Asset Quality Score
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 large numbers of these kinds of assets could eventually be required to use capital to absorb losses, shrinking its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in depressed earnings and potentially more risk of a failure in the future.
On Bankrate's test of asset quality, Andover State Bank scored 40 out of a possible 40 points, beating out the national average of 37.62 points.
A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.06 percent of Andover State 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 1.04 percent.
Banks maintain a reserve to handle problem assets known as an "allowance for loan and lease losses." The size of that reserve can be a widely used indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Andover State Bank's loan loss allowance was 1,786.49 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.