Safe and Sound

Chelsea State Bank

Chelsea, MI
5
Star Rating
Chelsea State Bank is a Chelsea, MI-based, FDIC-insured bank founded in 1897. The bank has equity of $32.2 million on $284.0 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 50 full-time employees in 3 offices in MI, the bank has amassed loans and leases worth $166.3 million, including $131.8 million worth of real estate loans. The bank currently holds $250.2 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Chelsea State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three major criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is key. It acts as a bulwark against losses and affords protection for accountholders during periods of financial trouble for the bank. From a safety and soundness perspective, the more capital, the better.

On our test to measure the adequacy of a bank's capital, Chelsea State Bank racked up 14 out of a possible 30 points, better than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Chelsea State Bank's Tier 1 capital ratio was 18.06 percent, higher than 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 stand up to financial headwinds.

Overall, Chelsea State Bank held equity amounting to 11.34 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 troubled assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

Having extensive holdings of these types of assets may eventually require a bank to use capital to absorb losses, cutting down on its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in diminished earnings and potentially more risk of a future failure.

Chelsea State Bank beat out the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.25 percent of Chelsea 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 maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Chelsea State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to address problematic loans, likely making the bank better prepared to withstand economic trouble. However, banks that are losing money are less able to do those things.

Chelsea State Bank did above-average on Bankrate's earnings test, achieving a score of 24 out of a possible 30.

One important way to measure a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. Chelsea State Bank's most recent annualized quarterly return on equity was 14.37 percent, above the national average of 8.10 percent.

The bank earned net income of $4.6 million on total equity of $32.2 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.62 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.