Hometown Bank, National Association

THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for depositors when a bank is experiencing financial instability. Therefore, when it comes to measuring an a bank's financial fortitude, capital is key. When it comes to safety and soundness, more capital is better.

Hometown Bank, National Association received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, below the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Hometown Bank, National Association's Tier 1 capital ratio was 11.00 percent, exceeding the 6 percent level considered adequate by regulators, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial challenges.

Overall, Hometown Bank, National Association held equity amounting to 9.16 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these types of assets may eventually have to use capital to absorb losses, cutting down on its equity buffer. 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 depressed earnings and potentially more risk of a failure in the future.

Hometown Bank, National Association scored below the national average of 37.49 on Bankrate's asset quality test, racking up 28 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, 1.82 percent of Hometown Bank, National Association's loans were noncurrent, meaning 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of at-risk loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Hometown Bank, National Association's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. A bank can retain its earnings, increasing its capital buffer, or put them to work addressing problematic loans, likely making the bank better able to withstand financial trouble. Losses, on the other hand, lessen a bank's ability to do those things.

Hometown Bank, National Association received below-average marks on Bankrate's earnings test, achieving a score of 4 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one key measure of a bank's earnings. The most recent annualized quarterly return on equity for Hometown Bank, National Association was 1.28 percent, below the national average of 8.10 percent.

The bank earned net income of $210,000 on total equity of $16.5 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.12 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.