Safe and Sound

Independence Bank

East Greenwich, RI
5
Star Rating
Independence Bank is an East Greenwich, RI-based, FDIC-insured bank founded in 2003. Regulatory filings show the bank having equity of $10.8 million on assets of $60.8 million, as of December 31, 2017.

With 23 full-time employees, the bank holds loans and leases worth $35.0 million, including real estate loans of $9.5 million. U.S. bank customers currently have $47.4 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Independence Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and as protection for account holders when a bank is experiencing financial trouble. It follows then that a bank's level of capital is an essential measurement of an institution's financial fortitude. When it comes to safety and soundness, more capital is preferred.

Independence Bank achieved a score of 22 out of a possible 30 points on our test to measure capital adequacy, beating the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Independence Bank's Tier 1 capital ratio was 29.00 percent, above the 6 percent level regulators consider adequate, and above the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic downturns.

Overall, Independence Bank held equity amounting to 17.78 percent of its assets, which exceeded 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 past-due loans.

A bank with extensive holdings of these types of assets could eventually be forced 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 no longer earning interest for the bank, diminishing earnings and increasing the risk of a failure in the future.

On Bankrate's asset quality test, Independence Bank scored 36 out of a possible 40 points, failing to reach the national average of 37.49 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, 4.70 percent of Independence 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." Comparing the reserve's size to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Independence Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, increasing its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, diminish a bank's ability to do those things.

Independence Bank scored 30 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Independence Bank was 24.94 percent, above the national average of 8.10 percent.

The bank recorded net income of $2.4 million on total equity of $10.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 5.04 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.