Safe and Sound

Fredonia Valley Bank

Fredonia, KY
5
Star Rating
Fredonia Valley Bank is an FDIC-insured bank started in 1894 and currently based in Fredonia, KY. Regulatory filings show the bank having equity of $12.4 million on assets of $80.3 million, as of December 31, 2017.

U.S. bank customers have $63.4 million on deposit at 2 offices in KY run by 18 full-time employees. With that footprint, the bank currently holds loans and leases worth $53.5 million, including real estate loans of $48.0 million.

Overall, Bankrate believes that, as of December 31, 2017, Fredonia Valley Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for depositors during periods of financial instability for the bank. It follows then that when it comes to measuring an an institution's financial strength, capital is useful. From a safety and soundness perspective, the higher the capital, the better.

Fredonia Valley Bank achieved a score of 22 out of a possible 30 points on our test to measure the adequacy of a bank's capital, beating out the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Fredonia Valley Bank's Tier 1 capital ratio was 24.30 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic challenges.

Overall, Fredonia Valley Bank held equity amounting to 15.42 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due mortgages.

Having a large number of these types of assets may eventually require a bank to use capital to absorb losses, decreasing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, pushing down earnings and increasing the chances of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 2.21 percent of Fredonia Valley Bank'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 handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Fredonia Valley Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. Earnings can be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

Fredonia Valley Bank scored 16 out of a possible 30 on Bankrate's earnings test, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Fredonia Valley Bank was 7.34 percent, below the national average of 8.10 percent.

The bank reported net income of $885,000 on total equity of $12.4 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.12 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.