LACE Financial has made significant improvements to its products and services over the last several months, most notably, making our LACE Credit Ratings available via the web through our LACE Monitor system, which is described below.  For information on our additional products and services please click on the links to the right.  If you would like to speak to a representative or want a free 30-day trial to use the LACE Monitor System, please contact us.

LACE Monitor System

An efficient and user-friendly online service allowing users to quickly view detailed current and historical financial information, LACE Credit Ratings, and key financial ratios for domestic banks, savings & loans, credit unions, and international banks.  In addition, users are able to create and save queries and export information to various file formats.  Consultation is included in all subscription fees to provide clients with more information or a better understanding of why a particular institution's credit rating changed.

• All U.S Banks and State Chartered Savings
  
  
• Contains LACE Ratings and financial information on all commercial and state-chartered savings banks in the United States
• Designed for larger companies with an extensive number of banking relationships
  
  
• U.S. Savings and Loans
  
  
• Contains LACE Rat ings and financial information on all savings and loan associations and federal savings banks
• Can be tailored to a specific state or states
  
  
• U.S. Credit Unions
  
  
• Contains LACE Ratings and financial information on the 8,700 largest credit unions regulated by the National Credit Union Administration (NCUA)
• Subscribers receive consultation at no additional charge
  
  
• U.S. Bank Holding Companies
  
  
• Contains LACE Ratings and financial information for all multi-bank holding companies, as well as single-bank holding companies with total assets over $500 million
• Provides comments on the activities and earnings releases of the larger holding companies
  
  
• Largest International Banks
  
  
• Contains LACE Ratings and financial information for approximately 250 of the world's largest banking organizations
• Assigns a risk rating to approximately 56 countries
• Clients receive weekly updates on the institutions and countries contained in the service
  
  
• State Service
  
  
• Designed for clients who only require access to LACE Ratings for institutions located in a particular state
• Can be designed to include U.S. Banks, S&Ls, Credit Unions, Bank Holding Companies or any combination thereof

Furthermore, the LACE Monitor System is a database program, which enables the user to:

• Create and store lists of institutions and arrange them by financial soundness ("A" to "E") using pre-defined report formats
• View a subsidiary bank's rating relative to that of its parent bank
• Select individual institutions by name or certificate number from an alphabetical listing
• Design queries based on balance sheet, income statement, LACE ratio items, as well as by location (city, state)
• Save query results/selections in a user-defined list
• Browse income statement, balance sheet, and LACE ratio data for selected institutions, query results, user lists or all institutions in the database
• Export data to one of two file formats for other applications (Comma Delimited Text-.csv or Tab Delimited Text-.txt)
• Print data in a pre-defined report format or in a user-specified format using the Report Writer capabilities

LACE Monitor System data can be customized to contain data on banks, savings and loans, and credit unions, and any combination thereof.  For a more detailed view of the LACE Monitor System's capabilities, please click here.

Back to Top

Watch List

This service is currently available in hard copy only and is a quarterly update on the banks and savings & loans which LACE Financial believes has a higher than normal probability of failure.  The book includes the institutions of concern which are the approximate bottom fifty banks in terms of financial soundness.  In addition, all non-investment grade banks are listed by state along with key financial data and current and historical LACE Credit Ratings.

Back to Top

New Issue Ratings of Trust Preferred Securities

LACE Financial's New Issue Rating services are available for subordinated debt securities issued by an individual institution or a pool of trust-preferred securities.  The rating process involves an extensive financial analysis and assignment of a new issue rating or credit rating to the individual institution or each issuer participating in the pool.  The institutions' financial conditions are evaluated for the most recent quarter and compared to past quarters to determine the stability of their financial condition.

LACE Financial New Issue Ratings are an evaluation of the degree of certainty of interest and principal payments against long-term obligations.  Default risk, along with the probability of failure of the financial institution are the main elements of the rating.  

Framework for Analyzing Default Risk
(in conjunction with institution's credit rating)

Back to Top

New Issue Ratings

The New Issue Rating is LACE Financial's opinion regarding an issuer's certainty to repay its individual financial obligations.  The rating includes the possibility of default on debt payments as well as the probability of overall bank failure since these are closely related.  The two types of New Issue Ratings, Investment Quality and Speculative Quality are defined as follows.

AAA - New Issue Ratings for companies having an exceptionally strong financial condition with the highest capacity to meet timely debt payments and other financial commitments. This is the highest level of credit quality.

AA - New Issue Ratings for companies with a very strong financial condition and the ability to meet credit obligations on a timely basis.  Adverse changes in economic and financial conditions are not likely to affect its ability to meet obligations.

A - New Issue Ratings for companies having a strong financial condition and strong capacity to meet its debt and credit obligations but are likely to be more vulnerable to adverse conditions in financial markets, economic and business conditions.

