Now that you have a fairly good understanding of each CAMELS component and the rating process, it's time to talk about the overall composite rating that examiners assign to your bank. It's important to know that the composite rating is not the arithmetic average of the component ratings. Some components are given more weight than others, depending on how critical they are to the overall health of the bank. For example, the management component is factored in very heavily, because weaknesses in management oversight can affect every aspect of the bank. Also, examiners typically place more emphasis on asset quality when assigning a composite rating. This is because of the "domino" effect that asset problems can have on your bank. For instance, problem loans can directly impact earnings through lost interest income, higher collection expenses, and higher provisions for loan losses. Furthermore, additional capital may be necessary for the bank's increased risk profile.

Let's review the ratings we assigned to the CAMELS components at First State Bank.

Now take a look at the following composite rating definitions and see which one is most appropriate for First State Bank.