Asset Quality Score
In this test, Bankrate tries to determine the impact of problem assets, such as unpaid loans, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.
A bank with a large number of these types of assets may eventually be required to use capital to absorb losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, pushing down earnings and elevating the risk of a failure in the future.
Newton Federal Bank fell short of the national average of 37.49 on Bankrate's asset quality test, racking up 36 out of a possible 40 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, 2.20 percent of Newton Federal Bank's loans were noncurrent -- in other words, 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 known as an "allowance for loan and lease losses" to deal with problem assets . That reserve's size can be a useful indicator when evaluating a bank's ability to manage troubled assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Newton Federal Bank's loan loss allowance in its most recent filings.