Safe and Sound

Bank of Lexington, Inc.

Lexington, KY
4
Star Rating
Bank of Lexington, Inc. is a Lexington, KY-based, FDIC-insured bank dating back to 2006. The bank has equity of $28.4 million on assets of $262.9 million, according to December 31, 2017, regulatory filings.

With 48 full-time employees in 3 offices in KY, the bank currently holds loans and leases worth $208.2 million, including real estate loans of $205.1 million. U.S. bank customers currently have $205.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Lexington, Inc. exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank did on the three important criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial resilience. It acts as a cushion against losses and provides protection for accountholders when a bank is struggling financially. When it comes to safety and soundness, the higher the capital, the better.

Bank of Lexington, Inc. fell below the national average of 13.13 on our test to measure capital adequacy, receiving a score of 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Bank of Lexington, Inc.'s Tier 1 capital ratio was 17.02 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, Bank of Lexington, Inc. held equity amounting to 10.81 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of troubled assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these kinds of assets means a bank may have to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in reduced earnings and potentially more risk of a failure in the future.

Bank of Lexington, Inc. scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.04 percent of Bank of Lexington, Inc.'s loans were noncurrent -- in other words, 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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of at-risk loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Bank of Lexington, Inc.'s loan loss allowance was 2,348.10 percent of its total noncurrent loans, above the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, boosting its capital cushion, or put them to work addressing problematic loans, likely making the bank better prepared to withstand financial trouble. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Bank of Lexington, Inc. scored 16 out of a possible 30, exceeding 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. The most recent annualized quarterly return on equity for Bank of Lexington, Inc. was 7.53 percent, below the national average of 8.10 percent.

The bank earned net income of $2.1 million on total equity of $28.4 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.78 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.