Asset Quality Score
This test's purpose is to estimate how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by problem assets, such as unpaid mortgages.
Having extensive holdings of these kinds of assets could eventually require a bank to use capital to cover losses, diminishing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning money, reducing earnings and elevating the risk of a failure in the future.
On Bankrate's asset quality test, Farmers State Bank scored 40 out of a possible 40 points, above 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, 0.17 percent of Farmers State Bank'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 known as an "allowance for loan and lease losses" to deal with troubled assets . 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 Farmers State Bank's loan loss allowance in its most recent filings.