Safe and Sound

Security State Bank of Warroad

Warroad, MN
4
Star Rating
Security State Bank of Warroad is a Warroad, MN-based, FDIC-insured bank dating back to 1912. As of December 31, 2017, the bank had equity of $17.5 million on $97.5 million in assets.

U.S. bank customers have $78.3 million on deposit at 2 offices in MN run by 18 full-time employees. With that footprint, the bank currently holds loans and leases worth $43.2 million, $13.4 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Security State Bank of Warroad exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three important 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 resilience. It acts as a bulwark against losses and as protection for depositors when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.

Security State Bank of Warroad achieved a score of 26 out of a possible 30 points on our test to measure the adequacy of a bank's capital, exceeding the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Security State Bank of Warroad's Tier 1 capital ratio was 24.20 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic difficulties.

Overall, Security State Bank of Warroad held equity amounting to 17.99 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as past-due mortgages.

A bank with extensive holdings of these types of assets may eventually be forced to use capital to cover losses, shrinking its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, decreasing earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, Security State Bank of Warroad scored 28 out of a possible 40 points, coming in below the national average of 37.49 points.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 8.60 percent of Security State Bank of Warroad's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . That reserve's size can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Security State Bank of Warroad's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its long-term survivability. 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. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's earnings test, Security State Bank of Warroad scored 2 out of a possible 30, lower than the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Security State Bank of Warroad was 0.83 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $143,000 on total equity of $17.5 million. The bank reported an annualized return on average assets, or ROA, of 0.15 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.