savings Bank

Manchester, IA
5
Star Rating
Farmers & Merchants Savings Bank is an FDIC-insured bank started in 1925 and currently based in Manchester, IA. Regulatory filings show the bank having equity of $60.4 million on $538.8 million in assets, as of December 31, 2017.

U.S. bank customers have $454.9 million on deposit at 11 offices in multiple states run by 97 full-time employees. With that footprint, the bank holds loans and leases worth $454.9 million, including real estate loans of $215.3 million.

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

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and as protection for account holders during periods of economic trouble for the bank. It follows then that when it comes to measuring an a bank's financial strength, capital is valuable. From a safety and soundness perspective, more capital is better.

Farmers & Merchants Savings Bank scored 14 out of a possible 30 points on our test to measure capital adequacy, better than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers & Merchants Savings Bank's Tier 1 capital ratio was 11.25 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial headwinds.

Overall, Farmers & Merchants Savings Bank held equity amounting to 11.21 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 mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with large numbers of these types of assets could eventually be forced to use capital to absorb losses, diminishing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, decreasing earnings and increasing the chances of a failure in the future.

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

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.82 percent of Farmers & Merchants Savings 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." Comparing the reserve's size to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Farmers & Merchants Savings Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, increasing its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand economic trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's test of earnings, Farmers & Merchants Savings Bank scored 24 out of a possible 30, beating the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. Farmers & Merchants Savings Bank's most recent annualized quarterly return on equity was 14.53 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $8.6 million on total equity of $60.4 million. The bank had an annualized return on average assets, or ROA, of 1.60 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.