Safe and Sound

Salem Five Cents Savings Bank

Salem, MA
4
Star Rating
Salem, MA-based Salem Five Cents Savings Bank is an FDIC-insured bank started in 1855. Regulatory filings show the bank having equity of $455.7 million on $4,665,309,000 in assets, as of June 30, 2017.

With 618 full-time employees in 35 offices in multiple states, the bank currently holds loans and leases worth $3.46 billion, including real estate loans of $2.89 billion. U.S. bank customers currently have $3.34 billion in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Salem Five Cents Savings Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank faired on the three key criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of an institution's financial strength. It acts as a cushion against losses and affords protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.
Salem Five Cents Savings Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, lower than the national average of 13.38.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Salem Five Cents Savings Bank's Tier 1 capital ratio was 12.45 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to stand up to financial difficulties.

Overall, Salem Five Cents Savings Bank held equity amounting to 9.77 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test's purpose is 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.

A bank with large numbers of these types of assets may eventually have to use capital to cover losses, decreasing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, pushing down earnings and increasing the chances of a failure in the future.

Salem Five Cents Savings Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.62.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of June 30, 2017, 0.39 percent of Salem Five Cents Savings 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 1.04 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing the how large that reserve is to the total amount of problematic loans can be a helpful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Salem Five Cents Savings Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, likely making the bank better able to withstand economic shocks. Losses, on the other hand, lessen a bank's ability to do those things.

On Bankrate's earnings test, Salem Five Cents Savings Bank scored 16 out of a possible 30, failing to reach the national average of 16.52.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Salem Five Cents Savings Bank was 7.18 percent, below the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank reported net income of $16.0 million on total equity of $455.7 million. The bank experienced an annualized return on average assets, or ROA, of 0.74 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.