Safe and Sound

Commencement Bank

Tacoma, WA
4
Star Rating
Commencement Bank is an FDIC-insured bank started in 2006 and currently headquartered in Tacoma, WA. The bank has equity of $37.4 million on $328.0 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $283.9 million on deposit at 3 offices in WA run by 47 full-time employees. With that footprint, the bank holds loans and leases worth $252.1 million, including $175.9 million worth of real estate loans.

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

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and affords protection for depositors when a bank is experiencing financial instability. Therefore, a bank's level of capital is a crucial measurement of a bank's financial fortitude. When it comes to safety and soundness, more capital is preferred.

Commencement Bank received a score of 12 out of a possible 30 points on our test to measure capital adequacy, falling short of the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Commencement Bank's Tier 1 capital ratio was 13.59 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, Commencement Bank held equity amounting to 11.41 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

A bank with a large number of these kinds of assets may eventually have to use capital to absorb losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, reducing earnings and increasing the chances of a failure in the future.

On Bankrate's asset quality test, Commencement Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.

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, 0.02 percent of Commencement 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 . Comparing how large that reserve is to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. Commencement Bank's loan loss allowance was 5,800.00 percent of its total noncurrent loans, higher than the national average. All things being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's profitability affects its safety and soundness. A bank can retain its earnings, expanding its capital cushion, or put them to work addressing problematic loans, likely making the bank better prepared to withstand financial trouble. Banks that are losing money, however, are less able to do those things.

On Bankrate's test of earnings, Commencement Bank scored 12 out of a possible 30, below the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by total equity. The most recent annualized quarterly return on equity for Commencement Bank was 5.75 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $2.1 million on total equity of $37.4 million. The bank experienced an annualized return on average assets, or ROA, of 0.63 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.