Safe and Sound

The North Salem State Bank

North Salem, IN
4
Star Rating
The North Salem State Bank is a North Salem, IN-based, FDIC-insured bank founded in 1923. The bank holds equity of $25.8 million on assets of $317.9 million, according to December 31, 2017, regulatory filings.

With 77 full-time employees in 8 offices in IN, the bank holds loans and leases worth $264.5 million, including real estate loans of $197.2 million. U.S. bank customers currently have $287.5 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The North Salem State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for account holders when a bank is struggling financially. Therefore, a bank's level of capital is an important measurement of a bank's financial fortitude. From a safety and soundness perspective, more capital is better.

The North Salem State Bank received a score of 8 out of a possible 30 points on our test to measure capital adequacy, failing to reach the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. The North Salem State Bank's Tier 1 capital ratio was 10.17 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial difficulties.

Overall, The North Salem State Bank held equity amounting to 8.12 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets could eventually force 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 no longer earning money, resulting in reduced earnings and potentially more risk of a future failure.

On Bankrate's test of asset quality, The North Salem State Bank scored 40 out of a possible 40 points, exceeding the national average of 37.49 points.

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, 0.14 percent of The North Salem State 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 to handle troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. The North Salem State Bank's loan loss allowance was 1,228.12 percent of its total noncurrent loans, higher than the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. A bank can retain its earnings, expanding its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in tough times. Banks that are losing money, however, are less able to do those things.

The North Salem State Bank did above-average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

One important way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The most recent annualized quarterly return on equity for The North Salem State Bank was 12.12 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $3.0 million on total equity of $25.8 million. The bank experienced an annualized return on average assets, or ROA, of 0.99 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.