Safe and Sound

Northern Sky Bank

Crookston, MN
5
Star Rating
Started in 1916, Northern Sky Bank is an FDIC-insured bank headquartered in Crookston, MN. Regulatory filings show the bank having equity of $6.0 million on assets of $74.0 million, as of December 31, 2017.

With 12 full-time employees, the bank has amassed loans and leases worth $39.0 million, including real estate loans of $28.2 million. U.S. bank customers currently have $68.0 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Northern Sky Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three key criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for account holders during times of economic instability for the bank. Therefore, when it comes to measuring an an institution's financial stability, capital is valuable. When it comes to safety and soundness, more capital is better.

On our test to measure the adequacy of a bank's capital, Northern Sky Bank received a score of 8 out of a possible 30 points, coming in below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Northern Sky Bank's Tier 1 capital ratio was 16.08 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic downturns.

Overall, Northern Sky Bank held equity amounting to 8.07 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 impact of problem assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having extensive holdings of these kinds of assets may eventually require a bank to use capital to cover losses, reducing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, diminishing earnings and elevating the risk of a future failure.

Northern Sky Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating out the national average of 37.49.

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, none of Northern Sky Bank'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 known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing how large that reserve is to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Northern Sky 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, boosting its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

Northern Sky Bank scored 22 out of a possible 30 on Bankrate's test of earnings, better than the national average of 15.12.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. Northern Sky Bank's most recent annualized quarterly return on equity was 13.58 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $799,000 on total equity of $6.0 million. The bank had an annualized return on average assets, or ROA, of 1.16 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.