Asset Quality Score
In this test, Bankrate tries to determine the impact of troubled assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.
Having a large number of these kinds of assets suggests a bank may eventually have to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, reducing earnings and increasing the risk of a future failure.
On Bankrate's test of asset quality, Bank of the Sierra scored 40 out of a possible 40 points, exceeding the national average of 37.49 points.
The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.27 percent of Bank of the Sierra'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 . How large that reserve is can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Bank of the Sierra's loan loss allowance in its most recent filings.