Safe and Sound

Merchants and Farmers Bank

Dumas, AR
4
Star Rating
Merchants and Farmers Bank is a Dumas, AR-based, FDIC-insured bank that opened its doors in 1909. Regulatory filings show the bank having equity of $12.9 million on assets of $133.0 million, as of December 31, 2017.

With 34 full-time employees in 3 offices in AR, the bank has amassed loans and leases worth $99.0 million, including real estate loans of $61.7 million. U.S. bank customers currently have $119.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Merchants and Farmers Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for account holders during periods of financial trouble for the bank. Therefore, when it comes to measuring an an institution's financial resilience, capital is key. From a safety and soundness perspective, the more capital, the better.

Merchants and Farmers Bank finished below the national average of 13.13 on our test to measure capital adequacy, achieving a score of 10 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Merchants and Farmers Bank's Tier 1 capital ratio was 11.68 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, Merchants and Farmers Bank held equity amounting to 9.72 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 impact of problem assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these kinds of assets may eventually be forced 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 thus aren't earning interest for the bank, reducing earnings and elevating the chances of a future failure.

Merchants and Farmers Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, above the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.43 percent of Merchants and Farmers 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 keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Merchants and Farmers Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

Merchants and Farmers Bank did below-average on Bankrate's earnings test, achieving a score of 14 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for Merchants and Farmers Bank was 6.84 percent, below the national average of 8.10 percent.

The bank reported net income of $888,000 on total equity of $12.9 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.68 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.