Safe and Sound

First Farmers & Merchants Bank

Cannon Falls, MN
5
Star Rating
Founded in 1915, First Farmers & Merchants Bank is an FDIC-insured bank based in Cannon Falls, MN. The bank holds equity of $40.3 million on assets of $297.9 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $254.5 million on deposit at 8 offices in MN run by 68 full-time employees. With that footprint, the bank currently holds loans and leases worth $220.1 million, including real estate loans of $144.6 million.

Overall, Bankrate believes that, as of December 31, 2017, First Farmers & Merchants Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and affords protection for depositors when a bank is experiencing economic instability. It follows then that a bank's level of capital is a useful measurement of a bank's financial fortitude. When it comes to safety and soundness, the more capital, the better.

First Farmers & Merchants Bank exceeded the national average of 13.13 points on our test to measure capital adequacy, scoring 16 out of a possible 30 points.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. First Farmers & Merchants Bank's Tier 1 capital ratio was 16.11 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, First Farmers & Merchants Bank held equity amounting to 13.52 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due mortgages.

A bank with a large number of these types of assets may eventually be forced to use capital to cover losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, reducing earnings and elevating the chances of a failure in the future.

First Farmers & Merchants Bank fell short of the national average of 37.49 on Bankrate's asset quality test, racking up 36 out of a possible 40 points .

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, 1.22 percent of First 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 above the national average of 1.01 percent.

Banks keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on First Farmers & Merchants Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. Earnings may be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in times of trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's test of earnings, First Farmers & Merchants Bank scored 22 out of a possible 30, better than the national average of 15.12.

One important way to measure a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. First Farmers & Merchants Bank's most recent annualized quarterly return on equity was 12.68 percent, above the national average of 8.10 percent.

The bank earned net income of $5.0 million on total equity of $40.3 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.72 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.