Safe and Sound

Home State Bank

Litchfield, MN
5
Star Rating
Started in 1926, Home State Bank is an FDIC-insured bank based in Litchfield, MN. The bank has equity of $16.9 million on $144.6 million in assets, according to December 31, 2017, regulatory filings.

With 40 full-time employees in 4 offices in MN, the bank currently holds loans and leases worth $84.9 million, including real estate loans of $51.9 million. U.S. bank customers currently have $119.8 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. Keep reading for a look at how the bank did on the three important 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 a bank's financial stability, capital is valuable. It acts as a buffer against losses and as protection for depositors when a bank is experiencing financial instability. When it comes to safety and soundness, the higher the capital, the better.

Home State Bank scored 14 out of a possible 30 points on our test to measure capital adequacy, beating out the national average of 13.13.

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 14.55 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial difficulties.

Overall, Home State Bank held equity amounting to 11.66 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 effect of troubled assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets means a bank may eventually have to use capital to absorb losses, decreasing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in diminished earnings and potentially more risk of a failure in the future.

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

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 0.09 percent of Home State Bank'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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . 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 problematic loans. Home State Bank's loan loss allowance was 1,525.97 percent of its total noncurrent loans, exceeding the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's ability to earn money affects its long-term survivability. A bank can retain its earnings, giving a boost to its capital buffer, or put them to work addressing problematic loans, likely making the bank better able to withstand financial shocks. Conversely, losses diminish a bank's ability to do those things.

Home State Bank scored 18 out of a possible 30 on Bankrate's earnings test, beating the national average of 15.12.

One key measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. The most recent annualized quarterly return on equity for Home State Bank was 8.75 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $1.5 million on total equity of $16.9 million. The bank had an annualized return on average assets, or ROA, of 1.01 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.