Safe and Sound

Heritage Bank

Topeka, KS
4
Star Rating
Started in 2003, Heritage Bank is an FDIC-insured bank headquartered in Topeka, KS. As of December 31, 2017, the bank had equity of $6.1 million on assets of $55.7 million.

With 13 full-time employees, the bank currently holds loans and leases worth $44.1 million, including real estate loans of $38.0 million. U.S. bank customers currently have $48.5 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Heritage Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's an analysis of how the bank fared on the three important criteria Bankrate used to score American banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and affords protection for account holders during times of financial trouble for the bank. Therefore, a bank's level of capital is a key measurement of an institution's financial fortitude. When it comes to safety and soundness, more capital is better.

Heritage Bank fell below the national average of 13.13 on our test to measure capital adequacy, scoring 12 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Heritage Bank's Tier 1 capital ratio was 15.30 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial downturns.

Overall, Heritage Bank held equity amounting to 10.96 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as past-due loans.

Having extensive holdings of these kinds of assets means a bank may eventually have to use capital to absorb losses, cutting down on its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in reduced earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, Heritage Bank scored 36 out of a possible 40 points, falling short of 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, 0.35 percent of Heritage Bank'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 1.01 percent.

Banks maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. 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 safety and soundness. A bank can retain its earnings, increasing its capital cushion, or use them to address problematic loans, potentially making the bank better prepared to withstand economic shocks. Losses, on the other hand, take away from a bank's ability to do those things.

Heritage Bank scored 8 out of a possible 30 on Bankrate's earnings test, coming in below the national average of 15.12.

One key measure of a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. The most recent annualized quarterly return on equity for Heritage Bank was 3.22 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $194,000 on total equity of $6.1 million. The bank experienced an annualized return on average assets, or ROA, of 0.36 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.