How Do You Rate?: Q&A with VERIBANC President

by Banking.com Staff February 27, 2014   Insights

Mike Heller Veribanc

We recently spoke with VERIBANC, a company that provides bank ratings on all U.S. federally insured financial institutions. Michael Heller, president of the company, told Banking.com about what the VERIBANC does and who they work with.

 

Q: Can you tell us more about VERIBANC?

A: We’ve been in business since 1981 and our bank rating system has helped banks, consumers, business people and government offices manage banking risk and protect their deposits and investments against bank failure and fraud.

Q: How do you develop your bank ratings?

A: The ratings are developed using our existing ‘Beyond CAMELS’ quantitative only methodology. This methodology has been audited and approved by several insurance companies for use with insuring deposits in excess of the FDIC’s limit. No bank or holding company has ever paid us to rate them. We have always published our track record (ratings effectiveness) and not just a few of the good years.

Q: What does your track record look like?

A: We don’t claim to be perfect, just optimally tuned. Our current ratings effectiveness rate is over 99 percent, while our false alarm rate is about 20 percent. Our rating system is unique in that we do not “conservatively adjust” our criteria so that a large part (30 percent or higher) of the banking industry winds up in our lower rating categories – so as to improve or inflate our predictive results. Instead we balance predictability of bank failure with false alarms, so we can provide our customers with true value. We even publish our track record on our website at: http://www.veribanc.com/TrackRecord.php.

Q: What products do you offer to help Banks and Credit Unions meet regulatory standards?

A: Our most popular report for banks is our Regulation F Report. Comparable to this for Credit Unions is our Section 703 Due Diligence Report.

Q: You released your Q4 ratings at the end of 2013. Can you share an excerpt with us?

A: Our Director of Modeling at VERIBANC, Milton Joseph, wrote the following on “Size Equals Strength”

The FDIC’s recently released September 2013 (Quarterly Banking Profile) reveals an overall sound condition and continued financial improvement among the nation’s Insured commercial and savings banks. For the quarter, the sector achieved a nearly 1.0% return on average assets, and, as of September 30th, the industry’s Leverage (Core Capital) Ratio reached 9.4%. Nonperforming Assets-to-Assets fell to 1.8% at that date. At mid-year, comparable percentages were 9.3% and 1.9%, respectively.

Our asset size review indicates that small banks and thrifts, those with assets of less than $100 million, demonstrated particular strength. As of September 30th, that category of institution reported a Leverage Ratio of 11.7% and a Loss Reserve-to-Noncurrent Loan Ratio of 87.4%. Both percentage were the highest among any of the measured asset-size peer groups.

Interestingly, at September 30th, deposits held by FDIC-Insured institutions exceeded $11.0 trillion. Included in that total were deposits of close to $1.6 trillion that were higher than the FDIC’s $250 thousand Insurance limit. Nearly all of the $1.6 trillion of Un-Insured deposits (91.6%) were held at large institutions with total assets greater than $10 billion. One might conclude that size does continue to equate to strength 

 

To learn more you can go to www.veribanc.com.

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