Safe and Sound

First Federal Savings and Loan Association

Morehead, KY
5
Star Rating
First Federal Savings and Loan Association is a Morehead, KY-based, FDIC-insured bank started in 1963. As of December 31, 2017, the bank had equity of $9.6 million on $34.0 million in assets.

Thanks to the efforts of 8 full-time employees, the bank holds loans and leases worth $30.5 million, $30.4 million of which are for real estate. The bank currently holds $24.2 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, First Federal Savings and Loan Association exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and affords protection for depositors when a bank is struggling financially. Therefore, when it comes to measuring an an institution's financial fortitude, capital is valuable. When it comes to safety and soundness, more capital is better.

First Federal Savings and Loan Association exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 30 out of a possible 30 points.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. First Federal Savings and Loan Association's Tier 1 capital ratio was 46.54 percent, above the 6 percent level considered adequate by regulators, and above the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, First Federal Savings and Loan Association held equity amounting to 28.17 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due loans.

Having a large number of these types of assets means a bank could have to use capital to absorb losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, decreasing earnings and increasing the chances of a future failure.

First Federal Savings and Loan Association scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding 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, 1.65 percent of First Federal Savings and Loan Association'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 maintain a reserve to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on First Federal Savings and Loan Association's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. Earnings may be retained by the bank, boosting its capital cushion, or be used to address problematic loans, potentially making the bank better prepared to withstand financial trouble. Conversely, losses lessen a bank's ability to do those things.

First Federal Savings and Loan Association fell short of the national average on Bankrate's test of earnings, achieving a score of 4 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one widely used measure of a bank's earnings. First Federal Savings and Loan Association's most recent annualized quarterly return on equity was 1.63 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $154,000 on total equity of $9.6 million. The bank reported an annualized return on average assets, or ROA, of 0.45 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.