Asset Quality Score
This test is intended to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid loans.
Having extensive holdings of these kinds of assets suggests a bank could 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 interest for the bank, diminishing earnings and increasing the risk of a future failure.
1st State Bank fell short of the national average of 37.49 on Bankrate's test of asset quality, racking up 36 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, 1.71 percent of 1st State Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above 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 . The size of that reserve can be a useful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on 1st State Bank's loan loss allowance in its most recent filings.