Safe and Sound

Southern Community Bank

Tullahoma, TN
4
Star Rating
Started in 2005, Southern Community Bank is an FDIC-insured bank headquartered in Tullahoma, TN. Regulatory filings show the bank having equity of $26.1 million on $252,139,000 in assets, as of June 30, 2017.

Thanks to the work of 44 full-time employees in 4 offices in multiple states, the bank currently holds loans and leases worth $193.3 million, including real estate loans of $163.9 million. The bank currently holds $219.9 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of June 30, 2017, Southern Community Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three key criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial fortitude. It works as a buffer against losses and affords protection for depositors when a bank is experiencing financial trouble. When it comes to safety and soundness, the higher the capital, the better.
Southern Community Bank received a score of 10 out of a possible 30 points on our test to measure capital adequacy, lower than the national average of 13.38.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Southern Community Bank's Tier 1 capital ratio was 11.35 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.16 percent. A higher capital ratio means the bank will be better able to weather economic difficulties.

Overall, Southern Community Bank held equity amounting to 10.34 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test is intended to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization could be affected by problem assets, such as unpaid loans.

Having extensive holdings of these kinds of assets could eventually force a bank to use capital to absorb losses, cutting down on its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, reducing earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, Southern Community Bank scored 40 out of a possible 40 points, beating out the national average of 37.62 points.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, none of Southern Community 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 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 Southern Community Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial trouble. Banks that are losing money, however, are less able to do those things.

Southern Community Bank scored 18 out of a possible 30 on Bankrate's earnings test, exceeding the national average of 16.52.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Southern Community Bank's most recent annualized quarterly return on equity was 9.75 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $1.2 million on total equity of $26.1 million. The bank reported an annualized return on average assets, or ROA, of 1.00 percent, right at the level deemed satisfactory in accordance with industry standards, but 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.