Safe and Sound

Mechanics & Farmers Bank

Durham, NC
1
Star Rating
Founded in 1908, Mechanics & Farmers Bank is an FDIC-insured bank headquartered in Durham, NC. As of December 31, 2017, the bank had equity of $19.7 million on assets of $254.8 million.

With 64 full-time employees in 8 offices in NC, the bank holds loans and leases worth $151.7 million, including real estate loans of $140.0 million. U.S. bank customers currently have $230.7 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Mechanics & Farmers Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to grade American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and affords protection for account holders when a bank is struggling financially. Therefore, a bank's level of capital is a crucial measurement of a bank's financial resilience. From a safety and soundness perspective, more capital is preferred.

Mechanics & Farmers Bank scored below the national average of 13.13 on our test to measure capital adequacy, scoring 6 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Mechanics & Farmers Bank's Tier 1 capital ratio was 11.01 percent, exceeding the 6 percent level regulators consider adequate, 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 downturns.

Overall, Mechanics & Farmers Bank held equity amounting to 7.72 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid mortgages, on the bank's loan loss reserves and overall capitalization.

Having lots of these kinds of assets may eventually require a bank to use capital to absorb losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, pushing down earnings and elevating the risk of a future failure.

Mechanics & Farmers Bank fell below the national average of 37.49 on Bankrate's asset quality test, racking up 36 out of a possible 40 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, 1.63 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 1.01 percent.

Banks keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk 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, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank better able to withstand economic trouble. However, banks that are losing money have less ability to do those things.

On Bankrate's test of earnings, Mechanics & Farmers Bank scored 0 out of a possible 30, less than the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Mechanics & Farmers Bank's most recent annualized quarterly return on equity was -11.52 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $-2.5 million on total equity of $19.7 million. The bank experienced an annualized return on average assets, or ROA, of -0.94 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.