Safe and Sound

Merchants Bank, National Association

Winona, MN
4
Star Rating
Started in 1875, Merchants Bank, National Association is an FDIC-insured bank based in Winona, MN. The bank has equity of $203.9 million on assets of $1.66 billion, according to December 31, 2017, regulatory filings.

With 391 full-time employees in 23 offices in multiple states, the bank holds loans and leases worth $1.36 billion, including real estate loans of $876.1 million. U.S. bank customers currently have $1.40 billion in deposits with the bank.

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

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THE INSTITUTION'S SCORE

Capital Score

Capital is an essential measurement of a bank's financial strength. It acts as a bulwark against losses and as protection for depositors when a bank is struggling financially. When looking at safety and soundness, the more capital, the better.

Merchants Bank, National Association received a score of 12 out of a possible 30 points on our test to measure capital adequacy, failing to reach the national average of 13.13.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Merchants Bank, National Association's Tier 1 capital ratio was 12.22 percent, exceeding 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 challenges.

Overall, Merchants Bank, National Association held equity amounting to 12.31 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact 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 extensive holdings of these kinds of assets could eventually have to use capital to cover losses, cutting down on its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning money, reducing earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, Merchants Bank, National Association scored 36 out of a possible 40 points, lower than 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, 1.54 percent of Merchants Bank, National Association's loans were noncurrent -- in other words, 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 to deal with problem assets known as an "allowance for loan and lease losses." The size of that reserve can be a handy 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 Merchants Bank, National Association'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, increasing its capital buffer, or use them to deal with problematic loans, likely making the bank more resilient in times of trouble. Obviously, banks that are losing money are less able to do those things.

Merchants Bank, National Association scored 20 out of a possible 30 on Bankrate's earnings test, above the national average of 15.12.

One key way to measure a bank's earnings is return on equity, or net income (essentially profit) divided by total equity. The most recent annualized quarterly return on equity for Merchants Bank, National Association was 11.60 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank recorded net income of $22.5 million on total equity of $203.9 million. The bank reported an annualized return on average assets, or ROA, of 1.37 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.