Safe and Sound

Merchants Bank

Jackson, AL
4
Star Rating
Merchants Bank is a Jackson, AL-based, FDIC-insured bank that opened its doors in 1962. Regulatory filings show the bank having equity of $24.6 million on $216.9 million in assets, as of December 31, 2017.

U.S. bank customers have $189.1 million on deposit at 6 offices in AL run by 59 full-time employees. With that footprint, the bank currently holds loans and leases worth $143.0 million, including $115.1 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Merchants Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three major criteria Bankrate used to grade American banks.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a buffer against losses and as protection for depositors when a bank is experiencing economic trouble. Therefore, a bank's level of capital is an essential measurement of a bank's financial fortitude. From a safety and soundness perspective, more capital is better.

Merchants Bank racked up 14 out of a possible 30 points on our test to measure capital adequacy, beating the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Merchants Bank's Tier 1 capital ratio was 15.88 percent, above the 6 percent level considered adequate by regulators, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic difficulties.

Overall, Merchants Bank held equity amounting to 11.33 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

Having extensive holdings of these types of assets may eventually require a bank to use capital to cover losses, diminishing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in diminished earnings and potentially more risk of a failure in the future.

On Bankrate's test of asset quality, Merchants Bank scored 32 out of a possible 40 points, less than 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, 2.17 percent of Merchants 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 to handle problem assets known as an "allowance for loan and lease losses." Comparing the reserve's size to the total amount of at-risk loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Merchants Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or use them to deal with problematic loans, potentially making the bank better able to withstand economic trouble. However, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Merchants Bank scored 16 out of a possible 30, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important measure of a bank's earnings. Merchants Bank's most recent annualized quarterly return on equity was 7.28 percent, below the national average of 8.10 percent.

The bank earned net income of $1.7 million on total equity of $24.6 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.82 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.