Safe and Sound

Boundary Waters Bank

Ely, MN
3
Star Rating
Boundary Waters Bank is an FDIC-insured bank started in 1999 and currently headquartered in Ely, MN. Regulatory filings show the bank having equity of $11.8 million on $121.2 million in assets, as of December 31, 2017.

With 23 full-time employees in 3 offices in MN, the bank currently holds loans and leases worth $103.0 million, including real estate loans of $100.0 million. U.S. bank customers currently have $94.4 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Boundary Waters Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three important criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and affords protection for account holders when a bank is experiencing economic instability. It follows then that a bank's level of capital is a key measurement of an institution's financial strength. When it comes to safety and soundness, the higher the capital, the better.

Boundary Waters Bank received a score of 10 out of a possible 30 points on our test to measure capital adequacy, falling short of the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Boundary Waters Bank's Tier 1 capital ratio was 10.47 percent, above 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, Boundary Waters Bank held equity amounting to 9.74 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having lots of these kinds of assets means a bank could have to use capital to cover losses, diminishing its buffer 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, resulting in lower earnings and potentially more risk of a failure in the future.

Boundary Waters Bank fell below the national average of 37.49 on Bankrate's asset quality test, racking up 36 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, none of Boundary Waters 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 1.01 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . The size of that reserve 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 Boundary Waters Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. A bank can retain its earnings, increasing its capital buffer, or use them to address problematic loans, potentially making the bank better able to withstand financial trouble. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's earnings test, Boundary Waters Bank scored 2 out of a possible 30, below the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. Boundary Waters Bank's most recent annualized quarterly return on equity was 0.88 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $104,000 on total equity of $11.8 million. The bank had an annualized return on average assets, or ROA, of 0.09 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.