Safe and Sound

The Lorraine State Bank

Lorraine, KS
5
Star Rating
The Lorraine State Bank is an FDIC-insured bank founded in 1907 and currently based in Lorraine, KS. As of December 31, 2017, the bank held equity of $3.5 million on assets of $22.5 million.

With 5 full-time employees, the bank currently holds loans and leases worth $17.9 million, including real estate loans of $8.4 million. U.S. bank customers currently have $18.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Lorraine State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three key criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and as protection for depositors during times of economic instability for the bank. Therefore, a bank's level of capital is an important measurement of a bank's financial resilience. From a safety and soundness perspective, the higher the capital, the better.

The Lorraine State Bank exceeded the national average of 13.13 points on our test to measure capital adequacy, achieving a score of 22 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. The Lorraine State Bank's Tier 1 capital ratio was 18.82 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, The Lorraine State Bank held equity amounting to 15.78 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as past-due loans.

Having large numbers of these types of assets may eventually require a bank to use capital to cover losses, shrinking its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, diminishing earnings and elevating the chances of a failure in the future.

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

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of The Lorraine State Bank'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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on The Lorraine State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or use them to deal with problematic loans, likely making the bank more resilient in tough times. However, banks that are losing money are less able to do those things.

The Lorraine State Bank underperformed the average on Bankrate's test of earnings, achieving a score of 12 out of a possible 30.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by total equity. The most recent annualized quarterly return on equity for The Lorraine State Bank was 5.58 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $193,000 on total equity of $3.5 million. The bank experienced an annualized return on average assets, or ROA, of 0.83 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.