Safe and Sound

Diamond Bank

Murfreesboro, AR
5
Star Rating
Diamond Bank is a Murfreesboro, AR-based, FDIC-insured bank founded in 1904. The bank has equity of $59.2 million on $573.4 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $494.8 million on deposit at 14 offices in AR run by 151 full-time employees. With that footprint, the bank holds loans and leases worth $380.3 million, $333.8 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Diamond Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and affords protection for account holders during periods of economic trouble for the bank. Therefore, when it comes to measuring an a bank's financial strength, capital is essential. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, Diamond Bank received a score of 12 out of a possible 30 points, falling short of the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Diamond Bank's Tier 1 capital ratio was 16.10 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic challenges.

Overall, Diamond Bank held equity amounting to 10.33 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as past-due loans.

A bank with a large number of these kinds of assets could eventually be forced to use capital to absorb losses, reducing its cushion of equity. 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 depressed earnings and potentially more risk of a failure in the future.

Diamond Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, beating the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.67 percent of Diamond 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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Diamond 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, boosting its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

On Bankrate's test of earnings, Diamond Bank scored 22 out of a possible 30, exceeding the national average of 15.12.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. The most recent annualized quarterly return on equity for Diamond Bank was 12.87 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $7.2 million on total equity of $59.2 million. The bank reported an annualized return on average assets, or ROA, of 1.28 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.