Safe and Sound

Northwest Bank

Spencer, IA
5
Star Rating
Started in 1988, Northwest Bank is an FDIC-insured bank based in Spencer, IA. Regulatory filings show the bank having equity of $146.9 million on $1.54 billion in assets, as of December 31, 2017.

U.S. bank customers have $1.29 billion on deposit at 20 offices in multiple states run by 307 full-time employees. With that footprint, the bank has amassed loans and leases worth $1.22 billion, including real estate loans of $892.7 million.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a bulwark against losses and provides protection for depositors when a bank is experiencing economic instability. Therefore, when it comes to measuring an a bank's financial fortitude, capital is useful. When it comes to safety and soundness, the more capital, the better.

Northwest Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, falling short of the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Northwest Bank's Tier 1 capital ratio was 10.69 percent, above the 6 percent level regulators consider adequate, but under 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, Northwest Bank held equity amounting to 9.53 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having lots of these kinds of assets could eventually force a bank to use capital to cover losses, cutting down on its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and increasing the chances of a future failure.

Northwest Bank exceeded the national average of 37.49 on Bankrate's asset quality test, 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, 0.30 percent of Northwest 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 to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Northwest Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital buffer, or be used to deal with problematic loans, likely making the bank better able to withstand economic shocks. Banks that are losing money, however, are less able to do those things.

Northwest Bank received above-average marks on Bankrate's test of earnings, achieving a score of 24 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Northwest Bank was 15.14 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $21.9 million on total equity of $146.9 million. The bank experienced an annualized return on average assets, or ROA, of 1.46 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.