Safe and Sound

First Farmers & Merchants State Bank of Grand Meadow

Grand Meadow, MN
3
Star Rating
First Farmers & Merchants State Bank of Grand Meadow is a Grand Meadow, MN-based, FDIC-insured bank founded in 1938. The bank holds equity of $6.8 million on $61.2 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $50.4 million on deposit at 3 offices in MN run by 12 full-time employees. With that footprint, the bank currently holds loans and leases worth $49.6 million, including $35.8 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, First Farmers & Merchants State Bank of Grand Meadow exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three important criteria Bankrate used to score American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders when a bank is struggling financially. It follows then that when it comes to measuring an a bank's financial stability, capital is essential. From a safety and soundness perspective, the more capital, the better.

First Farmers & Merchants State Bank of Grand Meadow achieved a score of 14 out of a possible 30 points on our test to measure capital adequacy, beating 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 State Bank of Grand Meadow's Tier 1 capital ratio was 13.27 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, First Farmers & Merchants State Bank of Grand Meadow held equity amounting to 11.11 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due mortgages.

A bank with a large number of these kinds of assets may eventually have to use capital to absorb losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and increasing the risk of a future failure.

First Farmers & Merchants State Bank of Grand Meadow scored 16 out of a possible 40 points on Bankrate's asset quality test, 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, 4.35 percent of First Farmers & Merchants State Bank of Grand Meadow'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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on First Farmers & Merchants State Bank of Grand Meadow's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. Earnings can be retained by the bank, expanding its capital cushion, or be used to deal with problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses take away from a bank's ability to do those things.

First Farmers & Merchants State Bank of Grand Meadow outperformed the average on Bankrate's earnings test, achieving a score of 16 out of a possible 30.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for First Farmers & Merchants State Bank of Grand Meadow was 7.36 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $499,000 on total equity of $6.8 million. The bank experienced an annualized return on average assets, or ROA, of 0.84 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.