Safe and Sound

The Farmers & Merchants Bank of North Dakota

Tolna, ND
4
Star Rating
Founded in 1917, The Farmers & Merchants Bank of North Dakota is an FDIC-insured bank headquartered in Tolna, ND. As of December 31, 2017, the bank had equity of $10.6 million on $104.6 million in assets.

With 22 full-time employees in 3 offices in ND, the bank currently holds loans and leases worth $69.2 million, including real estate loans of $27.9 million. U.S. bank customers currently have $90.4 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Farmers & Merchants Bank of North Dakota exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three key criteria Bankrate used to grade American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is essential. It works as a bulwark against losses and provides protection for depositors when a bank is experiencing financial trouble. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, The Farmers & Merchants Bank of North Dakota received a score of 8 out of a possible 30 points, coming in below the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. The Farmers & Merchants Bank of North Dakota's Tier 1 capital ratio was 11.30 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial difficulties.

Overall, The Farmers & Merchants Bank of North Dakota held equity amounting to 10.18 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

A bank with a large number of these types of assets may eventually have to use capital to absorb losses, diminishing 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, decreasing earnings and elevating the risk of a failure in the future.

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

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 0.46 percent of The Farmers & Merchants Bank of North Dakota's loans were noncurrent, meaning 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 troubled assets known as an "allowance for loan and lease losses." 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. Unfortunately, the FDIC did not provide information on The Farmers & Merchants Bank of North Dakota'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. A bank can retain its earnings, giving a boost to its capital buffer, or put them to work addressing problematic loans, potentially making the bank better able to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's test of earnings, The Farmers & Merchants Bank of North Dakota scored 18 out of a possible 30, better than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The Farmers & Merchants Bank of North Dakota's most recent annualized quarterly return on equity was 8.50 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $896,000 on total equity of $10.6 million. The bank reported an annualized return on average assets, or ROA, of 0.88 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.