Safe and Sound

Choice Financial Group

Fargo, ND
5
Star Rating
Founded in 1906, Choice Financial Group is an FDIC-insured bank based in Fargo, ND. As of December 31, 2017, the bank held equity of $139.7 million on assets of $1.25 billion.

With 230 full-time employees in 19 offices in multiple states, the bank holds loans and leases worth $1.04 billion, including real estate loans of $573.4 million. U.S. bank customers currently have $1.10 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Choice Financial Group exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank fared on the three key criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is useful. It works as a cushion against losses and provides protection for accountholders during times of financial instability for the bank. When it comes to safety and soundness, the more capital, the better.

Choice Financial Group fell short of the national average of 13.13 on our test to measure capital adequacy, receiving a score of 12 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Choice Financial Group's Tier 1 capital ratio was 12.66 percent, above the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic downturns.

Overall, Choice Financial Group held equity amounting to 11.18 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 effect of troubled assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

A bank with lots of these kinds of assets may eventually be required to use capital to cover losses, decreasing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, resulting in lower earnings and potentially more risk of a failure in the future.

Choice Financial Group scored 36 out of a possible 40 points on Bankrate's asset quality test, less than the national average of 37.49.

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.93 percent of Choice Financial Group'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 problem loans can be a helpful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Choice Financial Group's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. A bank can retain its earnings, giving a boost to its capital buffer, or put them to work addressing problematic loans, potentially making the bank more resilient in times of trouble. Conversely, losses diminish a bank's ability to do those things.

Choice Financial Group scored 30 out of a possible 30 on Bankrate's earnings test, exceeding the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. Choice Financial Group's most recent annualized quarterly return on equity was 21.53 percent, above the national average of 8.10 percent.

The bank earned net income of $28.3 million on total equity of $139.7 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 2.40 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.