Safe and Sound

Security Federal Bank

Elizabethton, TN
5
Star Rating
Security Federal Bank is an Elizabethton, TN-based, FDIC-insured bank founded in 1962. The bank has equity of $10.1 million on $65.0 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $48.5 million on deposit at 2 offices in TN run by 17 full-time employees. With that footprint, the bank has amassed loans and leases worth $45.0 million, including real estate loans of $42.8 million.

Overall, Bankrate believes that, as of December 31, 2017, Security Federal 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 key criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is useful. It works as a bulwark against losses and affords protection for depositors during times of economic instability for the bank. When looking at safety and soundness, more capital is preferred.

Security Federal Bank beat out the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 22 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Security Federal Bank's Tier 1 capital ratio was 25.26 percent, higher than the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Security Federal Bank held equity amounting to 15.51 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 loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid loans.

Having large numbers of these types of assets means a bank may eventually have to use capital to absorb losses, shrinking its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, resulting in reduced earnings and potentially more risk of a failure in the future.

Security Federal Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, exceeding 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, 0.97 percent of Security Federal 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 1.01 percent.

Banks keep a reserve to handle problem assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of at-risk 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 Security Federal Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings can be retained by the bank, increasing its capital cushion, or be used to deal with problematic loans, potentially making the bank better prepared to withstand financial shocks. Banks that are losing money, however, are less able to do those things.

Security Federal Bank scored 8 out of a possible 30 on Bankrate's earnings test, failing to reach the national average of 15.12.

One key way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. Security Federal Bank's most recent annualized quarterly return on equity was 3.90 percent, below the national average of 8.10 percent.

The bank earned net income of $403,000 on total equity of $10.1 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.64 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.