Company: MGNO
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0000927089-25-000061
Chunk: 10

Company: Magnolia Bancorp, Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 1A
Chunk 10
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 market interest rates change over time. Generally, in a period of rising interest rates, the interest income we earn on our interest-earning assets may not increase as rapidly as the interest we pay on deposits and other interest-bearing liabilities. Conversely, in a period of declining interest rates, the interest income we earn on our interest-earning assets may decrease more rapidly than the interest we pay on our interest-bearing liabilities, as borrowers prepay or refinance mortgage loans, requiring us to reinvest those cash flows at lower, prevailing interest rates.

The high interest rate environment during 2023 and 2024, coupled with the prevailing inverted interest rate yield curve during this period, had an adverse effect on our net interest margin and net interest spread and, therefore, earnings. An inverted interest rate yield curve is where short-term interest rates (which are typically the interest rates at which we and other financial institutions borrow funds and incur interest expense) are higher than long-term interest rates (which are typically the rates at which we and other financial institutions lend funds and earn interest income). As a result of the prevailing high interest rate environment, we have experienced a decline in lower-cost savings accounts and NOW accounts. While our average outstanding certificates of deposit have also generally declined in recent periods, the average rate paid on our certificates of deposit has increased, resulting in decreases in our net interest income. In 2024, our total interest expense increased by $230,000 or 143.8% from 2023 due to higher rates paid on our deposits and borrowings, while our total interest income decreased by $25,000 or 1.7% in 2024 from 2023. In the year ended December 31, 2023, our total interest expense increased by 196.3% from 2022, while our total interest income increased by only 4.6% in 2023 from 2022. Our average interest rate spread declined to 2.43% for 2024 compared to 3.41% for 2023.

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Changes in the level of interest rates may also negatively affect the value of our assets. While we do not have any available-for-sale investment securities that need to be marked to market and generally do not sell loans that we originate, the value of our fixed-rate loan portfolio declines when interest rates increase.

We monitor interest rate risk through the use of simulation models, including estimates of the amounts by which the fair value of our assets and liabilities (our economic value of equity,