Safe and Sound

State Bank of Herscher

Herscher, IL
3
Star Rating
Herscher, IL-based State Bank of Herscher is an FDIC-insured bank started in 1902. Regulatory filings show the bank having equity of $18.7 million on assets of $142.5 million, as of December 31, 2017.

Thanks to the efforts of 29 full-time employees, the bank has amassed loans and leases worth $76.3 million, $51.2 million of which are for real estate. The bank currently holds $118.0 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, State Bank of Herscher exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and affords protection for account holders during times of economic instability for the bank. Therefore, a bank's level of capital is an important measurement of a bank's financial strength. From a safety and soundness perspective, the higher the capital, the better.

State Bank of Herscher scored above the national average of 13.13 points on our test to measure capital adequacy, racking up 16 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. State Bank of Herscher's Tier 1 capital ratio was 18.66 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial difficulties.

Overall, State Bank of Herscher held equity amounting to 13.11 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the impact of problem assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having a large number of these types of assets suggests a bank may eventually have to use capital to absorb losses, decreasing 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, pushing down earnings and elevating the chances of a future failure.

State Bank of Herscher scored 32 out of a possible 40 points on Bankrate's asset quality test, lower than the national average of 37.49.

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, 3.21 percent of State Bank of Herscher'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 maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled 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 troubled assets. Unfortunately, the FDIC did not provide information on State Bank of Herscher'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. Earnings can be retained by the bank, boosting its capital cushion, or be used to address problematic loans, likely making the bank better able to withstand economic shocks. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's test of earnings, State Bank of Herscher scored 4 out of a possible 30, 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 State Bank of Herscher was 1.61 percent, below the national average of 8.10 percent.

The bank recorded net income of $302,000 on total equity of $18.7 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.21 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.