Safe and Sound

Sweet Water State Bank

Sweet Water, AL
3
Star Rating
Sweet Water State Bank is a Sweet Water, AL-based, FDIC-insured bank that opened its doors in 1913. The bank has equity of $10.6 million on assets of $98.5 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $85.7 million on deposit at 4 offices in AL run by 33 full-time employees. With that footprint, the bank holds loans and leases worth $70.6 million, $48.4 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Sweet Water State Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for depositors when a bank is experiencing financial trouble. Therefore, when it comes to measuring an a bank's financial resilience, capital is useful. When looking at safety and soundness, the higher the capital, the better.

On our test to measure the adequacy of a bank's capital, Sweet Water State Bank received a score of 12 out of a possible 30 points, falling short of the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Sweet Water State Bank's Tier 1 capital ratio was 13.74 percent, higher than the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial downturns.

Overall, Sweet Water State 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

This test's purpose is to estimate how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as past-due loans.

Having lots of these types of assets may eventually force a bank to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, resulting in reduced earnings and potentially more risk of a future failure.

On Bankrate's asset quality test, Sweet Water State Bank scored 24 out of a possible 40 points, falling short of 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, 3.94 percent of Sweet Water State Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above 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 problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Sweet Water State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital buffer, or be used to address problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, reduce a bank's ability to do those things.

On Bankrate's test of earnings, Sweet Water State Bank scored 18 out of a possible 30, beating out the national average of 15.12.

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 Sweet Water State Bank was 9.00 percent, above the national average of 8.10 percent.

The bank reported net income of $937,000 on total equity of $10.6 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.97 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.