Safe and Sound

Sound Banking Company

Lakewood, WA
5
Star Rating
Lakewood, WA-based Sound Banking Company is an FDIC-insured bank started in 1990. Regulatory filings show the bank having equity of $4.8 million on $54.4 million in assets, as of December 31, 2017.

With 6 full-time employees, the bank has amassed loans and leases worth $41.3 million, including real estate loans of $35.3 million. U.S. bank customers currently have $49.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Sound Banking Company exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of an institution's financial strength. It works as a buffer against losses and as protection for accountholders when a bank is struggling financially. When it comes to safety and soundness, the higher the capital, the better.

Sound Banking Company received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Sound Banking Company's Tier 1 capital ratio was 12.00 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic downturns.

Overall, Sound Banking Company held equity amounting to 8.91 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the impact of troubled assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

Having a large number of these kinds of assets could eventually force a bank to use capital to absorb losses, decreasing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a future failure.

Sound Banking Company scored 40 out of a possible 40 points on Bankrate's asset quality test, beating out the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 0.41 percent of Sound Banking Company'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 to handle troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size 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 Sound Banking Company's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital cushion, or be used to deal with problematic loans, potentially making the bank more resilient in times of trouble. Conversely, losses reduce a bank's ability to do those things.

Sound Banking Company scored 30 out of a possible 30 on Bankrate's earnings test, beating out the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. Sound Banking Company's most recent annualized quarterly return on equity was 19.97 percent, above the national average of 8.10 percent.

The bank recorded net income of $970,000 on total equity of $4.8 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 1.66 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.