Safe and Sound

McGehee Bank

Mcgehee, AR
5
Star Rating
McGehee Bank is a Mcgehee, AR-based, FDIC-insured bank started in 1933. The bank has equity of $17.0 million on assets of $119.7 million, according to December 31, 2017, regulatory filings.

With 28 full-time employees in 4 offices in AR, the bank has amassed loans and leases worth $93.5 million, including real estate loans of $31.4 million. U.S. bank customers currently have $102.3 million in deposits with the bank.

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

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is crucial. It acts as a bulwark against losses and affords protection for depositors during times of financial instability for the bank. When looking at safety and soundness, the more capital, the better.

On our test to measure the adequacy of a bank's capital, McGehee Bank achieved a score of 20 out of a possible 30 points, exceeding the national average of 13.13.

One way to measure this buffer is looking at a bank's Tier 1 capital ratio. McGehee Bank's Tier 1 capital ratio was 15.78 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio means the bank will be better able to weather financial difficulties.

Overall, McGehee Bank held equity amounting to 14.21 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

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

Having a large number of these types of assets could eventually force a bank to use capital to cover losses, cutting down on its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in lower earnings and potentially more risk of a future failure.

McGehee Bank exceeded the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 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, 0.04 percent of McGehee Bank's loans were noncurrent, meaning 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 keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. McGehee Bank's loan loss allowance was 4,671.43 percent of its total noncurrent loans, exceeding the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.

Earnings score

A bank's earnings performance 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, potentially making the bank more resilient in tough times. Losses, on the other hand, lessen a bank's ability to do those things.

McGehee Bank beat the national average on Bankrate's earnings test, achieving a score of 22 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, basically) by the total amount of equity. The most recent annualized quarterly return on equity for McGehee Bank was 12.18 percent, above the national average of 8.10 percent.

The bank recorded net income of $2.1 million on total equity of $17.0 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.67 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.