Safe and Sound

Islanders Bank

Friday Harbor, WA
5
Star Rating
Started in 1981, Islanders Bank is an FDIC-insured bank headquartered in Friday Harbor, WA. The bank holds equity of $29.6 million on $277.8 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $247.3 million on deposit at 3 offices in WA run by 51 full-time employees. With that footprint, the bank holds loans and leases worth $186.8 million, including real estate loans of $164.7 million.

Overall, Bankrate believes that, as of December 31, 2017, Islanders 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 key criteria Bankrate used to score U.S. banks on safety and soundness.

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 fortitude, capital is important. It works as a buffer against losses and affords protection for depositors when a bank is experiencing financial trouble. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, Islanders Bank received a score of 12 out of a possible 30 points, below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Islanders Bank's Tier 1 capital ratio was 15.18 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.

Overall, Islanders Bank held equity amounting to 10.64 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

A bank with extensive holdings of these types of assets could eventually be required to use capital to absorb losses, decreasing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, reducing earnings and elevating the risk of a future failure.

Islanders Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, 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, 0.49 percent of Islanders 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 handle 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 problem assets. Unfortunately, the FDIC did not provide information on Islanders Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings can be retained by the bank, boosting its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, diminish a bank's ability to do those things.

Islanders Bank outperformed the average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

One important way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by the total amount of equity. Islanders Bank's most recent annualized quarterly return on equity was 10.59 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $3.3 million on total equity of $29.6 million. The bank reported an annualized return on average assets, or ROA, of 1.21 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.