BauerFinancial to start issuing ratings for de novo banks

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BauerFinancial in Coral Gables, Fla., is set to provide ratings for de novo banks.

Karen Dorway, BauerFinancial's president and director of research, told American Banker on Thursday that the private bank and credit union ratings agency will include de novos its next round of ratings. Those ratings are expected to be released next week.

BauerFinancial will base its initial ratings on new banks’ first call reports. Previously, the company waited until new banks had longer operating histories before assigning a rating.

Still, it will take at least two years for a new bank to receive BauerFinancial's top ratings, given the importance of historical trends.

The change was applauded by Dan Yates, CEO of Endeavor Bank in San Diego, which opened in January.

Endeavor has been barred from participating in a California small-business lending program because it lacks a three-star rating from BauerFinancial.

“It’s going to really be helpful in so many ways," Yates said in an interview. "I tried to help California realize that their logic behind that was flawed. In order to get a charter, the amount of work you have to go through is extensive, so to keep new banks out of the program is almost discriminatory.”

It’s unclear how many other lending programs, if any, require banks to have a BauerFinancial rating. Industry observers said it is rare for such programs to rely on third-party data.

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