New Dominion Bank Takes Hit In Bauer Financial Ratings

New Dominion Bank has recently returned to profitability, so what's behind a huge blow in their Bauer Financial rating?

New Dominion Direct is a bank which has just started a major new push into online banking, and offers some strong rates which rank among the most competitive in BestCashCow.com's savings chart and many categories in BestCashCow.com's CD charts. We therefore noticed immediately when Bauer Financial recently socked New Dominion Direct with a big drop in its rating, from a three and a half star rating to a two star rating. That is a pretty substantial drop, and even though Bauer only updates its rates every three months, an unusually large deterioration all at once.

What's driving this problem? New Dominion's first quarter report suggests it right from its first sentence. "Charlotte, N.C., May 10, 2010--New Dominion Bank today reported that it returned to profitability in the first quarter of 2010, as net interest margins widened while non-interest expenses and foreclosure-related losses declined from last year's peaks."

Since we know that Bauer ratings are driven by a series of ratios, it's easy to suggest that a bank that only recently became profitable again would get socked with some bad news in the ratios. Add to this a short-term cash flow issue evidenced by a cut in short-term interest payouts, which in turn encourages customers to put their money in longer-term issues that New Dominion won't have to pay out on any time soon, and what you're looking at is bad numbers today, but not necessarily tomorrow.

A big key is how badly New Dominion got hit by foreclosure losses--a year ago, they had ZERO foreclosure losses. But over the past two quarters that went to 1.67 million dollars, before trailing off to just this last quarter's count of $58,109, a huge drop from just a few months ago.

For their part, New Dominion's got a plan, going after non-interest expenses and loan volume to give them a better position. And indeed, it does seem like a short-term issue that may improve. Of course, New Dominion is an FDIC insured bank, meaning all deposits are insured by the federal government for up to two hundred and fifty thousand dollars. While the Bauer hit is a pretty substantial issue, deposits will be safe as long as they are careful to stay below FDIC limits.

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