Safe and Sound

Security State Bank

Independence, IA
5
Star Rating
Independence, IA-based Security State Bank is an FDIC-insured bank started in 1941. Regulatory filings show the bank having equity of $13.8 million on assets of $111.6 million, as of December 31, 2017.

Thanks to the efforts of 22 full-time employees in 3 offices in IA, the bank holds loans and leases worth $53.3 million, including real estate loans of $31.8 million. The bank currently holds $85.4 million in deposits from U.S. customers.

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 U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and affords protection for account holders when a bank is struggling financially. Therefore, a bank's level of capital is an important measurement of a bank's financial fortitude. From a safety and soundness perspective, more capital is preferred.

On our test to measure capital adequacy, Security State Bank scored 16 out of a possible 30 points, beating out the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Security State Bank's Tier 1 capital ratio was 20.08 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Security State Bank held equity amounting to 12.36 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as past-due loans.

Having large numbers of these types of assets could eventually require a bank to use capital to absorb losses, reducing 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 interest for the bank, reducing earnings and elevating the chances of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.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 troubled assets . Comparing the reserve's size to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Security State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings may be retained by the bank, increasing its capital cushion, or be used to address problematic loans, potentially making the bank better prepared to withstand financial trouble. However, banks that are losing money have less ability to do those things.

Security State Bank exceeded the national average on Bankrate's earnings test, achieving a score of 16 out of a possible 30.

One important measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Security State Bank's most recent annualized quarterly return on equity was 7.27 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $989,000 on total equity of $13.8 million. The bank reported an annualized return on average assets, or ROA, of 0.90 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.