Safe and Sound

Norstates Bank

2
Star Rating
Waukegan, IL-based Norstates Bank is an FDIC-insured bank started in 1962. As of December 31, 2017, the bank held equity of $61.6 million on $494.1 million in assets.

With 109 full-time employees in 8 offices in IL, the bank currently holds loans and leases worth $300.6 million, including real estate loans of $279.6 million. U.S. bank customers currently have $401.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Norstates Bank exhibited a below-average condition, earning 2 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is crucial. It acts as a bulwark against losses and as protection for depositors during times of economic instability for the bank. When looking at safety and soundness, more capital is preferred.

Norstates Bank beat out the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 16 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. Norstates Bank's Tier 1 capital ratio was 15.98 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Norstates Bank held equity amounting to 12.46 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having large numbers of these types of assets may eventually require a bank to use capital to cover losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in depressed earnings and potentially more risk of a failure in the future.

Norstates Bank scored 32 out of a possible 40 points on Bankrate's test of asset quality, failing to reach the national average of 37.49.

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, 4.22 percent of Norstates Bank'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." Comparing how large that reserve is to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Norstates Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital buffer, or use them to deal with problematic loans, likely making the bank better able to withstand economic shocks. Losses, on the other hand, lessen a bank's ability to do those things.

Norstates Bank underperformed the average on Bankrate's earnings test, achieving a score of 0 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important measure of a bank's earnings. Norstates Bank's most recent annualized quarterly return on equity was -8.53 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $-5.6 million on total equity of $61.6 million. The bank reported an annualized return on average assets, or ROA, of -1.14 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.