Safe and Sound

Magnolia Bank, Incorporated

Magnolia, KY
5
Star Rating
Magnolia Bank, Incorporated is a Magnolia, KY-based, FDIC-insured bank that opened its doors in 1919. Regulatory filings show the bank having equity of $23.8 million on $240.5 million in assets, as of December 31, 2017.

U.S. bank customers have $197.9 million on deposit at 6 offices in multiple states run by 346 full-time employees. With that footprint, the bank holds loans and leases worth $191.5 million, $147.3 million of which are for real estate.

Overall, Bankrate believes that, as of December 31, 2017, Magnolia Bank, Incorporated exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three major criteria Bankrate used to grade American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

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

Magnolia Bank, Incorporated scored below the national average of 13.13 on our test to measure the adequacy of a bank's capital, scoring 6 out of a possible 30 points.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. Magnolia Bank, Incorporated's Tier 1 capital ratio was 13.84 percent, exceeding the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic difficulties.

Overall, Magnolia Bank, Incorporated held equity amounting to 9.92 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 loan loss reserves and overall capitalization could be affected by troubled assets, such as unpaid mortgages.

A bank with lots of these types of assets could eventually be forced to use capital to absorb losses, cutting down on 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 interest for the bank, pushing down earnings and increasing the chances of a failure in the future.

Magnolia Bank, Incorporated exceeded the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.24 percent of Magnolia Bank, Incorporated'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 problem assets . The size of that reserve can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Magnolia Bank, Incorporated's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings can be retained by the bank, boosting its capital buffer, or be used to deal with problematic loans, likely making the bank better prepared to withstand financial shocks. However, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Magnolia Bank, Incorporated scored 24 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for Magnolia Bank, Incorporated was 16.24 percent, above the national average of 8.10 percent.

The bank recorded net income of $3.8 million on total equity of $23.8 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.80 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.