WHAT IS
SAFE AND SOUND?
Capital is a useful measurement of a bank's financial fortitude. It acts as a cushion against losses and provides protection for depositors when a bank is struggling financially. When looking at safety and soundness, more capital is better.
On our test to measure capital adequacy, Village Bank received a score of 10 out of a possible 30 points, lower than the national average of 13.13.
One widely used measure of this buffer is a bank's Tier 1 capital ratio. Village Bank's Tier 1 capital ratio was 11.96 percent, exceeding the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic difficulties.
Overall, Village Bank held equity amounting to 9.41 percent of its assets, which was lower than the national average of 12.03 percent.
This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid mortgages.
Having lots of these types of assets suggests a bank may eventually have to use capital to cover losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in reduced earnings and potentially more risk of a future failure.
On Bankrate's test of asset quality, Village Bank scored 36 out of a possible 40 points, less than the national average of 37.49 points.
The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 2.53 percent of Village Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.
Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled 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 Village Bank's loan loss allowance in its most recent filings.
A bank's profitability has an effect on its long-term survivability. Earnings may be retained by the bank, boosting its capital cushion, or be used to deal with 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.
On Bankrate's test of earnings, Village Bank scored 0 out of a possible 30, coming in below the national average of 15.12.
Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Village Bank was -3.41 percent, below the national average of 8.10 percent.
For the twelve months ended December 31, 2017, the bank recorded net income of $-1.6 million on total equity of $44.7 million. The bank had an annualized return on average assets, or ROA, of -0.35 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.
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.
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.