Safe and Sound

Security State Bank

Tyndall, SD
5
Star Rating
Started in 1932, Security State Bank is an FDIC-insured bank based in Tyndall, SD. As of December 31, 2017, the bank held equity of $18.0 million on $195.5 million in assets.

U.S. bank customers have $155.0 million on deposit at 3 offices in multiple states run by 29 full-time employees. With that footprint, the bank has amassed loans and leases worth $160.5 million, $48.8 million of which are for real estate.

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. Keep reading for an analysis of how the bank did on the three important criteria Bankrate used to score American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial strength. It works as a buffer against losses and affords protection for depositors during times of financial instability for the bank. When looking at safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Security State Bank received a score of 8 out of a possible 30 points, falling short of the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Security State Bank's Tier 1 capital ratio was 10.49 percent, higher than the 6 percent level regulators consider adequate, 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 headwinds.

Overall, Security State Bank held equity amounting to 9.20 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due mortgages.

A bank with large numbers of these kinds of assets may eventually have to use capital to cover losses, decreasing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, pushing down earnings and increasing the chances of a future failure.

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

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, 0.07 percent of Security State 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 maintain a reserve to deal with problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk loans. Security State Bank's loan loss allowance was 1,597.44 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's earnings performance affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital buffer, or use them to deal with problematic loans, likely making the bank better prepared to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

On Bankrate's earnings test, Security State Bank scored 22 out of a possible 30, exceeding the national average of 15.12.

One widely used way to measure a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. Security State Bank's most recent annualized quarterly return on equity was 14.35 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $2.2 million on total equity of $18.0 million. The bank experienced an annualized return on average assets, or ROA, of 1.23 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.