Safe and Sound

Midwest Bank

Detroit Lakes, MN
5
Star Rating
Founded in 1917, Midwest Bank is an FDIC-insured bank headquartered in Detroit Lakes, MN. Regulatory filings show the bank having equity of $36.4 million on $398,813,000 in assets, as of June 30, 2017.

U.S. bank customers have $339.6 million on deposit at 7 offices in MN run by 82 full-time employees. With that footprint, the bank currently holds loans and leases worth $348.4 million, including real estate loans of $219.8 million.

Overall, Bankrate believes that, as of June 30, 2017, Midwest Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to evaluate U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a key measurement of an institution's financial fortitude. It acts as a cushion against losses and provides protection for accountholders during times of financial trouble for the bank. When looking at safety and soundness, more capital is preferred.
Midwest Bank received a score of 10 out of a possible 30 points on our test to measure the adequacy of a bank's capital, falling short of the national average of 13.38.

A bank's Tier 1 capital ratio is an essential measure of this buffer. Midwest Bank's Tier 1 capital ratio was 10.30 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.16 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Midwest Bank held equity amounting to 9.12 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

This test is intended to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization could be affected by troubled assets, such as past-due mortgages.

A bank with a large number of these kinds of assets may eventually be required to use capital to absorb losses, reducing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in reduced earnings and potentially more risk of a failure in the future.

Midwest Bank beat out the national average of 37.62 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of June 30, 2017, 0.43 percent of Midwest 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 1.04 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . How large that reserve is can be a widely used 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 Midwest 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. Earnings can be retained by the bank, expanding its capital buffer, or be used to address problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses lessen a bank's ability to do those things.

Midwest Bank beat the national average on Bankrate's earnings test, achieving a score of 30 out of a possible 30.

One widely used way to measure a bank's earnings is return on equity, or net income (profit, basically) divided by total equity. Midwest Bank's most recent annualized quarterly return on equity was 22.16 percent, above the national average of 9.28 percent.

The bank earned net income of $4.0 million on total equity of $36.4 million for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 2.06 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.14 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.