Safe and Sound

Olmsted National Bank

Rochester, MN
5
Star Rating
Founded in 1996, Olmsted National Bank is an FDIC-insured bank based in Rochester, MN. The bank has equity of $9.5 million on $82.6 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $62.8 million on deposit at 2 offices in MN run by 18 full-time employees. With that footprint, the bank currently holds loans and leases worth $67.7 million, including $56.4 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Olmsted National Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three key 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

Capital is a crucial measurement of a bank's financial strength. It acts as a bulwark against losses and provides protection for depositors when a bank is experiencing financial instability. When it comes to safety and soundness, the more capital, the better.

Olmsted National Bank fell short of the national average of 13.13 on our test to measure capital adequacy, receiving a score of 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Olmsted National Bank's Tier 1 capital ratio was 12.44 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic challenges.

Overall, Olmsted National Bank held equity amounting to 11.55 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with extensive holdings of these kinds of assets may eventually be required to use capital to absorb losses, reducing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in lower earnings and potentially more risk of a failure in the future.

Olmsted National Bank beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.17 percent of Olmsted 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 maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Olmsted National Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, have less ability to do those things.

Olmsted National Bank scored 20 out of a possible 30 on Bankrate's earnings test, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important way to measure a bank's earnings. Olmsted National Bank's most recent annualized quarterly return on equity was 11.73 percent, above the national average of 8.10 percent.

The bank earned net income of $1.0 million on total equity of $9.5 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.30 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.