Safe and Sound

Highland Bank

Saint Michael, MN
4
Star Rating
Started in 1943, Highland Bank is an FDIC-insured bank based in Saint Michael, MN. Regulatory filings show the bank having equity of $52.8 million on $491.0 million in assets, as of December 31, 2017.

With 84 full-time employees in 5 offices in MN, the bank has amassed loans and leases worth $307.2 million, including real estate loans of $244.7 million. U.S. bank customers currently have $361.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Highland Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is useful. It acts as a cushion against losses and provides protection for accountholders when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.

Highland Bank received a score of 12 out of a possible 30 points on our test to measure capital adequacy, below the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Highland Bank's Tier 1 capital ratio was 14.19 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial difficulties.

Overall, Highland Bank held equity amounting to 10.75 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid loans.

Having large numbers of these types of assets could eventually require a bank to use capital to cover losses, cutting down on 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, decreasing earnings and elevating the risk of a future failure.

Highland Bank scored above the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.63 percent of Highland 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 to handle problem 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 helpful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Highland Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings may be retained by the bank, increasing its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand economic trouble. Losses, on the other hand, take away from a bank's ability to do those things.

Highland Bank scored 12 out of a possible 30 on Bankrate's test of earnings, below the national average of 15.12.

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. The most recent annualized quarterly return on equity for Highland Bank was 5.95 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $3.1 million on total equity of $52.8 million. The bank experienced an annualized return on average assets, or ROA, of 0.60 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.