Safe and Sound

First Southern Bank

Florence, AL
3
Star Rating
Florence, AL-based First Southern Bank is an FDIC-insured bank started in 1934. The bank has equity of $18.6 million on $221.6 million in assets, according to December 31, 2017, regulatory filings.

With 59 full-time employees in 5 offices in AL, the bank has amassed loans and leases worth $156.6 million, including real estate loans of $123.0 million. U.S. bank customers currently have $201.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, First Southern Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to grade U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for depositors when a bank is experiencing economic trouble. It follows then that a bank's level of capital is an important measurement of a bank's financial strength. When it comes to safety and soundness, the more capital, the better.

First Southern Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. First Southern Bank's Tier 1 capital ratio was 12.77 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial downturns.

Overall, First Southern Bank held equity amounting to 8.38 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as past-due mortgages.

A bank with extensive holdings of these types of assets may eventually be forced to use capital to absorb losses, decreasing 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, diminishing earnings and elevating the chances of a failure in the future.

First Southern Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, better than the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.27 percent of First Southern 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 to handle troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on First Southern Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance affects its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, likely making the bank better able to withstand economic trouble. Losses, on the other hand, reduce a bank's ability to do those things.

On Bankrate's test of earnings, First Southern Bank scored 6 out of a possible 30, failing to reach the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for First Southern Bank was 2.52 percent, below the national average of 8.10 percent.

The bank recorded net income of $487,000 on total equity of $18.6 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.23 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.