There has been alot of bad press for Securant Bank & Trust in the last few months as key ratios and a third party rating agency put the bank in a very weak position. Given that Securant's Trust Group is featured on the websites of one or more national structured settlement firms (each of which paints a sunny picture of the institution) the timing of this post seems appropriate.
First the bad news (Sources: FDIC and BestCash Cow.com)
Texas-sized Texas Ratio
As of December 31, 2011, Securant Bank & Trust had $11,677,000 in non-current loans and $6,706,000 in owned real estate. To cover these potential losses it had $14,972,000 in equity and $7,432,000 in loans loss reserves. That gives it a Texas Ratio of 82.05%. compared to a U.S. Bank Average of 19.96%. The closer the Texas Ratio is to 100% and over, the less capital and reserves a bank has to absorb its loan losses. Securants' Texas ratio rocketed from to over 80% in less than 3 years.
Negative Return on Equity
Securant Bank & Trust has a Return on Equity of -27.9% versus the U.S. Bank average of 6.78%. Return on equity measures how efficiently a bank is making money from its capital. A bank with a consistently high ROE can be considered well run. A bank with a consistently low ROE can be considered poorly run.
Lower Than Average Capitalization
Securant Bank & Trust has a Capitalization of 6.6% versus the US Bank average of 11.18%. Capitalization measures how much equity capital a bank has to underpin loans and other assets on its balance sheet. The higher the capitalization number the more secure a bank is considered.
Balance Sheet Analysis
As of December 31, 2011, Securant Bank & Trust had assets of $226,697,000, loans of $168,816,000, and deposits of $197,826,000. Long-term increases in deposits shows a bank's ability to raise funds to grow its loans and assets. A major structured settlement firm uses old data in it marketing materials concerning sEcurant Bank & Trust stating that its assets exceed $250 million, a level it has not reached since 2009.
Weiss Rating E (Very Weak Financial Strength) March 5, 2012 Review. Securant has held a C or worse rating for 7 years and a D or worse for the last 4 years
Should you Be Worried If You Have a Trust with Securant Bank & Trust?
In my February 18, 2011 post "When a Bank Fails , Are Trust Assets At Risk? I discussed the effect of bank failures on trust assets after Wisconsin based Securant Bank & Trust was subject to an FDIC consent Order in August 2010. The banks finances have worsened since, as is clearly evident from the above.
For clients and trust beneficiaries, it is my understanding that unless the client’s assets are invested in the stock of a failed bank or in its money market funds beyond any insurance, or the assets are improperly titled, there should be no risk of asset loss and no problem other than inconvenience to a client of a trust department of a failed bank. Assets of a trust department are not assets of the bank
Indeed the marketing materials of Securant Bank and Trust posted on an industry website state that trust assets are custodied at another institution, U.S. Bank*.
Nevertheless, settlement consultants face an obvious challenge in marketing a brand with such negatives. For those that push it, isn't it ironic that in some quarters an A (Excellent) A.M.Best rating for insurance company is problematic, yet an "E"-ek Weiss rating here is acceptable?
Errors and Omissions insurers are now excluding coverage for placing certain financial products with institutions that do not meet certain rating thresholds.
* U.S. Bank is the name of a financial institution. The averages referred to above are based on a national average of banks across the USA.