Safe and Sound

Southern Community Bank

Tullahoma, TN
5
Star Rating
Started in 2005, Southern Community Bank is an FDIC-insured bank headquartered in Tullahoma, TN. The bank has equity of $26.8 million on $249.1 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 44 full-time employees in 4 offices in multiple states, the bank has amassed loans and leases worth $195.1 million, including $166.2 million worth of real estate loans. The bank currently holds $216.0 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Southern Community Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and provides protection for account holders when a bank is struggling financially. It follows then that a bank's level of capital is an important measurement of an institution's financial resilience. When looking at safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Southern Community Bank received a score of 12 out of a possible 30 points, lower than the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Southern Community Bank's Tier 1 capital ratio was 11.76 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic headwinds.

Overall, Southern Community Bank held equity amounting to 10.77 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of troubled assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with extensive holdings of these types of assets could eventually be forced to use capital to cover losses, cutting down on its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and elevating the chances of a future failure.

On Bankrate's asset quality test, Southern Community Bank scored 40 out of a possible 40 points, exceeding the national average of 37.49 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 Southern Community 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 . How large that reserve is can be a handy 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 Southern Community Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital cushion, or be used to deal with problematic loans, likely making the bank better prepared to withstand economic shocks. Conversely, losses reduce a bank's ability to do those things.

Southern Community Bank outperformed the average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

One key way to measure a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for Southern Community Bank was 9.93 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 $26.8 million. The bank experienced an annualized return on average assets, or ROA, of 1.04 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.