Safe and Sound

Lumbee Guaranty Bank

Pembroke, NC
4
Star Rating
Pembroke, NC-based Lumbee Guaranty Bank is an FDIC-insured bank founded in 1971. As of June 30, 2017, the bank had equity of $36.0 million on assets of $322.6 million.

With 104 full-time employees in 14 offices in NC, the bank currently holds loans and leases worth $172.5 million, including real estate loans of $158.0 million. U.S. bank customers currently have $279.5 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Lumbee Guaranty Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for depositors when a bank is experiencing economic trouble. It follows then that a bank's level of capital is a useful measurement of an institution's financial strength. From a safety and soundness perspective, the higher the capital, the better.
Lumbee Guaranty Bank received a score of 12 out of a possible 30 points on our test to measure capital adequacy, falling short of the national average of 13.38.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Lumbee Guaranty Bank's Tier 1 capital ratio was 17.68 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.16 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Lumbee Guaranty Bank held equity amounting to 11.17 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as past-due loans, on the bank's capitalization and allocated loan loss reserves.

A bank with large numbers of these kinds of assets may eventually have to use capital to absorb losses, cutting down on 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, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Lumbee Guaranty Bank scored 36 out of a possible 40 points, below the national average of 37.62 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 2.75 percent of Lumbee Guaranty Bank'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 1.04 percent.

Banks maintain a reserve to deal with problem assets known as an "allowance for loan and lease losses." Comparing the how large that reserve is to the total amount of problem loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Lumbee Guaranty Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

Lumbee Guaranty Bank scored 14 out of a possible 30 on Bankrate's earnings test, below the national average of 16.52.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Lumbee Guaranty Bank was 6.69 percent, below the national average of 9.28 percent.

The bank reported net income of $1.2 million on total equity of $36.0 million for the twelve months ended June 30, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.72 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.