Safe and Sound

Homestead Savings Bank

Albion, MI
1
Star Rating
Homestead Savings Bank is an FDIC-insured bank started in 1889 and currently based in Albion, MI. The bank holds equity of $4.3 million on assets of $65.4 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $60.8 million on deposit at 5 offices in MI run by 26 full-time employees. With that footprint, the bank currently holds loans and leases worth $48.7 million, including real estate loans of $47.6 million.

Overall, Bankrate believes that, as of December 31, 2017, Homestead Savings Bank exhibited a significantly below-average condition, earning 1 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three important criteria Bankrate used to grade U.S. banks.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of a bank's financial resilience. It acts as a buffer against losses and provides protection for depositors when a bank is struggling financially. From a safety and soundness perspective, the higher the capital, the better.

Homestead Savings Bank received a score of 2 out of a possible 30 points on our test to measure the adequacy of a bank's capital, coming in below the national average of 13.13.

One widely followed measure of this buffer is a bank's Tier 1 capital ratio. Homestead Savings Bank's Tier 1 capital ratio was 10.62 percent, higher than the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic difficulties.

Overall, Homestead Savings Bank held equity amounting to 6.52 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid loans.

A bank with large numbers of these types of assets could eventually have to use capital to cover losses, diminishing 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 interest for the bank, resulting in diminished earnings and potentially more risk of a future failure.

Homestead Savings Bank fell below the national average of 37.49 on Bankrate's test of asset quality, racking up 24 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, 1.74 percent of Homestead Savings Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks maintain 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 troubled assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Homestead Savings Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, potentially making the bank better able to withstand economic shocks. Conversely, losses reduce a bank's ability to do those things.

On Bankrate's test of earnings, Homestead Savings Bank scored 0 out of a possible 30, lower than the national average of 15.12.

One key measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Homestead Savings Bank's most recent annualized quarterly return on equity was 0.91 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $39,000 on total equity of $4.3 million. The bank experienced an annualized return on average assets, or ROA, of 0.06 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.