Safe and Sound

First Farmers & Merchants National Bank

Fairmont, MN
5
Star Rating
First Farmers & Merchants National Bank is an FDIC-insured bank founded in 1990 and currently based in Fairmont, MN. The bank has equity of $14.1 million on assets of $104.5 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $77.9 million on deposit at 2 offices in MN run by 14 full-time employees. With that footprint, the bank has amassed loans and leases worth $81.5 million, including $46.6 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, First Farmers & Merchants National Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial strength. It works as a cushion against losses and affords protection for depositors when a bank is experiencing economic instability. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, First Farmers & Merchants National Bank scored 18 out of a possible 30 points, above the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. First Farmers & Merchants National Bank's Tier 1 capital ratio was 16.42 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, First Farmers & Merchants National Bank held equity amounting to 13.49 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having lots of these types of assets suggests a bank could eventually have to use capital to cover losses, cutting down on its equity cushion. 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, diminishing earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, First Farmers & Merchants National Bank scored 36 out of a possible 40 points, failing to reach the national average of 37.49 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, 0.78 percent of First Farmers & Merchants National 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 maintain a reserve to handle problem 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 at-risk loans. Unfortunately, the FDIC did not provide information on First Farmers & Merchants National Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial trouble. Conversely, losses diminish a bank's ability to do those things.

First Farmers & Merchants National Bank scored 16 out of a possible 30 on Bankrate's test of earnings, beating the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one key measure of a bank's earnings. First Farmers & Merchants National Bank's most recent annualized quarterly return on equity was 7.91 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.1 million on total equity of $14.1 million. The bank experienced an annualized return on average assets, or ROA, of 1.03 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.