Asset Quality

CRITERIA AND DETERMINATION

Asset quality is high loan concentrations that present undue risk to the Bank;

  • The appropriateness of investment policies and practices;
  • The investment risk factors when compared to capital and earnings structure; and
  • The effect of fair (market) value of investments vs. book value of investments.

The asset quality rating is a function of present conditions and the likelihood of future deterioration or improvement based on economic conditions, current practices and trends.

The examiner assesses Bank’s management of credit risk to determine an appropriate component rating for Asset Quality. Interrelated to the assessment of credit risk, the examiner evaluates the impact of other risks such as interest rate, liquidity, strategic, and compliance.

The quality and trends of all major assets must be considered in the rating. This includes loans, investments, other real estate owned (ORE0s), and any other assets that could adversely impact a Bank’s financial condition.

RATINGS

A rating of 1 reflects high asset quality and minimal portfolio risks. In addition, lending and investment policies and procedures are in writing, conducive to safe and sound operations and are followed.

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