Safe and Sound

FIRST STATE BANK OF THE SOUTHEAST, INC

Middlesboro, KY
3
Star Rating
FIRST STATE BANK OF THE SOUTHEAST, INC is an FDIC-insured bank started in 1904 and currently based in Pineville, KY. Regulatory filings show the bank having equity of $31.2 million on assets of $335.0 million, as of December 31, 2017.

With 100 full-time employees in 10 offices in multiple states, the bank has amassed loans and leases worth $259.7 million, including real estate loans of $222.8 million. U.S. bank customers currently have $296.8 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, FIRST STATE BANK OF THE SOUTHEAST, INC exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three major criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and affords protection for depositors during times of financial trouble for the bank. It follows then that when it comes to measuring an a bank's financial strength, capital is useful. From a safety and soundness perspective, the more capital, the better.

FIRST STATE BANK OF THE SOUTHEAST, INC fell short of the national average of 13.13 on our test to measure capital adequacy, achieving a score of 10 out of a possible 30 points.

A bank's Tier 1 capital ratio is an essential measure of this buffer. FIRST STATE BANK OF THE SOUTHEAST, INC's Tier 1 capital ratio was 12.43 percent, higher than the 6 percent level regulators consider adequate, but lower 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 difficulties.

Overall, FIRST STATE BANK OF THE SOUTHEAST, INC held equity amounting to 9.32 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 problem assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having large numbers of these types of assets may eventually require a bank to use capital to cover losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, decreasing earnings and increasing the risk of a future failure.

FIRST STATE BANK OF THE SOUTHEAST, INC scored 24 out of a possible 40 points on Bankrate's asset quality test, coming in below the national average of 37.49.

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, 0.32 percent of FIRST STATE BANK OF THE SOUTHEAST, INC'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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on FIRST STATE BANK OF THE SOUTHEAST, INC's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, potentially making the bank better able to withstand economic shocks. However, banks that are losing money have less ability to do those things.

FIRST STATE BANK OF THE SOUTHEAST, INC outperformed the average on Bankrate's test of earnings, achieving a score of 20 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for FIRST STATE BANK OF THE SOUTHEAST, INC was 10.62 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $3.2 million on total equity of $31.2 million. The bank had an annualized return on average assets, or ROA, of 0.98 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.