Safe and Sound

The Hershey State Bank

Hershey, NE
5
Star Rating
Hershey, NE-based The Hershey State Bank is an FDIC-insured bank founded in 1968. As of December 31, 2017, the bank had equity of $12.7 million on $73.3 million in assets.

With 20 full-time employees in 3 offices in NE, the bank currently holds loans and leases worth $61.4 million, including real estate loans of $25.7 million. U.S. bank customers currently have $60.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Hershey State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key criteria Bankrate used to score American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of an institution's financial fortitude. It acts as a bulwark against losses and affords protection for depositors when a bank is experiencing economic trouble. When looking at safety and soundness, more capital is better.

The Hershey State Bank beat out the national average of 13.13 points on our test to measure the adequacy of a bank's capital, racking up 26 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. The Hershey State Bank's Tier 1 capital ratio was 20.59 percent, higher than 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 challenges.

Overall, The Hershey State Bank held equity amounting to 17.28 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having extensive holdings of these types of assets could eventually force a bank to use capital to absorb losses, cutting down on its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and increasing the chances of a failure in the future.

The Hershey State Bank fell short of the national average of 37.49 on Bankrate's test of asset quality, racking up 28 out of a possible 40 points .

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.70 percent of The Hershey State 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 keep a reserve to deal with troubled assets known as an "allowance for loan and lease losses." How large that reserve is can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on The Hershey State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its safety and soundness. Earnings may be retained by the bank, boosting its capital cushion, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Obviously, banks that are losing money have less ability to do those things.

The Hershey State Bank scored 16 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 15.12.

One important way to measure 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 The Hershey State Bank was 7.97 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $984,000 on total equity of $12.7 million. The bank reported an annualized return on average assets, or ROA, of 1.36 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.