Safe and Sound

Cottonwood Valley Bank

Cedar Point, KS
4
Star Rating
Cottonwood Valley Bank is an FDIC-insured bank founded in 1914 and currently based in Cedar Point, KS. As of December 31, 2017, the bank held equity of $4.4 million on assets of $33.4 million.

With 5 full-time employees in 5 offices in KS, the bank has amassed loans and leases worth $9.4 million, including real estate loans of $3.1 million. U.S. bank customers currently have $27.7 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Cottonwood Valley Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial fortitude. It works as a cushion against losses and provides protection for depositors when a bank is experiencing financial trouble. When it comes to safety and soundness, more capital is preferred.

Cottonwood Valley Bank scored 18 out of a possible 30 points on our test to measure the adequacy of a bank's capital, above the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Cottonwood Valley Bank's Tier 1 capital ratio was 29.30 percent, exceeding the 6 percent level considered adequate by regulators, and higher than 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, Cottonwood Valley Bank held equity amounting to 13.03 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the effect of problem assets, such as unpaid mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these kinds of assets may eventually have to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Cottonwood Valley Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.

The percentage of problem assets a bank holds compared to its total assets is a useful indicator of asset quality.As of December 31, 2017, none of Cottonwood Valley 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 to deal with problem assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Cottonwood Valley Bank'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. Banks that are losing money, however, are less able to do those things.

Cottonwood Valley Bank underperformed the average on Bankrate's test of earnings, achieving a score of 6 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for Cottonwood Valley Bank was 2.56 percent, below the national average of 8.10 percent.

The bank recorded net income of $119,000 on total equity of $4.4 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.36 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.