Safe and Sound

Farmers Bank & Trust Company

Magnolia, AR
4
Star Rating
Farmers Bank & Trust Company is a Magnolia, AR-based, FDIC-insured bank started in 1906. As of December 31, 2017, the bank had equity of $143.6 million on $1.38 billion in assets.

With 265 full-time employees in 23 offices in multiple states, the bank holds loans and leases worth $1.06 billion, including real estate loans of $844.8 million. U.S. bank customers currently have $1.22 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers Bank & Trust Company exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three important criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and as protection for account holders when a bank is experiencing economic instability. It follows then that a bank's level of capital is a valuable measurement of an institution's financial strength. When looking at safety and soundness, more capital is better.

Farmers Bank & Trust Company received a score of 10 out of a possible 30 points on our test to measure capital adequacy, lower than the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Farmers Bank & Trust Company's Tier 1 capital ratio was 11.57 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.

Overall, Farmers Bank & Trust Company held equity amounting to 10.39 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having large numbers of these types of assets suggests a bank could have to use capital to cover losses, shrinking its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, reducing earnings and elevating the risk of a future failure.

On Bankrate's test of asset quality, Farmers Bank & Trust Company scored 36 out of a possible 40 points, less than the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.41 percent of Farmers Bank & Trust Company'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 maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . How large that reserve is can be a useful 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 Farmers Bank & Trust Company's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Banks that are losing money, however, have less ability to do those things.

Farmers Bank & Trust Company exceeded the national average on Bankrate's test of earnings, achieving a score of 22 out of a possible 30.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for Farmers Bank & Trust Company was 13.72 percent, above the national average of 8.10 percent.

The bank earned net income of $19.5 million on total equity of $143.6 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.45 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.