Safe and Sound

The Hometown Bank of Alabama

Oneonta, AL
5
Star Rating
Started in 2003, The Hometown Bank of Alabama is an FDIC-insured bank based in Oneonta, AL. The bank has equity of $50.1 million on $354.4 million in assets, according to December 31, 2017, regulatory filings.

With 60 full-time employees in 3 offices in AL, the bank currently holds loans and leases worth $230.3 million, including real estate loans of $172.8 million. U.S. bank customers currently have $293.9 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, The Hometown Bank of Alabama exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of a bank's financial resilience. It acts as a cushion against losses and provides protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the more capital, the better.

The Hometown Bank of Alabama did better than the national average of 13.13 points on our test to measure the adequacy of a bank's capital, achieving a score of 20 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. The Hometown Bank of Alabama's Tier 1 capital ratio was 22.31 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial downturns.

Overall, The Hometown Bank of Alabama held equity amounting to 14.13 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as unpaid mortgages, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets could eventually force a bank to use capital to cover losses, reducing its equity cushion. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in lower earnings and potentially more risk of a failure in the future.

On Bankrate's asset quality test, The Hometown Bank of Alabama scored 36 out of a possible 40 points, less than the national average of 37.49 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, 0.95 percent of The Hometown Bank of Alabama'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 to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on The Hometown Bank of Alabama's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, diminish a bank's ability to do those things.

The Hometown Bank of Alabama scored 20 out of a possible 30 on Bankrate's earnings test, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one widely used measure of a bank's earnings. The Hometown Bank of Alabama's most recent annualized quarterly return on equity was 12.37 percent, above the national average of 8.10 percent.

The bank earned net income of $5.9 million on total equity of $50.1 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 1.68 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.