Safe and Sound

The Bank of Hemet

Riverside, CA
5
Star Rating
The Bank of Hemet is a Riverside, CA-based, FDIC-insured bank that opened its doors in 1974. The bank has equity of $67.2 million on assets of $698.7 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $628.4 million on deposit at 6 offices in CA run by 86 full-time employees. With that footprint, the bank has amassed loans and leases worth $470.2 million, $466.4 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, The Bank of Hemet exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three important criteria Bankrate used to grade U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and affords protection for account holders during periods of financial instability for the bank. Therefore, a bank's level of capital is an important measurement of an institution's financial strength. When it comes to safety and soundness, the higher the capital, the better.

On our test to measure capital adequacy, The Bank of Hemet received a score of 10 out of a possible 30 points, coming in below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The Bank of Hemet's Tier 1 capital ratio was 12.94 percent, exceeding the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather economic challenges.

Overall, The Bank of Hemet held equity amounting to 9.62 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 loan loss reserves and overall capitalization could be affected by problem assets, such as past-due loans.

A bank with large numbers of these types of assets could eventually have to use capital to cover losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

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

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, none of The Bank of Hemet'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 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 at-risk loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on The Bank of Hemet's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or put them to work addressing problematic loans, potentially making the bank better able to withstand financial trouble. However, banks that are losing money have less ability to do those things.

The Bank of Hemet exceeded the national average on Bankrate's earnings test, achieving a score of 30 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. The most recent annualized quarterly return on equity for The Bank of Hemet was 23.51 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $15.4 million on total equity of $67.2 million. The bank experienced an annualized return on average assets, or ROA, of 2.28 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.