Safe and Sound

Mechanics & Farmers Bank

Durham, NC
3
Star Rating
Durham, NC-based Mechanics & Farmers Bank is an FDIC-insured bank started in 1908. Regulatory filings show the bank having equity of $22.0 million on assets of $265.1 million, as of June 30, 2017.

Thanks to the efforts of 64 full-time employees in 8 offices in NC, the bank currently holds loans and leases worth $153.4 million, $138.9 million of which are for real estate. The bank currently holds $238.3 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of June 30, 2017, Mechanics & Farmers Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three major criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for accountholders when a bank is experiencing economic trouble. It follows then that a bank's level of capital is a key measurement of a bank's financial resilience. From a safety and soundness perspective, more capital is preferred.
Mechanics & Farmers Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, coming in below the national average of 13.38.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Mechanics & Farmers Bank's Tier 1 capital ratio was 11.65 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.16 percent. A higher capital ratio means the bank will be better able to weather economic difficulties.

Overall, Mechanics & Farmers Bank held equity amounting to 8.30 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets suggests a bank may eventually have to use capital to cover losses, shrinking its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, pushing down earnings and elevating the chances of a failure in the future.

On Bankrate's test of asset quality, Mechanics & Farmers Bank scored 36 out of a possible 40 points, less than the national average of 37.62 points.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 1.28 percent of Mechanics & Farmers 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 1.04 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 widely used 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 Mechanics & Farmers Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, expanding its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. However, banks that are losing money are less able to do those things.

Mechanics & Farmers Bank scored 2 out of a possible 30 on Bankrate's earnings test, falling short of the national average of 16.52.

One widely used measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for Mechanics & Farmers Bank was 0.67 percent, below the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $73,000 on total equity of $22.0 million. The bank had an annualized return on average assets, or ROA, of 0.06 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.