Safe and Sound

Community Bank

Avon, SD
5
Star Rating
Avon, SD-based Community Bank is an FDIC-insured bank founded in 1914. Regulatory filings show the bank having equity of $8.1 million on $52.4 million in assets, as of December 31, 2017.

Thanks to the work of 9 full-time employees, the bank currently holds loans and leases worth $24.4 million, including $5.3 million worth of real estate loans. The bank currently holds $44.1 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Community Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three key criteria Bankrate used to score U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of an institution's financial strength. It works as a buffer against losses and provides protection for accountholders when a bank is experiencing economic instability. When it comes to safety and soundness, more capital is preferred.

Community Bank did better than the national average of 13.13 points on our test to measure capital adequacy, racking up 22 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Community Bank's Tier 1 capital ratio was 29.76 percent, above the 6 percent level regulators consider adequate, and higher than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.

Overall, Community Bank held equity amounting to 15.44 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the impact of problem assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these kinds of assets suggests a bank may eventually have to use capital to absorb losses, shrinking its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a future failure.

Community 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 widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.32 percent of Community 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 to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problematic loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Community Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its long-term survivability. Earnings may be retained by the bank, expanding its capital cushion, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses diminish a bank's ability to do those things.

Community Bank received below-average marks on Bankrate's earnings test, achieving a score of 10 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Community Bank's most recent annualized quarterly return on equity was 4.29 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $351,000 on total equity of $8.1 million. The bank had an annualized return on average assets, or ROA, of 0.66 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.