Safe and Sound

Northwoods Bank of Minnesota

Park Rapids, MN
4
Star Rating
Northwoods Bank of Minnesota is a Park Rapids, MN-based, FDIC-insured bank that opened its doors in 1919. Regulatory filings show the bank having equity of $11.9 million on assets of $114.8 million, as of December 31, 2017.

Thanks to the efforts of 33 full-time employees in 5 offices in MN, the bank currently holds loans and leases worth $65.6 million, including $57.5 million worth of real estate loans. The bank currently holds $95.3 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Northwoods Bank of Minnesota exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for depositors when a bank is struggling financially. It follows then that when it comes to measuring an a bank's financial resilience, capital is important. When looking at safety and soundness, the higher the capital, the better.

Northwoods Bank of Minnesota finished below the national average of 13.13 on our test to measure capital adequacy, scoring 12 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Northwoods Bank of Minnesota's Tier 1 capital ratio was 16.63 percent, higher than the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Northwoods Bank of Minnesota held equity amounting to 10.40 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid mortgages.

Having lots of these kinds of assets may eventually force a bank to use capital to cover losses, shrinking its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, reducing earnings and increasing the risk of a failure in the future.

On Bankrate's test of asset quality, Northwoods Bank of Minnesota scored 36 out of a possible 40 points, less than the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 1.36 percent of Northwoods Bank of Minnesota'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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." 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 Northwoods Bank of Minnesota's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or put them to work addressing problematic loans, likely making the bank more resilient in times of trouble. Obviously, banks that are losing money are less able to do those things.

Northwoods Bank of Minnesota scored 20 out of a possible 30 on Bankrate's test of earnings, above the national average of 15.12.

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. Northwoods Bank of Minnesota's most recent annualized quarterly return on equity was 10.66 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.3 million on total equity of $11.9 million. The bank reported an annualized return on average assets, or ROA, of 1.14 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.