Safe and Sound

Sovereign Bank

Dallas, TX
5
Star Rating
Sovereign Bank is a Dallas, TX-based, FDIC-insured bank started in 2004. Regulatory filings show the bank having equity of $130.0 million on assets of $1.03 billion, as of June 30, 2017.

Thanks to the efforts of 108 full-time employees in 9 offices in TX, the bank currently holds loans and leases worth $779.0 million, including $560.1 million worth of real estate loans. U.S. bank customers currently have $813.9 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Sovereign Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank faired on the three important criteria Bankrate used to score American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial stability, capital is valuable. It works as a buffer against losses and provides protection for depositors when a bank is experiencing financial instability. When it comes to safety and soundness, the higher the capital, the better.
Sovereign Bank scored above the national average of 13.38 points on our test to measure capital adequacy, scoring 16 out of a possible 30 points.

One important measure of this buffer is a bank's Tier 1 capital ratio. Sovereign Bank's Tier 1 capital ratio was 13.81 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.16 percent. A higher capital ratio suggests the bank will be better able to stand up to economic challenges.

Overall, Sovereign Bank held equity amounting to 12.67 percent of its assets, which exceeded the national average of 12.10 percent.

Asset Quality Score

This test is intended to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by troubled assets, such as unpaid loans.

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

Sovereign Bank exceeded the national average of 37.62 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of June 30, 2017, 1.21 percent of Sovereign 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 1.04 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . Comparing the that reserve's size to the total amount of at-risk loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Sovereign Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on 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 able to withstand economic trouble. Losses, on the other hand, reduce a bank's ability to do those things.

Sovereign Bank scored 16 out of a possible 30 on Bankrate's test of earnings, lower than the national average of 16.52.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Sovereign Bank was 7.38 percent, below the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank reported net income of $4.7 million on total equity of $130.0 million. The bank experienced an annualized return on average assets, or ROA, of 0.90 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 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.