Safe and Sound

Cornerstone Bank

Fargo, ND
4
Star Rating
Cornerstone Bank is a Fargo, ND-based, FDIC-insured bank founded in 1907. The bank holds equity of $76.5 million on $838.9 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $752.3 million on deposit at 12 offices in multiple states run by 184 full-time employees. With that footprint, the bank holds loans and leases worth $618.5 million, including real estate loans of $454.8 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. Here's an analysis of how the bank fared on the three key criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial strength, capital is essential. It acts as a bulwark against losses and provides protection for depositors when a bank is experiencing economic instability. When it comes to safety and soundness, more capital is better.

Cornerstone Bank received a score of 8 out of a possible 30 points on our test to measure the adequacy of a bank's capital, failing to reach the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Cornerstone Bank's Tier 1 capital ratio was 10.95 percent, higher than the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Cornerstone Bank held equity amounting to 9.12 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 past-due mortgages.

A bank with large numbers of these types of assets may eventually be forced to use capital to cover losses, cutting down on its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, reducing earnings and increasing the risk of a future failure.

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

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 2.08 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 above 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 . The size of that reserve can be a widely used indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Cornerstone Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, likely making the bank better prepared to withstand financial shocks. Losses, on the other hand, lessen a bank's ability to do those things.

Cornerstone Bank outperformed the average on Bankrate's earnings test, achieving a score of 20 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one widely used measure of a bank's earnings. The most recent annualized quarterly return on equity for Cornerstone Bank was 10.78 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $7.8 million on total equity of $76.5 million. 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.