Asset Quality Score
In this test, Bankrate tries to determine the effect of troubled assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.
A bank with large numbers of these kinds of assets could eventually have to use capital to absorb losses, diminishing its equity cushion. Many of those assets are also likely to be in non-accrual status and no longer earning interest for the bank, pushing down earnings and increasing the chances of a failure in the future.
On Bankrate's test of asset quality, The Shelby State Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.
A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.08 percent of The Shelby 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 troubled assets . Comparing how large that reserve is to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. The Shelby State Bank's loan loss allowance was 1,340.50 percent of its total noncurrent loans, above the national average. All else being equal, a higher ratio of loan loss allowance to noncurrent loans is better.