Asset Quality Score
Bankrate uses this test to estimate the impact of troubled assets, such as past-due loans, on the bank's capitalization and allocated loan loss reserves.
Having extensive holdings of these kinds of assets means a bank could have to use capital to cover losses, cutting down on its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in lower earnings and potentially more risk of a failure in the future.
American Federal Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, above the national average of 37.49.
A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.05 percent of American Federal Bank's loans were noncurrent -- in other words, 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 troubled assets . Comparing the size of that reserve to the total amount of problem loans can be a helpful indicator when evaluating a bank's ability to manage troubled assets. American Federal Bank's loan loss allowance was 2,706.77 percent of its total noncurrent loans, exceeding the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.