Safe and Sound

Center National Bank

Litchfield, MN
5
Star Rating
Center National Bank is a Litchfield, MN-based, FDIC-insured bank that opened its doors in 1891. Regulatory filings show the bank having equity of $21.7 million on $198,486,000 in assets, as of June 30, 2017.

Thanks to the work of 37 full-time employees in 2 offices in MN, the bank currently holds loans and leases worth $86.1 million, including real estate loans of $46.0 million. The bank currently holds $164.9 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of June 30, 2017, Center National Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and provides protection for accountholders during times of financial trouble for the bank. Therefore, when it comes to measuring an an institution's financial fortitude, capital is crucial. When looking at safety and soundness, the more capital, the better.
On our test to measure the adequacy of a bank's capital, Center National Bank received a score of 12 out of a possible 30 points, below the national average of 13.38.

One important measure of this buffer is a bank's Tier 1 capital ratio. Center National Bank's Tier 1 capital ratio was 15.90 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Center National Bank held equity amounting to 10.94 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization could be affected by troubled assets, such as unpaid mortgages.

Having lots of these types of assets means a bank may have 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 money, diminishing earnings and increasing the chances of a failure in the future.

Center National Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, beating 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, 0.02 percent of Center National 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." The size of that reserve can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Center National Bank's loan loss allowance was 8,133.33 percent of its total noncurrent loans, higher than the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's earnings test, Center National Bank scored 22 out of a possible 30, better than the national average of 16.52.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for Center National Bank was 12.92 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank reported net income of $1.4 million on total equity of $21.7 million. The bank experienced 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 1.14 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.