Safe and Sound

Embassy Bank for the Lehigh Valley

Bethlehem, PA
4
Star Rating
Bethlehem, PA-based Embassy Bank for the Lehigh Valley is an FDIC-insured bank started in 2001. Regulatory filings show the bank having equity of $79.7 million on assets of $997.4 million, as of December 31, 2017.

With 84 full-time employees in 8 offices in PA, the bank holds loans and leases worth $851.7 million, including real estate loans of $817.7 million. U.S. bank customers currently have $901.1 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Embassy Bank for the Lehigh Valley exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to evaluate U.S. banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and affords protection for account holders when a bank is experiencing financial instability. It follows then that a bank's level of capital is a useful measurement of a bank's financial fortitude. When it comes to safety and soundness, more capital is preferred.

Embassy Bank for the Lehigh Valley received a score of 6 out of a possible 30 points on our test to measure the adequacy of a bank's capital, coming in below the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Embassy Bank for the Lehigh Valley's Tier 1 capital ratio was 11.50 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.

Overall, Embassy Bank for the Lehigh Valley held equity amounting to 7.99 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 mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with large numbers of these types of assets could eventually be forced to use capital to absorb losses, shrinking its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the risk of a future failure.

Embassy Bank for the Lehigh Valley scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.09 percent of Embassy Bank for the Lehigh Valley'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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problem loans can be a helpful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Embassy Bank for the Lehigh Valley's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings can be retained by the bank, increasing its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

Embassy Bank for the Lehigh Valley beat the national average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

One widely used way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. Embassy Bank for the Lehigh Valley's most recent annualized quarterly return on equity was 9.82 percent, above the national average of 8.10 percent.

The bank earned net income of $7.6 million on total equity of $79.7 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.78 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.