BBB - New Issue Ratings for companies where the financial condition of the institution is adequate to meet current credit obligations but its ability to meet future obligations could be susceptible to adverse changes in economic, financial and business conditions.

Speculative Quality

BB - New Issue Ratings for companies that can meet current obligations but are more vulnerable than BBB rated companies in meeting their credit obligations because of adverse economic, financial or business conditions.

B - New Issue Ratings for companies judged to have a relatively weak financial condition and the ability to meet credit obligations are likely to be affected by adverse changes in economic, financial or business conditions.

CCC - New Issue Ratings for companies with a weak financial condition and not likely able to meet their credit obligations in an environment where significant adverse economic, financial or business conditions exist.

CC or C - New Issue Ratings for institutions that are highly susceptible to nonpayment of their debt obligations and the institutions may be in or approaching bankruptcy.

Back to Top

Areas of Emphasis

The major source of funds for meeting the interest and principal payments of bonds and other financial obligations is the cash flow generated by the institution's core business activities - interest and non-interest revenue sources.  The more stable and predictable a bank's cash flow, the higher the probability that it will be able to meet its interest and principal payments.  The main ratios used in assessing the ability to repay debt are the institutions' cash to interest expense ratio and the interest coverage ratio.

Default risk is composed of operational risk and financial risk.  Financial risk can be measured as the extent to which total capital and liabilities consist of debt, i.e. outstanding trust preferred securities, while operational risk can be measured as the degree of fluctuation in earnings and cash flow levels.  Along with analyzing the liquidity, asset quality, capital and earnings (described in the LACE Credit Rating Methodology), two important ratios used in assessing the financial risk of a bank holding company are described below.

Qualitative Factors

Evaluating the default risk entails not only a quantitative analysis based on the institutions' financial statements and balance sheets but also an assessment of qualitative factors such as their business strategy, growth opportunities, product diversification, and geographic location.

Back to Top

Initial Investor Rating Report

The institution names which are participating in the security offering are normally provided to LACE Financial by the securities' placement agents/underwriters.  LACE Financial performs an in depth due diligence on the institution, focusing primarily on the current financial health of the bank holding company, bank, or thrift and its ability to service the debt in the future.  LACE Financial looks at the banking market in which the institution offers its services, the particular products and services provided by the bank and its future growth prospects.  A portion of the information is provided by the institution itself by completing a due diligence questionnaire.  The questionnaire provides information on the institution's principal lines of business, the business strategy for the next three to five years, any regulatory agreements the bank has entered into and other qualitative measurements which cannot be obtained from public sources.  Regulatory websites are screened to identify if the institution has been involved in any regulatory cease and desist orders, which may have a significant negative impact on its credit rating.

For the financial health of the institution, LACE Financial focuses on the liquidity, asset quality, capital strength and the earnings as compared to a standard industry benchmark as well as a peer group average.  LACE Financial not only focuses on the holding company on a consolidated basis, but also looks at the lead bank or S&L subsidiary as well as the parent company on a stand alone basis to see if any contingent liabilities or nonperforming assets will lead to the institution defaulting on its debt.  LACE Financial also evaluates the effect the new issue will have on the overall financial condition of the institution.  Normally, the injection of capital has a positive effect on an institution's rating, but a careful analysis of how the capital will be employed and the ability of the institution to service the debt needs to be taken into consideration.  If an acquisition is pending, a complete analysis of the institution to be acquired is necessary.  A loan portfolio analysis is performed to determine the extent that credit and interest rate risk can affect the future financial condition of the institution given changes in the current economic environment.  Of concern are high concentrations to certain types of lending where management may lack the skills and resources to affectively adjust the portfolio in reaction to changes in the economic environment.

Once the due diligence and comprehensive outlook analyses are complete, the institution is assigned a LACE Financial New Issue Rating.  The Initial Investor Rating Report is provided as a comprehensive analysis of the pooled trust preferred security ("TPS") issue on an overall basis.  The New Issue Rating for the TPS is derived as a weighted average of the individual institution's New Issue Rating based on issue size.  The Initial Investor Rating Report describes the characteristics of the TPS by various categories, including type of issuer (bank holding company vs. thrift holding company), type of issue (primary issue vs. secondary purchase), the type of interest paid (floating rate vs. fixed rate).

The Initial Investor Report also views the TPS on a consolidated basis and analyzes the financial strength of the security, i.e. probability of default or deferred payments.  The financial strength of the security is viewed on a par weighted basis, i.e. if Bank A issued 25% of the TPS, its assets would be given a 25% weight for the total assets of the TPS.  The par-weighted data is then used to calculate various ratios used to ascertain the financial institutions' strength and stability in the following categories: liquidity, asset quality, capital, and earnings.  The TPS' loans and securities portfolios are analyzed on a detailed basis to better understand the liquidity and credit risk characteristics of the overall security issue.

