Asset Quality Score
In this test, Bankrate tries to estimate the effect of problem assets, such as past-due loans, on the bank's capitalization and allocated loan loss reserves.
A bank with large numbers of these kinds of assets may eventually be forced to use capital to absorb losses, reducing 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 interest for the bank, pushing down earnings and elevating the risk of a future failure.
On Bankrate's asset quality test, Macatawa Bank scored 40 out of a possible 40 points, beating out the national average of 37.49 points.
A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.03 percent of Macatawa 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 . Comparing the size of that reserve to the total amount of at-risk loans can be a widely used indicator when evaluating a bank's ability to manage troubled assets. Macatawa Bank's loan loss allowance was 4,202.53 percent of its total noncurrent loans, exceeding the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.