Asset Quality Score
This test's purpose is to estimate how the bank's loan loss reserves and overall capitalization could be affected by problem assets, such as unpaid mortgages.
A bank with extensive holdings of these kinds of assets may eventually be forced to use capital to cover losses, cutting down on its equity buffer. Many of those assets are also likely to be in non-accrual status and no longer earning money, resulting in lower earnings and potentially more risk of a future failure.
On Bankrate's test of asset quality, Farmers and Merchants State Bank, Bloomfield, Nebraska scored 40 out of a possible 40 points, beating 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, 0.07 percent of Farmers and Merchants State Bank, Bloomfield, Nebraska'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 maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." 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. Farmers and Merchants State Bank, Bloomfield, Nebraska's loan loss allowance was 1,767.19 percent of its total noncurrent loans, higher than the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.