Safe and Sound

The Farmers & Merchants Bank

Waterloo, AL
5
Star Rating
Founded in 1914, The Farmers & Merchants Bank is an FDIC-insured bank headquartered in Waterloo, AL. The bank holds equity of $16.9 million on assets of $85.4 million, according to December 31, 2017, regulatory filings.

With 10 full-time employees in 2 offices in AL, the bank holds loans and leases worth $7.3 million, including real estate loans of $2.4 million. U.S. bank customers currently have $68.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Farmers & Merchants Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three important criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is essential. It works as a buffer against losses and affords protection for accountholders when a bank is experiencing economic instability. When looking at safety and soundness, more capital is preferred.

On our test to measure capital adequacy, The Farmers & Merchants Bank achieved a score of 30 out of a possible 30 points, exceeding the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. The Farmers & Merchants Bank's Tier 1 capital ratio was 42.00 percent, higher than the 6 percent level regulators consider adequate, and above the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, The Farmers & Merchants Bank held equity amounting to 19.83 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having a large number of these kinds of assets suggests a bank may have to use capital to absorb losses, reducing 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, resulting in diminished earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, The Farmers & Merchants Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 13.27 percent of The 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 known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on The Farmers & Merchants Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Banks that are losing money, however, are less able to do those things.

The Farmers & Merchants Bank fell short of the national average on Bankrate's earnings test, achieving a score of 10 out of a possible 30.

One widely used way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. The most recent annualized quarterly return on equity for The Farmers & Merchants Bank was 4.86 percent, below the national average of 8.10 percent.

The bank earned net income of $832,000 on total equity of $16.9 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.02 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.