Asset Quality Score
In this test, Bankrate tries to determine the impact of problem assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.
Having a large number of these kinds of assets could eventually force a bank to use capital to absorb losses, diminishing 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 interest for the bank, pushing down earnings and elevating the risk of a failure in the future.
On Bankrate's asset quality test, Colombo Bank scored 36 out of a possible 40 points, coming in below the national average of 37.49 points.
A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 2.09 percent of Colombo 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 maintain a reserve to deal with problem assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Colombo Bank's loan loss allowance in its most recent filings.