Safe and Sound

Northern State Bank

Ashland, WI
5
Star Rating
Ashland, WI-based Northern State Bank is an FDIC-insured bank founded in 1933. Regulatory filings show the bank having equity of $20.4 million on $244.5 million in assets, as of December 31, 2017.

Thanks to the work of 59 full-time employees in 8 offices in multiple states, the bank holds loans and leases worth $154.6 million, including real estate loans of $128.9 million. The bank currently holds $223.8 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Northern State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three key criteria Bankrate used to score U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of a bank's financial strength. It works as a bulwark against losses and affords protection for depositors when a bank is struggling financially. From a safety and soundness perspective, more capital is preferred.

Northern State Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Northern State Bank's Tier 1 capital ratio was 14.62 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Northern State Bank held equity amounting to 8.36 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid mortgages.

Having extensive holdings of these kinds of assets could eventually require a bank to use capital to absorb losses, diminishing its cushion of equity. 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.

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

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.18 percent of Northern State Bank's loans were noncurrent, meaning 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 handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a handy 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 State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand financial trouble. Conversely, losses take away from a bank's ability to do those things.

On Bankrate's earnings test, Northern State Bank scored 24 out of a possible 30, beating the national average of 15.12.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Northern State Bank's most recent annualized quarterly return on equity was 16.27 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $3.3 million on total equity of $20.4 million. The bank experienced an annualized return on average assets, or ROA, of 1.34 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.