Safe and Sound

Heritage Bank

Olympia, WA
4
Star Rating
Started in 1927, Heritage Bank is an FDIC-insured bank headquartered in Olympia, WA. The bank has equity of $512.7 million on $4.11 billion in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $3.41 billion on deposit at 64 offices in multiple states run by 735 full-time employees. With that footprint, the bank has amassed loans and leases worth $2.82 billion, including $2.03 billion worth of real estate loans.

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 a look at how the bank did on the three important criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a bulwark against losses and provides protection for account holders during periods of financial instability for the bank. Therefore, when it comes to measuring an an institution's financial stability, capital is valuable. From a safety and soundness perspective, more capital is better.

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

A bank's Tier 1 capital ratio is an essential measure of this buffer. Heritage Bank's Tier 1 capital ratio was 11.40 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial challenges.

Overall, Heritage Bank held equity amounting to 12.47 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as unpaid mortgages.

A bank with a large number of these types of assets could eventually be forced to use capital to cover losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, pushing down earnings and increasing the chances of a future failure.

On Bankrate's test of asset quality, Heritage Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.48 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 handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem 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 earnings performance affects its safety and soundness. Earnings may be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in tough times. Losses, on the other hand, take away from a bank's ability to do those things.

Heritage Bank scored 18 out of a possible 30 on Bankrate's earnings test, better than the national average of 15.12.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by the total amount of equity. The most recent annualized quarterly return on equity for Heritage Bank was 8.89 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $44.8 million on total equity of $512.7 million. The bank had an annualized return on average assets, or ROA, of 1.12 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.