Safe and Sound

Midwest Bank

Detroit Lakes, MN
5
Star Rating
Midwest Bank is an FDIC-insured bank founded in 1917 and currently headquartered in Detroit Lakes, MN. The bank holds equity of $38.2 million on $407.7 million in assets, according to December 31, 2017, regulatory filings.

U.S. bank customers have $357.8 million on deposit at 7 offices in MN run by 81 full-time employees. With that footprint, the bank currently holds loans and leases worth $356.1 million, including $228.7 million worth of real estate loans.

Overall, Bankrate believes that, as of December 31, 2017, Midwest Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three key criteria Bankrate used to score U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is an important measurement of an institution's financial fortitude. It works as a bulwark against losses and as protection for depositors when a bank is struggling financially. When it comes to safety and soundness, more capital is preferred.

On our test to measure the adequacy of a bank's capital, Midwest Bank received a score of 10 out of a possible 30 points, less than the national average of 13.13.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Midwest Bank's Tier 1 capital ratio was 10.64 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial challenges.

Overall, Midwest Bank held equity amounting to 9.38 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test is intended to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid loans.

Having a large number of these types of assets could eventually force a bank to use capital to absorb losses, reducing its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning money, decreasing earnings and elevating the risk of a future failure.

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

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.60 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 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . That reserve's size can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of at-risk 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 affects its long-term survivability. A bank can retain its earnings, increasing its capital buffer, or put them to work addressing problematic loans, likely making the bank better prepared to withstand economic shocks. Losses, on the other hand, take away from a bank's ability to do those things.

On Bankrate's earnings test, Midwest Bank scored 30 out of a possible 30, better than the national average of 15.12.

One widely used measure of a bank's earnings is return on equity, or net income (essentially profit) divided by the total amount of equity. Midwest Bank's most recent annualized quarterly return on equity was 23.25 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $8.5 million on total equity of $38.2 million. The bank experienced an annualized return on average assets, or ROA, of 2.17 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.