WHAT IS
SAFE AND SOUND?
Capital acts as a buffer against losses and provides protection for account holders when a bank is experiencing economic trouble. Therefore, when it comes to measuring an an institution's financial fortitude, capital is key. From a safety and soundness perspective, more capital is preferred.
On our test to measure capital adequacy, Sunwest Bank racked up 14 out of a possible 30 points, exceeding the national average of 13.13.
One essential measure of this buffer is a bank's Tier 1 capital ratio. Sunwest Bank's Tier 1 capital ratio was 12.14 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to financial headwinds.
Overall, Sunwest Bank held equity amounting to 11.55 percent of its assets, which was lower than the national average of 12.03 percent.
This test is intended to try to understand 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 extensive holdings of these types of assets may eventually have to use capital to cover losses, cutting down on its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, diminishing earnings and increasing the chances of a future failure.
On Bankrate's asset quality test, Sunwest Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.
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, 0.22 percent of Sunwest 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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Sunwest Bank's loan loss allowance in its most recent filings.
How profitable a bank is affects its long-term survivability. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, potentially making the bank better able to withstand economic trouble. Losses, on the other hand, reduce a bank's ability to do those things.
Sunwest Bank scored 18 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.
One important measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by total equity. Sunwest Bank's most recent annualized quarterly return on equity was 9.88 percent, above the national average of 8.10 percent.
The bank reported net income of $12.9 million on total equity of $135.9 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.20 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 percent.
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.
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.