Safe and Sound

HomeTown Bank

Redwood Falls, MN
4
Star Rating
Redwood Falls, MN-based HomeTown Bank is an FDIC-insured bank founded in 1924. As of December 31, 2017, the bank had equity of $34.4 million on assets of $293.6 million.

With 89 full-time employees in 10 offices in MN, the bank currently holds loans and leases worth $205.3 million, including real estate loans of $153.5 million. U.S. bank customers currently have $245.5 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, HomeTown Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three important criteria Bankrate used to evaluate American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of an institution's financial fortitude. It acts as a bulwark against losses and provides protection for accountholders during periods of economic instability for the bank. From a safety and soundness perspective, the higher the capital, the better.

On our test to measure capital adequacy, HomeTown Bank received a score of 10 out of a possible 30 points, coming in 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's Tier 1 capital ratio was 15.50 percent, higher than the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic challenges.

Overall, HomeTown Bank held equity amounting to 11.70 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 past-due loans, on the bank's capitalization and allocated loan loss reserves.

Having lots of these kinds of assets suggests a bank could have to use capital to cover losses, shrinking its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, decreasing earnings and increasing the risk of a future failure.

HomeTown Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating the national average of 37.49.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.03 percent of HomeTown 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 maintain 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 problematic loans can be a helpful indicator when evaluating a bank's ability to manage problem assets. HomeTown Bank's loan loss allowance was 6,312.73 percent of its total noncurrent loans, above the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, increasing its capital buffer, or be used to address problematic loans, likely making the bank better able to withstand financial shocks. Conversely, losses reduce a bank's ability to do those things.

HomeTown Bank beat the national average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. HomeTown Bank's most recent annualized quarterly return on equity was 9.54 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $3.2 million on total equity of $34.4 million. The bank had an annualized return on average assets, or ROA, of 1.13 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.