Asset Quality Score
Bankrate uses this test to estimate the impact of troubled assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.
A bank with extensive holdings of these kinds of assets may eventually have to use capital to cover losses, shrinking its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, diminishing earnings and elevating the risk of a failure in the future.
On Bankrate's test of asset quality, Farmers State Bank of Underwood scored 32 out of a possible 40 points, lower than 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, 2.25 percent of Farmers State Bank of Underwood'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 keep a reserve to deal with problem assets known as an "allowance for loan and lease losses." The size of that reserve 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. Unfortunately, the FDIC did not provide information on Farmers State Bank of Underwood's loan loss allowance in its most recent filings.