Asset Quality Score
Bankrate uses this test to estimate the effect of troubled assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.
A bank with extensive holdings of these kinds of assets may eventually be forced 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 interest for the bank, reducing earnings and increasing the chances of a failure in the future.
5Star Bank beat out the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .
The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 0.01 percent of 5Star 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 1.01 percent.
Banks keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the reserve's size to the total amount of problematic loans can be a handy indicator when evaluating a bank's ability to manage problem assets. 5Star Bank's loan loss allowance was 8,730.00 percent of its total noncurrent loans, exceeding the national average. All things being equal, a higher ratio of loan loss allowance to noncurrent loans is better.