WHAT IS
SAFE AND SOUND?
Capital is a useful measurement of an institution's financial strength. It works as a bulwark against losses and as protection for accountholders when a bank is struggling financially. From a safety and soundness perspective, the more capital, the better.
On our test to measure the adequacy of a bank's capital, The Muncy Bank and Trust Company received a score of 12 out of a possible 30 points, less than the national average of 13.13.
One way to measure this buffer is looking at a bank's Tier 1 capital ratio. The Muncy Bank and Trust Company's Tier 1 capital ratio was 15.74 percent, exceeding 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, The Muncy Bank and Trust Company held equity amounting to 10.13 percent of its assets, which was lower than the national average of 12.03 percent.
This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due mortgages.
A bank with a large number of these types of assets may eventually have 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 thus aren't earning money, resulting in reduced earnings and potentially more risk of a future failure.
The Muncy Bank and Trust Company scored above the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .
A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.27 percent of The Muncy Bank and Trust Company'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 keep a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on The Muncy Bank and Trust Company's loan loss allowance in its most recent filings.
How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, boosting its capital cushion, or be used to address 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.
The Muncy Bank and Trust Company scored 14 out of a possible 30 on Bankrate's earnings test, below the national average of 15.12.
One important measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by the total amount of equity. The most recent annualized quarterly return on equity for The Muncy Bank and Trust Company was 6.48 percent, below the national average of 8.10 percent.
The bank reported net income of $2.8 million on total equity of $43.3 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 0.68 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.
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.
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.