Safe and Sound

Central State Bank

Beulah, MI
4
Star Rating
Central State Bank is a Beulah, MI-based, FDIC-insured bank founded in 1913. Regulatory filings show the bank having equity of $10.5 million on $70.8 million in assets, as of December 31, 2017.

U.S. bank customers have $59.3 million on deposit at 2 offices in MI run by 26 full-time employees. With that footprint, the bank holds loans and leases worth $38.4 million, including $32.0 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Central State Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three important criteria Bankrate used to grade U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and affords protection for depositors during times of financial instability for the bank. Therefore, when it comes to measuring an a bank's financial stability, capital is essential. When it comes to safety and soundness, more capital is preferred.

Central State Bank racked up 16 out of a possible 30 points on our test to measure the adequacy of a bank's capital, exceeding the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Central State Bank's Tier 1 capital ratio was 26.51 percent, higher than the 6 percent level regulators consider adequate, and above the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial challenges.

Overall, Central State Bank held equity amounting to 14.81 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid loans.

A bank with a large number of these kinds of assets could eventually be forced to use capital to cover losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, diminishing earnings and increasing the chances of a failure in the future.

Central State Bank scored 36 out of a possible 40 points on Bankrate's test of asset quality, failing to reach the national average of 37.49.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.61 percent of Central 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 above the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the size of that reserve to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Central State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, boosting its capital cushion, or be used to address problematic loans, potentially making the bank better prepared to withstand economic trouble. Conversely, losses lessen a bank's ability to do those things.

Central State Bank outperformed the average on Bankrate's test of earnings, achieving a score of 16 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for Central State Bank was 8.07 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $812,000 on total equity of $10.5 million. The bank experienced an annualized return on average assets, or ROA, of 1.13 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.