Farmers & Merchants Bank & Trust Analysis

下面为大家整理一篇优秀的paper代写范文- Farmers & Merchants Bank & Trust Analysis，供大家参考学习，这篇论文讨论了农商银行与信托分析。本文选取的银行位于密苏里州东北部，它提供广泛的银行服务，从储蓄和支票帐户到商业和商业贷款。由于其资本充足率较高，信贷风险相对较低。与同行相比，它的财务业绩较弱。在宏观经济因素方面，该行主要受该行业GDP和失业率的影响。对于未来的担忧，该银行应加强对市场风险和政策风险的风险控制体系。

1.0  Introduction

This report will mainly discuss the financial performance for Farmers & Merchants Bank & Trust. This bank was located in Northeast Missouri. It offers a wide range of banking services from savings and checking accounts to business and commercial loans. In 2016, its total assets were 201,818 thousand dollars and its net operating income was 771 thousand dollars, which has declined compared to 2015. The total financial performance deteriorates. This report will also analyze the economic factors that affect the bank.

2.0  Banking industry performance

According to FDIC Quarterly Banking Profile, the number of FDIC-Insured banking organizations is presenting a declining trend. From 2001 to 2017, the total number of FDIC-Insured Banking organizations has declined about 32%, from 8,105 to 5,476. In terms of the assets scale of the banking industry, the assets of FDIC-Insured Banking Organizations have increased to 16,966 billion dollars on March 31 of 2017 from 7,869 billion dollars of December 31 of 2001. Obviously, the mergers and acquisitions of banking industry lead to the declining banking organizations number while the assets of the whole banking organizations have increased hugely in recent years.

According to the Bank Lending Practices reports, the current lending demands of consumers increase and U.S bank organizations relaxed loans requirements for multiple types of loans. This is mainly because of the growing competition among banks in the low interest rates and slow economic growth. At the same time, the improvement in the outlook for the U.S economy also promotes the bank organizations to loosen lending standards.

In general, a banking industry performance is hugely relevant to the economy and business in local regions such as the GDP, unemployment rate, income level and financial regulation and so on. These factors can be used as the independent variables and the interest margin of banks organizations can be used as the dependent variables. According to the regression statistics results from the excel sheet ‘statistical analysis’, the net income presents a positive relationship with GDP and a negative relationship with the unemployment rate. When the GDP is higher, the banking industry performs better. When the unemployment rate is lower, the bank can perform better. Unemployment rate can mostly affect the banking industry performance in the market. The result of 2008 financial crisis also shows that the financial regulation is critical to the development of banking industry. Taking the Farmers & Merchants Bank & Trust as the example, it is found that the bank focuses its loans on the farms industry to large extent due to the rapid development of farms industry in past years. However, the concentrations of lending to the businesses and consumers decreased hugely due to the slow economic growth and a large number of bad debt losses of businesses. The concentrations of banks lending to the mortgages are still high because of the huge demand on housings and the housing mortgage has accounted for the 45 percent market share in the total bank loans share.

3.0  Sources of information on a Bank

Farmers & Merchants Bank & Trust is truly a neighborhood, hometown bank with locations in Northeast Missouri, which was created in 1916. The offices offer a wide range of banking services from savings and checking accounts to business and commercial loans. The bank’s mission statement is to provide quick loan decisions and personalized service that only locally-owned, hometown banks can provide so as to maximize the interests of customers. The bank provides a large number of non-deposit and non-credit services and the specific services cover annuities, mutual funds, retirement strategies, college education tools, financial planning & consulting services.

In terms of the hierarchy of this bank, its business ranges cover the insurance Co. Broker, Non-depository trust company, Trust company, Savings Bank, Savings and Loans Association, the Securities Broker, Farm Credit System Institution, Financial Holding Company, Commercial Bank and so on. The bank is in a holding company, it does not own other banks and it owns non-bank operating subsidiary, which is Farmers and Merchants Building Corporation. At present, the subsidiary is owned 100% by Farmers & Merchants Bank & Trust. Its business line includes the investment and building in the farms and merchants business lines. The building corporation’s primary purpose is to manage the real estates held and leased by Farmers & Merchants Bank & Trust. For the bank, there is also a holding company consisting of 189 shareholders representing 264,291 shares owning 100% of Farmers & Merchants Bank & Trust, which is Farmers and Merchants Bancshares Corporations. It is found that the organization once merged one institution, which was West Burlington Bank in 2002.

