Asset Quality Score
Bankrate uses this test to estimate the impact of problem assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.
Having extensive holdings of these kinds of assets could eventually force a bank to use capital to absorb losses, reducing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, pushing down earnings and elevating the risk of a future failure.
On Bankrate's asset quality test, Citizens & Northern Bank scored 36 out of a possible 40 points, failing to reach the national average of 37.62 points.
The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of June 30, 2017, 1.82 percent of Citizens & Northern Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.04 percent.
Banks keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." 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 Citizens & Northern Bank's loan loss allowance in its most recent filings.