Safe and Sound

Farmers Deposit Bank

Cynthiana, KY
4
Star Rating
Farmers Deposit Bank is a Cynthiana, KY-based, FDIC-insured bank dating back to 1866. The bank holds equity of $18.2 million on $125.6 million in assets, according to December 31, 2017, regulatory filings.

With 35 full-time employees in 4 offices in KY, the bank holds loans and leases worth $59.1 million, including real estate loans of $37.3 million. U.S. bank customers currently have $99.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Farmers Deposit Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank fared on the three key criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial resilience. It works as a cushion against losses and affords protection for depositors when a bank is experiencing economic instability. When looking at safety and soundness, the higher the capital, the better.

Farmers Deposit Bank achieved a score of 20 out of a possible 30 points on our test to measure capital adequacy, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Farmers Deposit Bank's Tier 1 capital ratio was 27.10 percent, above the 6 percent level considered adequate by regulators, and exceeding the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Farmers Deposit Bank held equity amounting to 14.53 percent of its assets, which exceeded 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 could eventually force a bank to use capital to absorb losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and elevating the chances of a failure in the future.

On Bankrate's asset quality test, Farmers Deposit Bank scored 32 out of a possible 40 points, failing to reach the national average of 37.49 points.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.98 percent of Farmers Deposit Bank'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 keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Farmers Deposit Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, take away from a bank's ability to do those things.

Farmers Deposit Bank did below-average on Bankrate's earnings test, achieving a score of 12 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 the total amount of equity. The most recent annualized quarterly return on equity for Farmers Deposit Bank was 3.99 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $957,000 on total equity of $18.2 million. The bank reported an annualized return on average assets, or ROA, of 0.74 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.