Safe and Sound

Lake Area Bank

Lindstrom, MN
4
Star Rating
Lake Area Bank is an FDIC-insured bank founded in 1915 and currently based in Lindstrom, MN. Regulatory filings show the bank having equity of $32.3 million on $332.4 million in assets, as of December 31, 2017.

U.S. bank customers have $259.9 million on deposit at 5 offices in MN run by 112 full-time employees. With that footprint, the bank holds loans and leases worth $223.9 million, including $191.3 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Lake Area Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank fared on the three important criteria Bankrate used to score U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and as protection for account holders when a bank is struggling financially. Therefore, when it comes to measuring an a bank's financial fortitude, capital is essential. When it comes to safety and soundness, the more capital, the better.

Lake Area Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Lake Area Bank's Tier 1 capital ratio was 11.91 percent, higher than the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Lake Area Bank held equity amounting to 9.71 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 effect of troubled assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these kinds of assets suggests a bank could have to use capital to cover losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in diminished earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, Lake Area Bank scored 32 out of a possible 40 points, coming in below the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.51 percent of Lake Area 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 known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Lake Area Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, potentially making the bank better able to withstand financial trouble. Conversely, losses reduce a bank's ability to do those things.

Lake Area Bank did above-average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by total equity. The most recent annualized quarterly return on equity for Lake Area Bank was 11.71 percent, above the national average of 8.10 percent.

The bank reported net income of $3.7 million on total equity of $32.3 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.16 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.