Safe and Sound

Arlington State Bank

Arlington, MN
5
Star Rating
Arlington State Bank is an Arlington, MN-based, FDIC-insured bank started in 1895. As of June 30, 2017, the bank had equity of $5.5 million on $52,603,000 in assets.

With 14 full-time employees in 2 offices in MN, the bank currently holds loans and leases worth $21.8 million, including real estate loans of $16.6 million. U.S. bank customers currently have $46.2 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Arlington State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to score 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 accountholders when a bank is experiencing economic instability. It follows then that when it comes to measuring an an institution's financial stability, capital is crucial. When looking at safety and soundness, more capital is preferred.
On our test to measure the adequacy of a bank's capital, Arlington State Bank received a score of 12 out of a possible 30 points, falling short of the national average of 13.38.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Arlington State Bank's Tier 1 capital ratio was 20.90 percent, higher than the 6 percent level considered adequate by regulators, but lower than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, Arlington State Bank held equity amounting to 10.50 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

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

Having large numbers of these kinds of assets could eventually require a bank to use capital to cover losses, shrinking its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, diminishing earnings and elevating the risk of a future failure.

Arlington State Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.62.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, none of Arlington 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 1.04 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the how large that reserve is to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Arlington 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. Earnings can be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, reduce a bank's ability to do those things.

Arlington State Bank scored 20 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 16.52.

One key measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for Arlington State Bank was 10.47 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank reported net income of $282,000 on total equity of $5.5 million. The bank experienced an annualized return on average assets, or ROA, of 1.08 percent, above the 1 percent deemed satisfactory in accordance with industry standards, but below the average for U.S. banks of 1.14 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.