Safe and Sound

Severn Savings Bank, FSB

Annapolis, MD
4
Star Rating
Severn Savings Bank, FSB is an Annapolis, MD-based, FDIC-insured bank started in 1949. As of December 31, 2017, the bank had equity of $108.7 million on assets of $801.1 million.

U.S. bank customers have $605.2 million on deposit at 5 offices in MD run by 141 full-time employees. With that footprint, the bank has amassed loans and leases worth $663.4 million, including real estate loans of $638.5 million.

Overall, Bankrate believes that, as of December 31, 2017, Severn Savings Bank, FSB 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 major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and provides protection for depositors when a bank is experiencing economic instability. Therefore, a bank's level of capital is an important measurement of an institution's financial strength. From a safety and soundness perspective, the higher the capital, the better.

Severn Savings Bank, FSB did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 18 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Severn Savings Bank, FSB's Tier 1 capital ratio was 16.46 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Severn Savings Bank, FSB held equity amounting to 13.57 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having large numbers of these types of assets suggests a bank may eventually have to use capital to absorb losses, diminishing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

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

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, 0.91 percent of Severn Savings Bank, FSB'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 known as an "allowance for loan and lease losses" to deal with troubled assets . That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Severn Savings Bank, FSB's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital buffer, or use them to address problematic loans, potentially making the bank better prepared to withstand economic shocks. Banks that are losing money, however, have less ability to do those things.

Severn Savings Bank, FSB fell behind the national average on Bankrate's earnings test, achieving a score of 8 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one key measure of a bank's earnings. Severn Savings Bank, FSB's most recent annualized quarterly return on equity was 3.42 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $3.7 million on total equity of $108.7 million. The bank reported an annualized return on average assets, or ROA, of 0.47 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.