Safe and Sound

Cornerstone Bank

Eureka Springs, AR
4
Star Rating
Cornerstone Bank is an FDIC-insured bank founded in 1912 and currently based in Eureka Springs, AR. The bank has equity of $22.8 million on assets of $250.9 million, according to December 31, 2017, regulatory filings.

U.S. bank customers have $206.2 million on deposit at 6 offices in AR run by 73 full-time employees. With that footprint, the bank currently holds loans and leases worth $175.2 million, including real estate loans of $150.3 million.

Overall, Bankrate believes that, as of December 31, 2017, Cornerstone Bank exhibited a good condition, earning 4 out of 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.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial stability, capital is important. It works as a bulwark against losses and affords protection for accountholders when a bank is experiencing financial instability. From a safety and soundness perspective, the more capital, the better.

On our test to measure capital adequacy, Cornerstone Bank received a score of 10 out of a possible 30 points, failing to reach the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Cornerstone Bank's Tier 1 capital ratio was 11.18 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 stand up to financial difficulties.

Overall, Cornerstone Bank held equity amounting to 9.08 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to estimate how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid loans.

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

On Bankrate's test of asset quality, Cornerstone Bank scored 32 out of a possible 40 points, coming in below the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.60 percent of Cornerstone Bank'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." That reserve's size can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Cornerstone Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings may be retained by the bank, expanding its capital cushion, or be used to address problematic loans, potentially making the bank more resilient in times of trouble. Obviously, banks that are losing money have less ability to do those things.

On Bankrate's test of earnings, Cornerstone Bank scored 18 out of a possible 30, above the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. Cornerstone Bank's most recent annualized quarterly return on equity was 9.89 percent, above the national average of 8.10 percent.

The bank earned net income of $2.2 million on total equity of $22.8 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.95 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.