Yakima Federal Savings and Loan Association defines vanilla banking.
The 99-year old thrift — the centennial is next June — takes deposits gathered at its 10 Central Washington branches and makes long-term mortgage loans. No use of brokered deposits to beef up lending. Borrowings from the Federal Home Loan Bank represent only 2 percent of its assets, compared with an industry average of more than 10 percent.
The capital ratio, a measure of reserves against losses, is a substantial 16 percent.
That last number in particular was enough to lift Yakima Fed into the ranks of U.S. banks and thrifts considered the strongest by Weiss Ratings Inc., a Florida-based company that also monitors the insurance industry and health-maintenance organizations. In fact, the thrift was ranked eighth for financial strength among all U.S. financial institutions graded by Weiss. Seattle-based Washington Federal Savings & Loan Association was rated No. 1, and Horizon Bank of Bellingham was rated 10th, putting Washington state institutions in three out of the top 10 spots. No other state had more than one.
Washington Fed, with $7.2 billion in assets, was also by far the largest of the banks that received a stellar report card.
Not bad in a state with a less than robust economy the last few years.
Of the 9,082 banks and thrifts rated by Weiss, just 101 got an A-plus rating. Bank of Commerce in Idaho Falls was the only Idaho bank to earn that grade.
Weiss Vice President Melissa Gannon says the firm starts with a broadly applied measure of risk-based capital, then adds other factors that winnow out all but the most conservatively run institutions. Weiss looks back five years, for example, to check profit history and asset growth.
“Our tests are a little more stringent,” says Gannon, who adds that the ratings reflect the health of the Northwest real estate market as well as strong management.
The Washington banks have almost no non-performing loans, she notes.
Gannon says the ratings have different meanings for investors and depositors.
For investors, a strength rating would be just one of a number of factors that would figure in a decision to buy or sell a bank’s stock. Depositors, who are insured by the Federal Deposit Insurance Corp. for sums up to $100,000, might pay them heed in situations where regulators seize a financially weak bank and sell the deposits off to another bank that may well pay less interest.
Yakima Fed may be vanilla, but it does have it idiosyncrasies. Customers with more than $100 on deposit are owners. Think “It’s a Wonderful Life” and the Bailey Building and Loan. Yakima Fed is the largest mutually owned thrift west of the Mississippi River, with $1.25 billion in assets. There are 73,000 deposit accounts.
President Peter Bansmer says member ownership and tight control of expenses allow the bank to keep mortgage rates low and deposit rates high compared with other banks.
Jim Pishue, executive director of the Washington Bankers Association, says the Weiss ratings are not widely followed in the industry, but adds that the assessments of the Washington thrifts are right on.
“All three of those banks have performed very well over a long period of time,” he says, with Washington Fed and Yakima Fed sticking to the tried-and-true practice of converting deposits into mortgage loans.
Management at each of the banks has been in place for a long time, Pishue adds.
Gannon notes banking institutions in Washington and Idaho remain healthy.
Non-performing loans in Washington were down almost 27 percent as of June 30 compared with a year ago. But profits were down, probably as a result of a steep decline at Washington Mutual, by far the largest financial institution based in Washington.
Bad loans in Idaho fell by almost 9 percent compared with year-ago levels. Profits were up almost 8 percent. Although Weiss rated only Bank of Commerce an A-plus, Idaho Independent Bank of Coeur d’Alene did receive a B-plus, good for third among all Idaho banks.
Overall, the Weiss ratings were an endorsement of the community banking practiced by most Washington and Idaho banks, not just Weiss’ A-plus types. By comparison, the nation’s megabanks, Citibank, Bank of America, and Wells Fargo, to name a few, were back in the B-minus pack.
With interest rates rising, Weiss’s scorecard may look different in the future. But for the present, Washington state’s best banks are the nation’s best, as well.