Methodology
How the Composite Score is built
The OptimaYield Composite Score is a 0 to 100 number that ranks a bank against similar-sized banks on ratios taken from its Call Report. It describes where a bank sits among its peers. It does not grade the bank's health.
How to read it
- 50 means the middle of the peer group. It does not mean average health, or a C grade.
- A low score is not a warning. A bank can score low on capital and still hold far more capital than the rules require, if its peers hold even more.
- Peer group. Every other bank in the same asset size band: under $1B, $1B to $10B, $10B to $50B, $50B to $250B, or $250B and over. The largest band is small, so one peer moving can shift a score a lot.
- It is not a supervisory rating and is not derived from confidential examination data.
The formula, step by step
- Each input ratio becomes a percentile against the peer group for the same quarter. A bank with a higher ratio than 80% of its peers gets 80.
- For ratios where lower is better (noncurrent loans, nonaccrual loans, uninsured deposits, brokered deposits), the percentile is flipped: score = 100 minus percentile.
- Each of the four areas is the plain average of its available ratio scores.
- The composite is the weighted average of the four area scores, 25% each. If an area has no score, the remaining areas are reweighted equally.
- The composite is withheld when the areas that do have a score carry less than 50% of the weight. A ratio is skipped when fewer than 5 peers report it. Nothing is ever filled in with a neutral 50.
Worked example: if a bank's four area scores are 44.1, 44.2, 78.4 and 50.0, the composite is (44.1 + 44.2 + 78.4 + 50.0) / 4 = 54.2.
Inputs
| Ratio | Area | Stronger when | Used today |
|---|---|---|---|
| Bank equity to assets | Capital | Higher | Yes |
| Common equity tier 1 ratio | Capital | Higher | Yes |
| Noncurrent loans ratio | Asset quality | Lower | Yes |
| Nonaccrual loans ratio | Asset quality | Lower | Yes |
| Return on assets | Earnings | Higher | Yes |
| Return on equity | Earnings | Higher | Yes |
| Net interest margin | Earnings | Higher | Yes |
| Cash and securities to assets | Liquidity | Higher | Yes |
| Estimated uninsured to domestic deposits | Liquidity | Lower | Not yet. The liquidity area uses its other ratios. |
| Brokered deposits to domestic deposits | Liquidity | Lower | Yes |
Every input is a figure OptimaYield already publishes elsewhere on the profile, with its filing source. The score adds no new data.
What it cannot tell you
- No back-test yet. We have not tested whether the score predicts failures, downgrades or supervisory outcomes, so it must not be used to predict them.
- Two areas are missing. Management quality and interest-rate sensitivity are not included. The first needs examiner judgment. The second is shown separately as a screening estimate on each profile.
- Size bands are coarse. A bank at the edge of a band is compared with a group that may not resemble it.
- It moves when peers move. A bank's score can fall with no change to its own filing.
Version and disclosure
Formula version 1. Scores are recomputed each quarter from the latest published filings. Any change to this formula is recorded on the corrections page.
The OptimaYield Composite Score is OptimaYield's own, independently derived estimate, computed entirely from this institution's own publicly reported Call Report and FDIC financial figures. It is not a supervisory rating, is not derived from confidential examination data, was not produced or reviewed by any bank regulator, and is not equivalent to, does not approximate, and is not a substitute for any regulatory assessment of an institution's safety and soundness. It reflects only the capital, asset-quality, earnings and liquidity dimensions that can be computed from already-published figures -- it does not, and cannot, capture management quality or interest-rate sensitivity, both of which require information this composite has no access to.