Safe and Sound

First Farmers & Merchants State Bank

Brownsdale, MN
5
Star Rating
First Farmers & Merchants State Bank is a Brownsdale, MN-based, FDIC-insured bank dating back to 1908. As of December 31, 2017, the bank had equity of $12.8 million on $79.6 million in assets.

Thanks to the work of 17 full-time employees in 3 offices in MN, the bank currently holds loans and leases worth $54.8 million, including $31.9 million worth of real estate loans. The bank currently holds $66.2 million in deposits from U.S. customers.

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

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial fortitude, capital is key. It acts as a buffer against losses and as protection for accountholders when a bank is experiencing economic trouble. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, First Farmers & Merchants State Bank racked up 22 out of a possible 30 points, above the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. First Farmers & Merchants State Bank's Tier 1 capital ratio was 20.15 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic difficulties.

Overall, First Farmers & Merchants State Bank held equity amounting to 16.15 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 troubled assets, such as past-due loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with extensive holdings of these types of assets may eventually have to use capital to cover losses, cutting down on its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, decreasing earnings and elevating the risk of a future failure.

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

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.03 percent of First Farmers & Merchants State 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 known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. First Farmers & Merchants State Bank's loan loss allowance was 4,586.67 percent of its total noncurrent loans, exceeding the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital buffer, or use them to address problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's earnings test, First Farmers & Merchants State Bank scored 18 out of a possible 30, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one key measure of a bank's earnings. First Farmers & Merchants State Bank's most recent annualized quarterly return on equity was 8.52 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.1 million on total equity of $12.8 million. The bank reported an annualized return on average assets, or ROA, of 1.34 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.