Safe and Sound

Bank of Ann Arbor

Ann Arbor, MI
5
Star Rating
Bank of Ann Arbor is an FDIC-insured bank started in 1996 and currently based in Ann Arbor, MI. The bank has equity of $156.8 million on assets of $1.54 billion, according to December 31, 2017, regulatory filings.

U.S. bank customers have $1.33 billion on deposit at 8 offices in MI run by 214 full-time employees. With that footprint, the bank has amassed loans and leases worth $1.25 billion, including $839.6 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Bank of Ann Arbor exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for account holders when a bank is struggling financially. It follows then that when it comes to measuring an an institution's financial stability, capital is important. When it comes to safety and soundness, the higher the capital, the better.

Bank of Ann Arbor finished below the national average of 13.13 on our test to measure the adequacy of a bank's capital, achieving a score of 10 out of a possible 30 points.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Bank of Ann Arbor's Tier 1 capital ratio was 10.37 percent, higher than the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, Bank of Ann Arbor held equity amounting to 10.20 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid loans.

A bank with large numbers of these types of assets may eventually be forced to use capital to absorb losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, decreasing earnings and elevating the chances of a failure in the future.

On Bankrate's asset quality test, Bank of Ann Arbor scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.38 percent of Bank of Ann Arbor'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 troubled assets . That reserve's size can be a handy 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 Bank of Ann Arbor's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, expanding its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

On Bankrate's earnings test, Bank of Ann Arbor scored 22 out of a possible 30, beating out the national average of 15.12.

One key measure of a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. The most recent annualized quarterly return on equity for Bank of Ann Arbor was 14.12 percent, above the national average of 8.10 percent.

The bank earned net income of $20.1 million on total equity of $156.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.37 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.