Safe and Sound

The Security State Bank

Emery, SD
5
Star Rating
Founded in 1920, The Security State Bank is an FDIC-insured bank based in Emery, SD. The bank has equity of $6.3 million on assets of $44.8 million, according to December 31, 2017, regulatory filings.

Thanks to the work of 8 full-time employees in 2 offices in SD, the bank holds loans and leases worth $21.8 million, $4.5 million of which are for real estate. U.S. bank customers currently have $38.3 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Security State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three major criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and affords protection for depositors during times of financial trouble for the bank. It follows then that when it comes to measuring an an institution's financial stability, capital is useful. From a safety and soundness perspective, the more capital, the better.

The Security State Bank exceeded the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 20 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. The Security State Bank's Tier 1 capital ratio was 20.32 percent, above 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 weather financial headwinds.

Overall, The Security State Bank held equity amounting to 14.16 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as unpaid loans.

Having large numbers of these types of assets could eventually require a bank 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 interest for the bank, diminishing earnings and increasing the chances of a future failure.

The 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 .

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of The 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 to deal with problem assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problematic loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on The Security State Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, potentially making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

The Security State Bank scored 12 out of a possible 30 on Bankrate's test of earnings, lower than the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. The Security State Bank's most recent annualized quarterly return on equity was 5.77 percent, below the national average of 8.10 percent.

The bank recorded net income of $357,000 on total equity of $6.3 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.83 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.