Highline Financial, a banking information and analytics firm based in Austin, Texas, and New York, released a report last week that predicted another wave of bank failures in the near future.
But the report also noted that Rhode Island is one of three Northeastern states in which banks have fared the best in terms of bank failure. The report also mentioned two of the best-rated banks in Rhode Island as Centreville Savings Bank and BankNewport. Terry Walters, CEO at Highline, answered five questions about the report.
PBN: In a recent release of data, Highline Financial identified BankNewport in Newport and Centreville Savings Bank in West Warwick as top performing institutions in Rhode Island. How did you reach this conclusion?
WATERS: Highline Financial rates every bank, S&L, credit union and consolidated bank holding company on a quarterly basis. The Highline Rating offers the market a strong predictor of any financial institution’s health and potential for failure and excels at forecasting an institution’s troubles far in advance of failure.
The Highline Rating is based on a scale from zero to 99, with zero being the lowest and 99 being the highest.
Based on our analysis, these two institutions had the highest Highline Peer Rating in the state of Rhode Island for the previously filed quarter.
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PBN: Three states in the Northeast – Rhode Island, Massachusetts and Vermont – were among the top performing states in terms of fewest bank failures. Is there a reason why three of the top performers are in the Northeast?
WATERS: There are many factors that may have led to these states having lower failure rates, such as state lending regulations, commercial growth in the last few years, regional lending trends, and local management’s lending policies, among others. Highline ratings are completely objective and are calculated using quarterly filed financials and do not take certain factors into account.
PBN: Can you say if any of Rhode Island’s banks are on the list of 271 that are at “extreme risk of failure”?
WATERS: There is not a Rhode Island bank or S&L on the list of 271.
PBN: How does Highline’s list match up with FDIC’s watch list?
WATERS: The Highline Watch List is comparable to the FDIC Watch List in regards to the total number of institutions. The FDIC does not release the parameters used to create their list but both the FDIC and Highline use capital adequacy, asset quality, earnings and liquidity ratios to assess an institution’s health and potential for failure.
PBN: Can you identify any trends that you’re seeing in the ratios and ratings?
WATERS: Asset quality is trending negatively but at a significantly decreasing rate when compared to the previous five quarters. Overall, there were 226 fewer commercial and savings banks with a Highline Peer group rating of zero between December 2009 and March 2010. This improvement is primarily a result of an improvement of the earnings ratio (operating profit / average assets) used in the calculation of the rating. This ratio had a weighted average more than four times higher in March 2010 than December 2009 for all commercial and savings banks.
