Safe and Sound

The Farmers Bank

Nicholasville, KY
4
Star Rating
Started in 1934, The Farmers Bank is an FDIC-insured bank headquartered in Nicholasville, KY. As of December 31, 2017, the bank held equity of $14.7 million on assets of $138.9 million.

U.S. bank customers have $123.7 million on deposit at 4 offices in KY run by 31 full-time employees. With that footprint, the bank has amassed loans and leases worth $91.6 million, including real estate loans of $88.0 million.

Overall, Bankrate believes that, as of December 31, 2017, The Farmers Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three major criteria Bankrate used to grade American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for account holders during times of financial trouble 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 more capital, the better.

The Farmers Bank scored below the national average of 13.13 on our test to measure the adequacy of a bank's capital, scoring 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The Farmers Bank's Tier 1 capital ratio was 17.94 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, The Farmers Bank held equity amounting to 10.57 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled 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 lots of these types of assets could eventually be required to use capital to cover losses, decreasing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, diminishing earnings and elevating the chances of a future failure.

The Farmers Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, beating out the national average of 37.49.

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, 0.09 percent of The Farmers 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. The Farmers Bank's loan loss allowance was 1,519.28 percent of its total noncurrent loans, above the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital buffer, or use them to address problematic loans, potentially making the bank more resilient in tough times. Conversely, losses take away from a bank's ability to do those things.

The Farmers Bank received above-average marks on Bankrate's earnings test, achieving a score of 16 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The most recent annualized quarterly return on equity for The Farmers Bank was 7.20 percent, below the national average of 8.10 percent.

The bank earned net income of $1.0 million on total equity of $14.7 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.77 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.