Safe and Sound

Avon State Bank

Avon, MN
4
Star Rating
Avon State Bank is an Avon, MN-based, FDIC-insured bank dating back to 1907. Regulatory filings show the bank having equity of $14.6 million on $108,858,000 in assets, as of June 30, 2017.

With 13 full-time employees, the bank has amassed loans and leases worth $37.8 million, including real estate loans of $30.0 million. U.S. bank customers currently have $93.8 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Avon State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three important criteria Bankrate used to grade American 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 as protection for depositors when a bank is experiencing financial instability. It follows then that when it comes to measuring an an institution's financial strength, capital is essential. When it comes to safety and soundness, more capital is preferred.
Avon State Bank fell below the national average of 13.38 on our test to measure capital adequacy, scoring 8 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Avon State Bank's Tier 1 capital ratio was 23.82 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, Avon State Bank held equity amounting to 13.44 percent of its assets, which exceeded the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as past-due loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having large numbers of these types of assets could eventually force a bank to use capital to absorb losses, reducing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, decreasing earnings and elevating the chances of a future failure.

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

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.11 percent of Avon State Bank's loans were noncurrent -- in other words, 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 to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Avon State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. Earnings may be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, likely making the bank better able to withstand financial shocks. Conversely, losses lessen a bank's ability to do those things.

Avon State Bank scored 12 out of a possible 30 on Bankrate's test of earnings, below the national average of 16.52.

One widely used way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Avon State Bank's most recent annualized quarterly return on equity was 5.83 percent, below the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $421,000 on total equity of $14.6 million. The bank reported an annualized return on average assets, or ROA, of 0.73 percent, below the 1 percent deemed satisfactory in accordance with industry standards and 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.