Safe and Sound

Security State Bank

Farwell, TX
5
Star Rating
Farwell, TX-based Security State Bank is an FDIC-insured bank founded in 1925. The bank has equity of $16.6 million on assets of $136.5 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 14 full-time employees, the bank currently holds loans and leases worth $85.9 million, including $45.2 million worth of real estate loans. U.S. bank customers currently have $119.8 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Security State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three important criteria Bankrate used to score American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial resilience. It acts as a cushion against losses and provides protection for accountholders when a bank is experiencing financial instability. When it comes to safety and soundness, the more capital, the better.

Security State Bank beat out the national average of 13.13 points on our test to measure capital adequacy, achieving a score of 16 out of a possible 30 points.

One essential measure of this buffer is a bank's Tier 1 capital ratio. Security State Bank's Tier 1 capital ratio was 19.20 percent, exceeding the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.

Overall, Security State Bank held equity amounting to 12.15 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these types of assets could eventually be forced to use capital to cover losses, diminishing its buffer 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, resulting in depressed earnings and potentially more risk of a future failure.

Security State Bank beat out the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of Security State 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve 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 Security State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, likely making the bank better able to withstand financial trouble. Banks that are losing money, however, have less ability to do those things.

On Bankrate's test of earnings, Security State Bank scored 24 out of a possible 30, exceeding the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. The most recent annualized quarterly return on equity for Security State Bank was 15.27 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $2.6 million on total equity of $16.6 million. The bank reported an annualized return on average assets, or ROA, of 1.88 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above 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.