Safe and Sound

Center National Bank

Litchfield, MN
5
Star Rating
Center National Bank is an FDIC-insured bank started in 1891 and currently headquartered in Litchfield, MN. As of December 31, 2017, the bank held equity of $21.4 million on $198.7 million in assets.

U.S. bank customers have $159.0 million on deposit at 2 offices in MN run by 36 full-time employees. With that footprint, the bank currently holds loans and leases worth $88.7 million, $49.9 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Center National Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three important criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and as protection for account holders during periods of financial trouble for the bank. It follows then that a bank's level of capital is a key measurement of a bank's financial strength. From a safety and soundness perspective, more capital is preferred.

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, coming in below the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Center National Bank's Tier 1 capital ratio was 15.99 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Center National Bank held equity amounting to 10.79 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 loans.

A bank with extensive holdings of these kinds of assets could eventually have to use capital to cover losses, diminishing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, pushing down earnings and increasing the risk 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 37.49.

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, 0.01 percent of Center National Bank'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 . Comparing the size of that reserve to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Center National Bank's loan loss allowance was 9,246.15 percent of its total noncurrent loans, above the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's profitability has an effect on its safety and soundness. Earnings can be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, likely making the bank better prepared to withstand economic shocks. Obviously, banks that are losing money have less ability to do those things.

Center National Bank scored 22 out of a possible 30 on Bankrate's test of earnings, above the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Center National Bank's most recent annualized quarterly return on equity was 12.84 percent, above the national average of 8.10 percent.

The bank earned net income of $2.8 million on total equity of $21.4 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.38 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.