Safe and Sound

Bank of Orchard

Orchard, NE
4
Star Rating
Bank of Orchard is an FDIC-insured bank founded in 1950 and currently based in Orchard, NE. Regulatory filings show the bank having equity of $3.5 million on assets of $24.7 million, as of December 31, 2017.

With 6 full-time employees, the bank holds loans and leases worth $7.0 million, including real estate loans of $502,000. U.S. bank customers currently have $21.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Orchard 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 key criteria Bankrate used to score U.S. banks.

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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 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.

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.