Safe and Sound

The Farmers & Merchants Bank

Berlin, WI
4
Star Rating
The Farmers & Merchants Bank is a Berlin, WI-based, FDIC-insured bank that opened its doors in 1940. Regulatory filings show the bank having equity of $30.1 million on assets of $290.5 million, as of December 31, 2017.

U.S. bank customers have $247.7 million on deposit at 2 offices in WI run by 59 full-time employees. With that footprint, the bank holds loans and leases worth $232.5 million, including $187.2 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, The Farmers & Merchants Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of an institution's financial strength. It works as a cushion against losses and provides protection for accountholders when a bank is struggling financially. When looking at safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, The Farmers & Merchants Bank received a score of 12 out of a possible 30 points, lower than the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. The Farmers & Merchants Bank's Tier 1 capital ratio was 13.44 percent, higher than the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial challenges.

Overall, The Farmers & Merchants Bank held equity amounting to 10.35 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended 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 loans.

Having a large number of these kinds of assets means a bank may eventually have to use capital to absorb losses, shrinking 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, resulting in reduced earnings and potentially more risk of a future failure.

The Farmers & Merchants Bank beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

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, 0.76 percent of The Farmers & Merchants Bank'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 keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing how large that reserve is to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. 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 safety and soundness. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in times of trouble. However, banks that are losing money have less ability to do those things.

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

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for The Farmers & Merchants Bank was 8.25 percent, above the national average of 8.10 percent.

The bank reported net income of $2.4 million on total equity of $30.1 million for the twelve months ended December 31, 2017. 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.