Safe and Sound

Northeast Bank

Minneapolis, MN
5
Star Rating
Minneapolis, MN-based Northeast Bank is an FDIC-insured bank founded in 1948. As of December 31, 2017, the bank had equity of $49.8 million on $438.2 million in assets.

U.S. bank customers have $357.8 million on deposit at 3 offices in MN run by 62 full-time employees. With that footprint, the bank currently holds loans and leases worth $357.6 million, $265.1 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Northeast Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for account holders when a bank is struggling financially. It follows then that a bank's level of capital is a crucial measurement of a bank's financial strength. When it comes to safety and soundness, the higher the capital, the better.

Northeast Bank scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 14 out of a possible 30 points.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Northeast Bank's Tier 1 capital ratio was 12.72 percent, exceeding the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic headwinds.

Overall, Northeast Bank held equity amounting to 11.35 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 loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with a large number of these types of assets could eventually be forced to use capital to cover losses, decreasing its equity buffer. 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.

On Bankrate's test of asset quality, Northeast Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.19 percent of Northeast 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." The size of that reserve can be a useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Northeast Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in times of trouble. Losses, on the other hand, diminish a bank's ability to do those things.

On Bankrate's test of earnings, Northeast Bank scored 22 out of a possible 30, above 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. Northeast Bank's most recent annualized quarterly return on equity was 12.44 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $6.0 million on total equity of $49.8 million. The bank reported an annualized return on average assets, or ROA, of 1.40 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.