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 troubled assets, such as past-due mortgages.
A bank with a large number of these kinds of assets could eventually be required to use capital to cover losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and no longer earning money, decreasing earnings and elevating the chances of a failure in the future.
On Bankrate's test of asset quality, Happy State Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.
The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 1.03 percent of Happy State Bank'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 maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." That reserve's size can be a handy indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Happy State Bank's loan loss allowance in its most recent filings.