Safe and Sound

NorthStar Bank

Estherville, IA
5
Star Rating
NorthStar Bank is an Estherville, IA-based, FDIC-insured bank started in 1997. Regulatory filings show the bank having equity of $24.2 million on $178.1 million in assets, as of December 31, 2017.

U.S. bank customers have $152.9 million on deposit at 5 offices in IA run by 31 full-time employees. With that footprint, the bank holds loans and leases worth $143.6 million, including real estate loans of $93.2 million.

Overall, Bankrate believes that, as of December 31, 2017, NorthStar Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of a bank's financial resilience. It acts as a bulwark against losses and provides protection for depositors when a bank is experiencing economic trouble. When it comes to safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, NorthStar Bank scored 14 out of a possible 30 points, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. NorthStar Bank's Tier 1 capital ratio was 14.39 percent, above 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 stand up to financial difficulties.

Overall, NorthStar Bank held equity amounting to 13.57 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having a large number of these kinds of assets suggests a bank could eventually have to use capital to cover losses, reducing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a future failure.

NorthStar Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, better than the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, none of NorthStar 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 troubled assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on NorthStar Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings may be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, potentially making the bank better prepared to withstand economic trouble. Obviously, banks that are losing money are less able to do those things.

NorthStar Bank scored 22 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. NorthStar Bank's most recent annualized quarterly return on equity was 12.80 percent, above the national average of 8.10 percent.

The bank earned net income of $3.0 million on total equity of $24.2 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.67 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.