Safe and Sound

Home State Bank

Royal, IA
5
Star Rating
Royal, IA-based Home State Bank is an FDIC-insured bank started in 1915. The bank holds equity of $13.7 million on $47.8 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 6 full-time employees, the bank has amassed loans and leases worth $28.9 million, including real estate loans of $4.5 million. U.S. bank customers currently have $31.6 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Home State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to evaluate U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is crucial. It works as a bulwark against losses and provides protection for accountholders when a bank is struggling financially. When it comes to safety and soundness, the more capital, the better.

Home State Bank scored above the national average of 13.13 points on our test to measure the adequacy of a bank's capital, scoring 30 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Home State Bank's Tier 1 capital ratio was 39.88 percent, above the 6 percent level regulators consider adequate, and exceeding the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic difficulties.

Overall, Home State Bank held equity amounting to 28.74 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 loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid mortgages.

Having lots of these types of assets may eventually force a bank to use capital to cover losses, decreasing its buffer 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, resulting in lower earnings and potentially more risk of a future failure.

Home State Bank exceeded the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A useful 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 Home 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 handle problem assets known as an "allowance for loan and lease losses." The size of that reserve can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Home State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability has an effect on its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank more resilient in tough times. However, banks that are losing money have less ability to do those things.

Home State Bank scored 14 out of a possible 30 on Bankrate's test of earnings, falling short of the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one important way to measure a bank's earnings. Home State Bank's most recent annualized quarterly return on equity was 6.19 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $833,000 on total equity of $13.7 million. The bank had an annualized return on average assets, or ROA, of 1.78 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.