Safe and Sound

Heritage Bank

Marion, IA
3
Star Rating
Marion, IA-based Heritage Bank is an FDIC-insured bank started in 1899. The bank holds equity of $3.4 million on $35.5 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 8 full-time employees in 3 offices in IA, the bank has amassed loans and leases worth $19.9 million, including $14.8 million worth of real estate loans. The bank currently holds $31.3 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Heritage Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank fared on the three important criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial fortitude, capital is important. It works as a bulwark against losses and affords protection for depositors when a bank is struggling financially. When looking at safety and soundness, more capital is better.

Heritage Bank received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, lower than the national average of 13.13.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Heritage Bank's Tier 1 capital ratio was 18.42 percent, exceeding the 6 percent level considered adequate by regulators, but under 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, Heritage Bank held equity amounting to 9.69 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

A bank with lots of these types of assets may eventually have to use capital to absorb losses, diminishing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, reducing earnings and elevating the chances of a failure in the future.

On Bankrate's test of asset quality, Heritage 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, 0.52 percent of Heritage 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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of problem 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 Heritage 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. Earnings may be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, likely making the bank more resilient in tough times. Banks that are losing money, however, have less ability to do those things.

Heritage Bank underperformed the average on Bankrate's earnings test, achieving a score of 4 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for Heritage Bank was 1.18 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $42,000 on total equity of $3.4 million. The bank experienced an annualized return on average assets, or ROA, of 0.11 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.