WHAT IS
SAFE AND SOUND?
Capital works as a cushion against losses and as protection for depositors when a bank is experiencing economic instability. It follows then that a bank's level of capital is an essential measurement of a bank's financial fortitude. From a safety and soundness perspective, the higher the capital, the better.
Washington Federal, National Association beat out the national average of 13.38 points on our test to measure capital adequacy, achieving a score of 14 out of a possible 30 points.
A bank's Tier 1 capital ratio is a widely used measure of this buffer. Washington Federal, National Association's Tier 1 capital ratio was 17.00 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to stand up to financial challenges.
Overall, Washington Federal, National Association held equity amounting to 13.19 percent of its assets, which exceeded the national average of 12.10 percent.
In this test, Bankrate tries to estimate the impact of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.
Having extensive holdings of these types of assets could eventually require a bank to use capital to absorb losses, decreasing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and increasing the risk of a future failure.
Washington Federal, National Association exceeded the national average of 37.62 on Bankrate's asset quality test, 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, 0.57 percent of Washington Federal, National Association'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 1.04 percent.
Banks maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." Comparing the how large that reserve is 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 Washington Federal, National Association's loan loss allowance in its most recent filings.
A bank's earnings performance affects its safety and soundness. 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, take away from a bank's ability to do those things.
On Bankrate's test of earnings, Washington Federal, National Association scored 18 out of a possible 30, better than the national average of 16.52.
Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Washington Federal, National Association was 8.77 percent, below the national average of 9.28 percent.
The bank recorded net income of $86.4 million on total equity of $1.99 billion for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 1.15 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.14 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.