Safe and Sound

The Bank of Vernon

Vernon, AL
5
Star Rating
The Bank of Vernon is a Vernon, AL-based, FDIC-insured bank started in 1911. Regulatory filings show the bank having equity of $23.8 million on $143.8 million in assets, as of December 31, 2017.

With 34 full-time employees in 3 offices in multiple states, the bank holds loans and leases worth $107.7 million, including real estate loans of $80.5 million. U.S. bank customers currently have $118.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Bank of Vernon 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 important 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

When it comes to measuring an a bank's financial stability, capital is essential. It acts as a bulwark against losses and affords protection for accountholders when a bank is experiencing economic trouble. When it comes to safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, The Bank of Vernon achieved a score of 24 out of a possible 30 points, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The Bank of Vernon's Tier 1 capital ratio was 21.88 percent, above 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 weather financial challenges.

Overall, The Bank of Vernon held equity amounting to 16.57 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having a large number of these types of assets may eventually force a bank to use capital to cover losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, reducing earnings and elevating the risk of a failure in the future.

The Bank of Vernon scored 40 out of a possible 40 points on Bankrate's asset quality test, exceeding the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.13 percent of The Bank of Vernon'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 to handle problem assets known as an "allowance for loan and lease losses." That reserve's size can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The Bank of Vernon's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Losses, on the other hand, lessen a bank's ability to do those things.

The Bank of Vernon scored 10 out of a possible 30 on Bankrate's test of earnings, failing to reach the national average of 15.12.

One important measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. The most recent annualized quarterly return on equity for The Bank of Vernon was 4.22 percent, below the national average of 8.10 percent.

The bank reported net income of $1.0 million on total equity of $23.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.70 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.