Safe and Sound

Charles Schwab Bank

Reno, NV
4
Star Rating
Started in 2003, Charles Schwab Bank is an FDIC-insured bank headquartered in Henderson, NV. Regulatory filings show the bank having equity of $13.22 billion on assets of $198.59 billion, as of December 31, 2017.

With 651 full-time employees, the bank currently holds loans and leases worth $16.63 billion, including real estate loans of $11.96 billion. U.S. bank customers currently have $169.74 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Charles Schwab Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three major criteria Bankrate used to score American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial stability, capital is essential. It works as a bulwark against losses and affords protection for depositors during times of financial trouble for the bank. When looking at safety and soundness, more capital is preferred.

Charles Schwab Bank received a score of 4 out of a possible 30 points on our test to measure capital adequacy, less than the national average of 13.13.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Charles Schwab Bank's Tier 1 capital ratio was 20.08 percent, higher than the 6 percent level considered adequate by regulators, 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 economic challenges.

Overall, Charles Schwab Bank held equity amounting to 6.66 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of troubled assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with lots of these types of assets could eventually be forced to use capital to absorb losses, cutting down on its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, reducing earnings and increasing the risk of a future failure.

Charles Schwab Bank scored 40 out of a possible 40 points on Bankrate's asset quality test, above 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, 0.17 percent of Charles Schwab Bank'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 to deal with problem assets known as an "allowance for loan and lease losses." Comparing the size of that reserve to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Charles Schwab 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, increasing its capital cushion, or be used to address problematic loans, likely making the bank more resilient in tough times. Conversely, losses diminish a bank's ability to do those things.

Charles Schwab Bank received above-average marks on Bankrate's earnings test, achieving a score of 24 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for Charles Schwab Bank was 15.50 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.95 billion on total equity of $13.22 billion. The bank experienced an annualized return on average assets, or ROA, of 1.06 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.