Safe and Sound

Indus American Bank

1
Star Rating
Indus American Bank is an Edison, NJ-based, FDIC-insured bank started in 2005. Regulatory filings show the bank having equity of $19.4 million on $231.2 million in assets, as of December 31, 2017.

U.S. bank customers have $190.3 million on deposit at 5 offices in multiple states run by 42 full-time employees. With that footprint, the bank holds loans and leases worth $194.0 million, $165.9 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Indus American Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three key criteria Bankrate used to evaluate American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and provides protection for depositors when a bank is experiencing financial instability. Therefore, a bank's level of capital is an essential measurement of a bank's financial strength. When looking at safety and soundness, more capital is preferred.

Indus American Bank came in below the national average of 13.13 on our test to measure capital adequacy, achieving a score of 8 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Indus American Bank's Tier 1 capital ratio was 10.07 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic downturns.

Overall, Indus American Bank held equity amounting to 8.40 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

Having lots of these types of assets could eventually force a bank to use capital to absorb losses, decreasing 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 reduced earnings and potentially more risk of a future failure.

Indus American Bank scored 12 out of a possible 40 points on Bankrate's test of asset quality, less than the national average of 37.49.

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, 6.24 percent of Indus American Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve to deal with 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 at-risk loans. Unfortunately, the FDIC did not provide information on Indus American Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or use them to deal with problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Indus American Bank scored 2 out of a possible 30, falling short of the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one key measure of a bank's earnings. Indus American Bank's most recent annualized quarterly return on equity was 0.52 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $100,000 on total equity of $19.4 million. The bank had an annualized return on average assets, or ROA, of 0.04 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.