Asset Quality Score
In this test, Bankrate tries to determine the effect of problem assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.
Having a large number of these types of assets may eventually force a bank to use capital to absorb losses, shrinking its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in lower earnings and potentially more risk of a future failure.
First State Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating out the national average of 37.49.
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, 0.16 percent of First State Bank's loans were noncurrent, meaning 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 known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a helpful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. First State Bank's loan loss allowance was 1,853.85 percent of its total noncurrent loans, higher than the national average. All else being equal, the higher the ratio of loan loss allowance to noncurrent loans, the better.