Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, subordinated debt rating of BBB-, and short-term debt rating of K3 for Henderson, Texas-based VeraBank, Inc. ("VeraBank" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, VeraBank, National Association. The Outlook for all long-term ratings is Stable.
VeraBank has consistently displayed conservative liquidity management including a higher level of cash and securities on-balance sheet, with a loan-to-deposit ratio generally below 70%. As such, the balance sheet is more liquid and generally comprised of lower risk compared to similarly sized peers. Given the company’s favorable funding composition, with total deposit costs trending at less than 50 bps, VeraBank has benefited from an above average NIM in recent periods. Spread revenues may be pressured given the current low rate environment, though the company’s revenues are aided by a proportionately higher level of noninterest income relative to similarly rated peers. KBRA also recognizes the fee revenues as comparatively diverse. While VeraBank’s ROA tracks in line with its peer group, risk-adjusted returns are relatively above average given the company’s lower level of risk-weighted assets.
Concentration risks are generally well contained within the loan book, though Phase-1 COVID-19 exposures are somewhat elevated – with notable concentrations in retail & hotel properties, and a slight exposure to energy lending. These particular portfolios are at higher risk given current macro-economic conditions. With that said, KBRA recognizes the underwriting on those portfolios to be conservative and commensurate with the potential risks. Moreover, despite the elevated exposure to these industries, VeraBank has experienced minimal deferral requests thus far. KBRA also acknowledges that NPA levels are moderately higher, though loss content has remained negligible in recent years. Additionally, while the core capital position lags similarly rated peers, this is largely a product of the construct of the balance sheet with lower risk-weighted assets, leaving regulatory capital measures in line with peer averages.
KBRA continues to monitor the potential direct and indirect effects of coronavirus (COVID-19) on the banking and other sectors. Please refer to our publication Coronavirus (COVID-19): U.S. Banks Stable Despite Uncertainties for more detail.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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