Safe and Sound

Bonanza Valley State Bank

Brooten, MN
5
Star Rating
Brooten, MN-based Bonanza Valley State Bank is an FDIC-insured bank started in 1894. Regulatory filings show the bank having equity of $5.8 million on $65.6 million in assets, as of December 31, 2017.

Thanks to the work of 10 full-time employees, the bank holds loans and leases worth $48.2 million, including real estate loans of $32.4 million. The bank currently holds $57.2 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Bonanza Valley 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 important criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is important. It works as a cushion against losses and affords protection for accountholders when a bank is experiencing economic trouble. When looking at safety and soundness, more capital is better.

Bonanza Valley State Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, coming in below the national average of 13.13.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Bonanza Valley State Bank's Tier 1 capital ratio was 11.67 percent, higher than the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic downturns.

Overall, Bonanza Valley State Bank held equity amounting to 8.85 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid mortgages.

A bank with large numbers of these types of assets could eventually be required to use capital to cover losses, decreasing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

Bonanza Valley State Bank exceeded the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

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, 0.37 percent of Bonanza Valley 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 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Bonanza Valley State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses diminish a bank's ability to do those things.

Bonanza Valley State Bank did above-average on Bankrate's test of earnings, achieving a score of 22 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Bonanza Valley State Bank was 13.12 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $739,000 on total equity of $5.8 million. The bank experienced an annualized return on average assets, or ROA, of 1.17 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.