Safe and Sound

Home Federal Bank Corporation

Middlesboro, KY
4
Star Rating
Middlesboro, KY-based Home Federal Bank Corporation is an FDIC-insured bank started in 1920. Regulatory filings show the bank having equity of $40.7 million on $364.4 million in assets, as of December 31, 2017.

U.S. bank customers have $284.3 million on deposit at 6 offices in multiple states run by 93 full-time employees. With that footprint, the bank currently holds loans and leases worth $262.8 million, $248.5 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Home Federal Bank Corporation exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank did on the three major criteria Bankrate used to score U.S. banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and as protection for depositors when a bank is experiencing financial trouble. Therefore, a bank's level of capital is a key measurement of an institution's financial fortitude. When it comes to safety and soundness, the higher the capital, the better.

Home Federal Bank Corporation racked up 14 out of a possible 30 points on our test to measure the adequacy of a bank's capital, better than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Home Federal Bank Corporation's Tier 1 capital ratio was 17.13 percent, higher than the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic downturns.

Overall, Home Federal Bank Corporation held equity amounting to 11.17 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

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

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

On Bankrate's asset quality test, Home Federal Bank Corporation scored 36 out of a possible 40 points, coming in below the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.70 percent of Home Federal Bank Corporation's loans were noncurrent, meaning 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 problem assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Home Federal Bank Corporation's loan loss allowance in its most recent filings.

Earnings score

A bank's ability to earn money affects its long-term survivability. Earnings can be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, likely making the bank better prepared to withstand economic shocks. Banks that are losing money, however, are less able to do those things.

On Bankrate's earnings test, Home Federal Bank Corporation scored 18 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Home Federal Bank Corporation was 8.37 percent, above the national average of 8.10 percent.

The bank earned net income of $3.3 million on total equity of $40.7 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.92 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.