Safe and Sound

HomeTown Bank, National Association

Galveston, TX
4
Star Rating
HomeTown Bank, National Association is a Galveston, TX-based, FDIC-insured bank started in 1966. The bank has equity of $62.3 million on $586.3 million in assets, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 104 full-time employees in 7 offices in TX, the bank holds loans and leases worth $380.8 million, including $334.1 million worth of real estate loans. The bank currently holds $521.5 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, HomeTown Bank, National Association 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 important criteria Bankrate used to grade U.S. banks.

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SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a buffer against losses and provides protection for account holders during periods of financial instability for the bank. It follows then that when it comes to measuring an an institution's financial fortitude, capital is important. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure capital adequacy, HomeTown Bank, National Association received a score of 12 out of a possible 30 points, falling short of 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 15.85 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to economic challenges.

Overall, HomeTown Bank, National Association held equity amounting to 10.62 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as unpaid loans.

A bank with lots of these kinds of assets could eventually be forced to use capital to cover losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, diminishing earnings and elevating the chances of a failure in the future.

HomeTown Bank, National Association fell below the national average of 37.49 on Bankrate's asset quality test, racking up 36 out of a possible 40 points .

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.29 percent of HomeTown Bank, National Association'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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a useful 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 HomeTown Bank, National Association's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings can be retained by the bank, giving a boost to its capital cushion, or be used to address problematic loans, potentially 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 test of earnings, HomeTown Bank, National Association scored 18 out of a possible 30, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for HomeTown Bank, National Association was 10.25 percent, above the national average of 8.10 percent.

The bank reported net income of $6.2 million on total equity of $62.3 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.07 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.