Safe and Sound

Northern Interstate Bank, N. A.

Norway, MI
4
Star Rating
Founded in 1901, Northern Interstate Bank, N. A. is an FDIC-insured bank based in Norway, MI. The bank has equity of $17.8 million on $165.3 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the work of 50 full-time employees in 8 offices in MI, the bank currently holds loans and leases worth $90.3 million, including real estate loans of $74.2 million. U.S. bank customers currently have $145.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Northern Interstate Bank, N. A. exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to evaluate American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and affords protection for account holders when a bank is experiencing economic instability. Therefore, when it comes to measuring an an institution's financial stability, capital is useful. When looking at safety and soundness, the more capital, the better.

Northern Interstate Bank, N. A. received a score of 12 out of a possible 30 points on our test to measure the adequacy of a bank's capital, below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Northern Interstate Bank, N. A.'s Tier 1 capital ratio was 19.08 percent, exceeding 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 downturns.

Overall, Northern Interstate Bank, N. A. held equity amounting to 10.80 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as past-due loans, on the bank's capitalization and allocated loan loss reserves.

A bank with lots of these types of assets may eventually be forced to use capital to absorb losses, decreasing 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 interest for the bank, pushing down earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, Northern Interstate Bank, N. A. scored 32 out of a possible 40 points, coming in below the national average of 37.49 points.

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, 0.68 percent of Northern Interstate Bank, N. A.'s loans were noncurrent -- in other words, 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 deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Northern Interstate Bank, N. A.'s loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, potentially making the bank better prepared to withstand economic trouble. Conversely, losses reduce a bank's ability to do those things.

Northern Interstate Bank, N. A. did below-average on Bankrate's earnings test, achieving a score of 12 out of a possible 30.

One key way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. The most recent annualized quarterly return on equity for Northern Interstate Bank, N. A. was 6.78 percent, below the national average of 8.10 percent.

The bank recorded net income of $1.0 million on total equity of $17.8 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.73 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.