While we certainly are dealing with the challenges that this economy is throwing at us, we are well-capitalized and expect to remain that way. Bankrate.com is a well-respected resource. In our case, however, their ratings formula does not appear to be capturing our essence.

Bankrate.com is a website which, among other things, produces a rating for each financial institution in the country. Although we do not know exactly how they calculate their rating, they apparently use publicly-available information and put in into their formula. For the quarter ending September 30, 2009, Verity received a low rating.

Should anyone be concerned about this? I don’t think so.

Our country is going through a difficult economy, with lots of unemployment. In addition, housing values have fallen considerably. We have been very aggressive in working with members so that they can remain in their homes while continuing to make their loan payments. Many of these workouts result in a change in the payment amount and so we must report them as delinquent loans. It appears that the formula used by Bankrate.com assumes that all of these loans are “non-performing”. The amount of these loans for Verity has climbed over the last year due to our philosophy that it is better both for Verity and our members to show flexibility with our members.

We believe that the way we have done things will result in more loans being paid as agreed over the long term. So far, this has proven to be true. In the meantime, we must follow the rules and record these loans as delinquent. We intend to continue this practice.

In an explanation of their ratings system, Bankrate mentions that the operating strategies of each individual financial institution “may lead to ratings that are not truly reflective of an individual institution’s financial situation”. We believe this to be the case with Verity. While we certainly are dealing with the challenges that this economy is throwing at us, we are well-capitalized and expect to remain that way. Bankrate.com is a well-respected resource. In our case, however, their ratings formula does not appear to be capturing our essence.

William R. Hayes

No biography available for this author.

7 Responses

  1. matthew says:

    Fair enough, I still have supreme confidence.

  2. Colin Henderson says:

    This is a fascinating post for me that sits right on the cusp of the changes in the pre crisis/ post crisis world.

    The fascinating aspect lies in the shifts within and across countries, and open versus closed communication.

    The traditional measurements that the Bankrates of the world are using will not accommodate nor take into account these shifts. I had not noticed their bank rating system before but now that I look at it I have more questions than answers. Why is Citi a 3 star with 15:1 debt to equity (feb 2010)? Who has greater chance of survival between Cit and Verity one might ask.

    Anyhow having followed Verity from a distance, because of Shari’s work for years now, tells me you are on the right track.

  3. Thomas says:

    I’ve banked here (NWFCU/Verity) since 1985 and I still have faith. Member services have always been awesome! The way that the FED has calculated reserve requirements does not always reflect the strength of an institution. Keep on keeping on!

  4. Dave says:

    I’ll bet that other banks that are now out of business said similar things as their ratings went to zero. There’s no information here about why Bankrate has gotten it wrong which should make you a little nervous. Makes me a little nervous. BECU here I come.

  5. Chris says:

    I’d like to see the actual numbers.

    At a Verity CU member meeting before this recent banking crisis, the mortgage defaults were put to the membership as normal business, which, by the faces of many members, didn’t wash. One of the staff then stated how most of the bad loans were being sold before they became a problem—for who? But Verity CU was having financial problems then, and at least partly because of those loan defaults. Fast forwarding to now, the financial world is in much worse shape. So without actual numbers, Bill’s response just sounds like poop.

  6. William R. Hayes says:

    We continue to acknowledge that we, like all other financial institutions, are concerned about how the economy is effecting mortgage losses. However, even with if our loan losses get somewhat worse, we will remain well-capitalized

  7. James says:

    This looks like a pretty thorough rundown of the numbers. FYI Not sure what it all means but I am sure there is a lot of bad debt out there.

    http://www.creditunions.com/Data/Cusearch/5300.aspx?rpt=99&id=14198&cycle=20094

    http://www.creditunions.com/Data/Cusearch/default.aspx?id=14198

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