Safe and Sound

Kensington Bank

Kensington, MN
4
Star Rating
Founded in 1898, Kensington Bank is an FDIC-insured bank headquartered in Kensington, MN. Regulatory filings show the bank having equity of $17.1 million on assets of $168.1 million, as of December 31, 2017.

U.S. bank customers have $132.9 million on deposit at 5 offices in MN run by 41 full-time employees. With that footprint, the bank has amassed loans and leases worth $133.2 million, including real estate loans of $92.9 million.

Overall, Bankrate believes that, as of December 31, 2017, Kensington Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three important criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of a bank's financial resilience. It acts as a bulwark against losses and as protection for depositors when a bank is experiencing financial trouble. When looking at safety and soundness, the higher the capital, the better.

Kensington Bank finished below the national average of 13.13 on our test to measure capital adequacy, racking up 10 out of a possible 30 points.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Kensington Bank's Tier 1 capital ratio was 11.35 percent, exceeding the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic downturns.

Overall, Kensington Bank held equity amounting to 10.17 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the impact of troubled assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with large numbers of these kinds of assets may eventually have to use capital to cover losses, decreasing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, diminishing earnings and increasing the risk of a failure in the future.

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

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.24 percent of Kensington 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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful 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 Kensington Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or put them to work addressing problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, lessen a bank's ability to do those things.

Kensington Bank exceeded the national average on Bankrate's test of earnings, achieving a score of 18 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Kensington Bank's most recent annualized quarterly return on equity was 9.18 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $1.5 million on total equity of $17.1 million. The bank experienced an annualized return on average assets, or ROA, of 0.95 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.