Safe and Sound

Northwestern Bank, National Association

Dilworth, MN
4
Star Rating
Founded in 1915, Northwestern Bank, National Association is an FDIC-insured bank based in Dilworth, MN. The bank has equity of $14.9 million on assets of $136.9 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $119.0 million on deposit at 4 offices in MN run by 35 full-time employees. With that footprint, the bank holds loans and leases worth $92.7 million, $52.4 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Northwestern Bank, National Association exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared 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 stability, capital is useful. It works as a buffer against losses and as protection for accountholders when a bank is experiencing economic instability. When looking at safety and soundness, more capital is better.

Northwestern Bank, National Association scored below the national average of 13.13 on our test to measure capital adequacy, racking up 10 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Northwestern Bank, National Association's Tier 1 capital ratio was 13.81 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic challenges.

Overall, Northwestern Bank, National Association held equity amounting to 10.88 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 reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as unpaid mortgages.

Having lots of these kinds of assets suggests a bank may have to use capital to absorb 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 interest for the bank, resulting in reduced earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Northwestern Bank, National Association scored 36 out of a possible 40 points, failing to reach 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, 1.59 percent of Northwestern Bank, National Association's loans were noncurrent, meaning 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." 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 Northwestern Bank, National Association's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its safety and soundness. A bank can retain its earnings, increasing its capital buffer, or use them to address problematic loans, potentially making the bank better prepared to withstand economic shocks. Banks that are losing money, however, are less able to do those things.

Northwestern Bank, National Association received below-average marks on Bankrate's test of earnings, achieving a score of 10 out of a possible 30.

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. Northwestern Bank, National Association's most recent annualized quarterly return on equity was 5.01 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $744,000 on total equity of $14.9 million. The bank had an annualized return on average assets, or ROA, of 0.55 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.