Safe and Sound

Bank of Buffalo

Buffalo, KY
5
Star Rating
Buffalo, KY-based Bank of Buffalo is an FDIC-insured bank started in 1901. As of December 31, 2017, the bank had equity of $7.9 million on assets of $75.0 million.

With 16 full-time employees in 2 offices in KY, the bank holds loans and leases worth $40.8 million, including real estate loans of $34.0 million. U.S. bank customers currently have $59.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Buffalo 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 major criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders during times of financial trouble for the bank. Therefore, a bank's level of capital is a crucial measurement of an institution's financial fortitude. From a safety and soundness perspective, the more capital, the better.

Bank of Buffalo received a score of 12 out of a possible 30 points on our test to measure capital adequacy, failing to reach the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Bank of Buffalo's Tier 1 capital ratio was 17.62 percent, higher than the 6 percent level regulators consider adequate, but lower than 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, Bank of Buffalo held equity amounting to 10.54 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 reserves set aside to cover loan losses, as well as overall capitalization.

A bank with large numbers of these types of assets could eventually be forced to use capital to absorb losses, cutting down on its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 1.41 percent of Bank of Buffalo's loans were noncurrent, meaning 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 handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Bank of Buffalo's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or use them to deal with problematic loans, likely making the bank better prepared to withstand economic shocks. Losses, on the other hand, take away from a bank's ability to do those things.

Bank of Buffalo scored 22 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. Bank of Buffalo's most recent annualized quarterly return on equity was 13.69 percent, above the national average of 8.10 percent.

The bank reported net income of $1.1 million on total equity of $7.9 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.46 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.