Bank of Orchard

THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for account holders when a bank is experiencing economic instability. It follows then that when it comes to measuring an an institution's financial strength, capital is crucial. When looking at safety and soundness, more capital is preferred.

Bank of Orchard did better than the national average of 13.13 points on our test to measure capital adequacy, achieving a score of 20 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Bank of Orchard's Tier 1 capital ratio was 36.84 percent, exceeding the 6 percent level considered adequate by regulators, and higher than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial difficulties.

Overall, Bank of Orchard held equity amounting to 14.02 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 past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these kinds of assets may eventually be required to use capital to cover losses, shrinking its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, resulting in lower earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, Bank of Orchard scored 40 out of a possible 40 points, above the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.04 percent of Bank of Orchard's loans were noncurrent, meaning 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 to handle troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Bank of Orchard's loan loss allowance was 7,733.33 percent of its total noncurrent loans, exceeding 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, boosting its capital cushion, or use them to deal with problematic loans, likely making the bank better prepared to withstand financial shocks. Obviously, banks that are losing money have less ability to do those things.

Bank of Orchard underperformed the average on Bankrate's test of earnings, achieving a score of 8 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important measure of a bank's earnings. Bank of Orchard's most recent annualized quarterly return on equity was 3.71 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $129,000 on total equity of $3.5 million. The bank reported an annualized return on average assets, or ROA, of 0.52 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.