4.0  Call Reports

Through examining the call reports, it is found that Farmers & Merchants bank & trust consistently follows the form and structure of call report in the past few years. The integrity of the data has been ensured. Through checking the income statement, it is found that the income structure of the bank includes the interest and dividend income and non-interest income. The total expenses include the interest expenses, provision for loan losses and non-interest expenses from 2014 to 2016. This income structure on the income statement is consistent with the reporting forms of call report. In terms of the balance sheet, the assets cover the cash, investments, loans and other assets and the liabilities include deposits and all other liabilities such as accrued interest, deferred taxes and so on.

5.0  Analyzing the financial statements

5.1  CAMELS Ratings

Capital adequacy: The capital adequacy ratio can be measured through the equity capital to assets ratio, core capital to assets ratio and Tier1 Capital/Risk Assets ratio. According to the 2016 annual report of this bank, the three ratios can be calculated to be respectively 8.69%, 8.99% and 14.02%. According to the capital adequacy regulation requirement for the bank industry, the equity capital to assets ratio reaches 8% and the core capital adequacy must reach 4%. Obviously, Farmers & Merchants Bank & Trust’s capital adequacy meets the regulation requirements. Compared to the peers, its capital adequacy is relatively low. For example, Farmers and Merchants Savings Bank’s equity capital to assets ratio reaches 12.65% and the core capital to assets ratio reach 12.62% in 2016.

Asset quality: Farmers & Merchants bank & trust’s loans mainly concentrate in the farmers, infrastructure and business areas. The current loans accounted for almost 98% in the total loans. According to the annual report, the provision of loan losses and loan loss allowance was 0.00% and 1.16% in 2016, which was the middle-class level among the peers. Due to the small scale and business operations for the local community, the ability to deal with problem credits is relatively weak.

Management: The institution’s operating policies, procedures and internal controls for lending and investment rigidly follow the regulation policies and financial laws. Although the bank is a small scale of bank institution, its technical competence is quite strong. Its shareholders and directors own rich bank employment experience. For example, the present Charles E. Walsh owns more than 20 years’ finance and bank experience. 

Earnings: In terms of the income and expenses trend, it can be found that the total income of 2016 increased about 5% than 2015 and the expenses increases about 18%, which led to the declined net income.

Liquidity: The current loans to the non-current loans ratio were calculated to be 12 in 2015 and 2016. Therefore, the liquidity of this bank was very high. In terms of the asset/ liability ratio, the ratio of 2015 and 2016 were respectively 93.50% and 93.34%, which is a relatively appropriate level for the bank industry.

Sensitivity to market risk: Due to the bank’s wide business lines, it can be less affected when the interest rate and equity and commodity prices change. The bank only serves the local community, so the management’s ability to identity, measure and control market risk is strong. At the same time, the bank’s business activities are relatively simple. Last but not least, the adequacy of capital and earnings relative to the market risk is good.

5.2  Levels and Ratios

According to the information data from Excel-bank analysis, the total assets present a declining trend in recent three years, which was mainly due to the decline of cash and investment although there was an increase in net loans. In terms of the liabilities level, the total liabilities also have declined. In terms of the income level, the total interest income of 2016 increased by 4.83% compared to 2015 while the total interest expenses declined about 53%. So the net interest income increased, which indicates that this bank has good financial performance trend. 

5.3  Comparable Peers

For F & M Bank & Trust, its comparable peers include Farmers and Merchants State Bank, Farmers State Bank and Farmers Saving Bank and so on, which own similar assets scale, business portfolio concentration and business environment. Both of them serve the local community.

5.4  Financial Ratio Analysis

For F & M Bank & Trust, its asset quality is relatively weaker compared to its comparable peers because the NC-Loans/Loans ratio was 2.1% while other peers’ ratio was only less than 1%. In terms of the profitability, although it owns the highest assets level, its profitability is also weaker because its profitability ratios are both lower than the average profitability ratios. In addition, the asset utilization ratios and capital adequacy ratios are also lower than the average level. This indicates that F & M Bank & Trust owns weaker market competition compared to its comparable peers.

6.0 Conclusion

In conclusion, F & M bank & trust owns an increasing net interest income in recent years while its non-interest income has declined, which led to the declined net income. This means that F & M bank & trust should focus more on its main business such as loans. In view of its adequate capital ratio, its credit risk is relatively low. Compared to the comparable peers, it owns weaker financial performance. In terms of the macroeconomic factors, this bank was mainly affected by this industry’s GDP and unemployment rate. When the GDP increases and unemployment rate declines, this bank will have higher interest income and lower provision for loan losses. For future concerns, this bank should increase its risk control system for the market risk and policy risk.

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