WHAT IS
SAFE AND SOUND?
Capital is an important measurement of an institution's financial fortitude. It acts as a cushion against losses and as protection for accountholders during times of economic instability for the bank. When it comes to safety and soundness, the higher the capital, the better.
On our test to measure the adequacy of a bank's capital, City Bank & Trust Co. received a score of 8 out of a possible 30 points, failing to reach the national average of 13.13.
One widely used measure of this buffer is a bank's Tier 1 capital ratio. City Bank & Trust Co.'s Tier 1 capital ratio was 17.44 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic headwinds.
Overall, City Bank & Trust Co. held equity amounting to 8.78 percent of its assets, which was lower than the national average of 12.03 percent.
This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.
Having large numbers of these kinds of assets could eventually require a bank to use capital to absorb losses, diminishing 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, pushing down earnings and elevating the chances of a failure in the future.
On Bankrate's asset quality test, City Bank & Trust Co. scored 40 out of a possible 40 points, above the national average of 37.49 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, 0.39 percent of City Bank & Trust Co.'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 handle troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on City Bank & Trust Co.'s loan loss allowance in its most recent filings.
How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, lessen a bank's ability to do those things.
City Bank & Trust Co. beat the national average on Bankrate's test of earnings, achieving a score of 20 out of a possible 30.
One important way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for City Bank & Trust Co. was 10.87 percent, above the national average of 8.10 percent.
For the twelve months ended December 31, 2017, the bank recorded net income of $2.5 million on total equity of $22.5 million. The bank had an annualized return on average assets, or ROA, of 1.04 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 percent.
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.
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.