An overall banking industry analysis is also provided along with an outlook with a short- to medium-term view of the financial stability for the TPS.  Financial information is included in the appendices displaying the following per issuer: various income statement and balance sheet figures, credit ratings for the past three rating periods, details of the loan portfolios along with changes from the prior quarter, and details of the securities portfolio along with changes from the prior quarter.  Included with the Initial Investor Rating Report are the individual institution analyses, which are described above.

Back to Top

Quarterly Investor Rating Report

The Quarterly Investor Rating Report is provided as a follow on report to the Initial Investor Rating Report, analyzing the financial strength of the TPS with up to date financial information and credit ratings.  A brief description of the characteristics of the TPS is included, i.e. type of issuer, size of issue, average issue size, etc.  Any major changes, i.e., if a particular issuer's security has been called is described.

A distribution of the credit ratings is shown, with the credit rating changes from the prior period highlighted.  The TPS issue is re-evaluated on the basis of current financial information and an updated issue rating is provided.  Detailed descriptions and causes of each issuer's credit rating changes follow, focusing mainly on the changes in liquidity, asset quality, capital strength, and earnings.

As in the Initial Investor Rating Report, the total financial information is viewed on a par-weighted basis to derive the ratios, which are compared to the banking industry averages.  The financial strength and the ratios are viewed in comparison to not only the industry, but the prior period, to better assess the probability of default and the future stability of the TPS.  The loans portfolio is analyzed on a detailed basis to better understand the liquidity and credit risk characteristics of the overall security issue.

An overall banking industry analysis is also provided along with an outlook to provide investors with a short- to medium-term view of the financial stability for the TPS.  Recent merger and acquisition news involving the issuers in the pool is described.  Financial information is included in the appendices displaying the following per issuer: various income statement and balance sheet figures, credit ratings for the past three rating periods, details of the loan portfolios along with changes from the prior quarter, and details of the securities portfolio along with changes from the prior quarter.

Back to Top

Individual Institution Analysis

The individual institution reports are designed for clients who require a more comprehensive analysis of a specific institution.  Quantitative information is also provided with the report and includes the most recent financial information, key LACE ratios, and current and historical LACE Credit Ratings.

The institution analysis begins with a company profile describing the products and services offered and the primary banking markets the institution operates in.  Any major shift of business strategy or recent M&A activity is also highlighted in this section.  The institution is analyzed on a consolidated holding company level, focusing primarily on the four LACE determinants of financial soundness (Liquidity, Asset Quality, Capital, Earnings), with descriptions of any changes described and how those determinants compare to their peer group averages.  Any outstanding long-term debt or trust preferred security issues are also taken into account to properly assess the institution's ability to meet its credit obligations.  The institution is then analyzed on a parent company only basis to ensure any parent company loans or liabilities, which are not consolidated in the holding company's financial statements, are included in the overall credit rating.  A detailed analysis of the lead banking subsidiary is performed, focusing mainly on the four LACE determinants of financial soundness.  The bank's ratios are compared to its peer group averages and reasons for changes in the four determinants are described.  The bank's available-for-sale securities portfolio and lending portfolio are analyzed to highlight any potential risks.

A summary section is included to provide clients with LACE Financial's outlook on the institution's overall financial soundness over the next six to twelve months.  Taken into account are the analyses described above, the bank's primary markets, its future business strategy and growth potential, its earnings stability and the overall economic environment.

The appendix of the report includes the institution's most recent financial information and its key financial ratios, on a historical basis, graphically displayed in comparison to its peer group based on asset size and the overall banking industry.  The institution's lending portfolio composition is also compared to its peer group.

Back to Top

Title Insurance

Claims-Paying Ability Rating Service

LACE Financial rates the claims-paying ability of approximately 100 title insurance underwriters in the United States on a semi-annual basis. Title insurance companies are rated semiannually, as their financial condition can be significantly affected by changes in interest rates and economic conditions, as well as fundamental changes within the industry itself.

The service enables mortgage lenders to comply with Fannie Mae's requirement that "Lenders must independently verify the ratings for the title insurance companies they use with the applicable rating agency once every six months." LACE Financial is an accepted rating company for title insurance underwriters by the Federal National Mortgage Association ("Fannie Mae").

LACE Financial Corporation has developed two separate services which contain Title Insurance Underwriter Ratings.

All Title Insurance Underwriter Rating Services are published on a semiannual basis with a comprehensive year-end edition and a mid-year update. For any questions or a sample Claims-Paying Ability Rating Service report, please contact us.  For a full price list of LACE Financial's Title Insurance Rating Services, please click here.

Commercial Capacity Rating Service

Back to Top