Safe and Sound

Merchants & Farmers Bank of Greene County, Alabama

Eutaw, AL
4
Star Rating
Eutaw, AL-based Merchants & Farmers Bank of Greene County, Alabama is an FDIC-insured bank founded in 1900. The bank has equity of $6.8 million on assets of $62.2 million, according to December 31, 2017, regulatory filings.

With 29 full-time employees in 2 offices in AL, the bank holds loans and leases worth $33.1 million, including real estate loans of $21.7 million. U.S. bank customers currently have $55.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Merchants & Farmers Bank of Greene County, Alabama 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 major criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial strength. It works as a buffer against losses and as protection for depositors during periods of financial trouble for the bank. From a safety and soundness perspective, the more capital, the better.

On our test to measure capital adequacy, Merchants & Farmers Bank of Greene County, Alabama received a score of 12 out of a possible 30 points, less than the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Merchants & Farmers Bank of Greene County, Alabama's Tier 1 capital ratio was 17.31 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, Merchants & Farmers Bank of Greene County, Alabama held equity amounting to 10.87 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 impact of troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

A bank with extensive holdings of these kinds of assets may eventually have to use capital to cover losses, diminishing 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 interest for the bank, reducing earnings and increasing the risk of a failure in the future.

On Bankrate's test of asset quality, Merchants & Farmers Bank of Greene County, Alabama scored 36 out of a possible 40 points, below the national average of 37.49 points.

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, 2.63 percent of Merchants & Farmers Bank of Greene County, Alabama'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 to deal with troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic 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 & Farmers Bank of Greene County, Alabama's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. Earnings can be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

On Bankrate's earnings test, Merchants & Farmers Bank of Greene County, Alabama scored 20 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one widely used measure of a bank's earnings. Merchants & Farmers Bank of Greene County, Alabama's most recent annualized quarterly return on equity was 10.91 percent, above the national average of 8.10 percent.

The bank recorded net income of $739,000 on total equity of $6.8 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.20 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.