Asset Quality Score
In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.
Having extensive holdings of these kinds of assets could eventually require a bank to use capital to cover losses, diminishing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, decreasing earnings and increasing the chances of a future failure.
On Bankrate's test of asset quality, Farmers State Bank of Canton scored 40 out of a possible 40 points, above the national average of 37.49 points.
A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.02 percent of Farmers State Bank of Canton'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 to handle problem assets known as an "allowance for loan and lease losses." How large that reserve is can be a helpful indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Farmers State Bank of Canton's loan loss allowance was 5,983.33 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.