Safe and Sound

Headwaters State Bank

Land O Lakes, WI
5
Star Rating
Headwaters State Bank is an FDIC-insured bank founded in 1921 and currently based in Land O Lakes, WI. As of December 31, 2017, the bank held equity of $9.5 million on assets of $68.0 million.

U.S. bank customers have $58.3 million on deposit at 2 offices in WI run by 14 full-time employees. With that footprint, the bank has amassed loans and leases worth $39.5 million, including real estate loans of $35.4 million.

Overall, Bankrate believes that, as of December 31, 2017, Headwaters State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for account holders when a bank is experiencing economic instability. Therefore, when it comes to measuring an a bank's financial fortitude, capital is important. When looking at safety and soundness, the more capital, the better.

Headwaters State Bank achieved a score of 18 out of a possible 30 points on our test to measure the adequacy of a bank's capital, beating the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Headwaters State Bank's Tier 1 capital ratio was 26.37 percent, higher than the 6 percent level regulators consider adequate, and higher than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to stand up to economic downturns.

Overall, Headwaters State Bank held equity amounting to 13.98 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having lots of these types of assets may eventually force a bank to use capital to absorb losses, reducing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, decreasing earnings and increasing the risk of a future failure.

Headwaters State Bank scored 36 out of a possible 40 points on Bankrate's asset quality test, lower than the national average of 37.49.

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 3.45 percent of Headwaters State 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 1.01 percent.

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

Earnings score

A bank's ability to earn money has an effect on its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, potentially making the bank better prepared to withstand economic trouble. Banks that are losing money, however, have less ability to do those things.

On Bankrate's earnings test, Headwaters State Bank scored 18 out of a possible 30, exceeding 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. The most recent annualized quarterly return on equity for Headwaters State Bank was 8.63 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $818,000 on total equity of $9.5 million. The bank experienced an annualized return on average assets, or ROA, of 1.26 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.