Historic average bank operating metrics

A historical perspective can be valuable when trying to place a bank into context.  We all know that rates are lower than they’ve been in decades, but are banks any less profitable?

We decided to put together 10 years of historical bank stats as a way to gain a perspective on where banks current stand.  (A link to download the spreadsheet is below)

From this data we built a few charts shown below.  The most interesting chart is one showing bank funding cost, yield on earning assets and net interest margin.  As rates have declined the earning yield on assets has declined slower than what banks have paid to depositors.  This has resulted in a lower overall net interest margin, but not as low as some would expect.  Bank average NIM peaked at 4.18% in 2005 and as of 2014 stood at 3.7%.  As rates have fallen to zero the average NIM only fell 11%.

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Another interesting chart is of bank capital:

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Why is this chart interesting?  Because it’s hard to find the financial crisis on the chart.  Bank capital has remained mostly steady since 2004.  This is average bank capital across all banks, and yes, there were bank failures.  But as an industry banking has remained fairly steady since 2004.  Certain segments of the banking industry are holding more capital now compared to in the past, but as a whole the industry is fairly stable.

If you’re interested in digging into this data we’ve provided a link to download the entire spreadsheet with raw data below.

Download the spreadsheet: CompleteBankData_BankingStats_Annual

Drilling down into bank details

“The devil is in the details”

A lot can be gleamed by looking at summary level information for a bank, but to truly understand a bank one must dive into the details.  Fortunately CompleteBankData provides information on over 2,000 individual financial metrics that are easy to access and use.

In this email we’re going to walk through how to investigate granular loan details for a given bank.

Navigate to the Details page by clicking Details on the menu bar.  Then click the Actions menu and select Find Bank or Holding Company.  On the Find Bank or Holding Company dialog box enter “Allegheny” and click Find.  Select “Allegheny Valley Bank of Pittsburgh” and click OK.

You will be shown the screen below:Screen Shot 2015-04-07 at 4.08.48 PM

This is the main detail page.  At the top you will see the stock price if the bank is traded.  At the top right is a drop down menu displaying that you’re on the Summary page.  The left side contains relevant operating and market statistics (if the bank is traded).  If you scroll down you’ll see an income statement summary, balance sheet summary and loan summary table.

Click the drop down that’s labeled Summary.  Then select Loans.

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This will take you to the detailed loans page.

Screen Shot 2015-04-07 at 4.12.11 PMAt the top of the page are graphs showing the trend of the banks different types of loans.  Below the graphs are various financial tables showing the bank’s loan breakdown.

If you click on the green arrow next to the title you will be presented with a menu allowing you to change the perspective of the table.  Financial data tables can display data in a quarterly format, or annual format.  Additionally all data tables can be exported to Excel.

When looking at Allegheny Valley Bank of Pittsburgh we notice that their loans have grown from $214m in Q4 of 2012 to $237m in Q4 2014.  Further investigation shows that they have no agricultural lending, farmland lending, or lending to foreign depository institutions (foreign banks).

For example let’s assume we like the look of the loan book but are worried about asset quality.  On the drop down menu at the top right of the screen select Asset Quality.

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The bank’s non-current loans to loans looks fairly low indicating a quality loan book.

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Selecting other pages in the drop down menu yields similar details for other aspects for the bank.

If you’re interested in more information, or interested in a webinar on how to analyze banks please contact us:

email: info@completebankdata.com   phone: (866)591-8315

 

Customized reporting

Looking for custom reports, historical data feeds or API access?  CompleteBankData has you covered with a number of different ways to access our data and incorporate it into your systems.

If you’re interested in any custom reporting please contact us so we can discuss your specific needs.

Email: info@completebankdata.com    Phone: (866)591-8315

Custom Reporting

You probably have a number of custom Excel reports filled with formulas and formatting that you painstakingly crafted.  Getting data into these worksheets is unfortunately a manual process.  We can take your custom Excel templates and populate them with our data, automatically, and on-demand.

We configure our system to work with your template and add it to a list of custom reports you have access to via the My Banks page.

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API Access

We built CompleteBankData with scalability and expandability in mind.  The user interface and data warehouse are connected via our own API, the same API we make available to customers.

We have API endpoints for bank details as well as searching and storing bank information.  API endpoints can be tailored to your needs.  Our API includes an authentication mechanism and is secured by SSL.

If you have an application that would benefit from the inclusion of bank data you are probably a candidate for API access.

Historic Data Feeds

Want a set of fields for all banks dating back to 2003? Or maybe all bank data for all banks?  Our database is a point-in-time system perfect for data mining or historic quant strategy testing.  We can provide historic data tailored to exactly what you want.  Feeds are proprietary to your firm and customized to include only the data you need.

Exporting data to Excel from CompleteBankData

A natural question when looking at our database is “where does all this data come from?”  The thought of calling 6,000+ banks and manually inputting thousands of pieces of data is overwhelming, but thankfully that’s not what we have to do.  We pull our data straight from three sources, the FDIC Call Reports, Federal Reserve holding company reports, and SEC filings.

All US banks are required to file FDIC Call Reports and holding company reports quarterly (bi-yearly for small holding companies).  These reports are great at capturing information for regulators in a format regulators can use.  But they’re not as useful for investors or bankers, or really anyone who is familiar with financial statements.

We aggregate, standardize, format and then create custom metrics from the regulatory data. But we don’t just display the data better we also provide a set of tools that allows finding, comparing and manipulating the data easier.

Exporting to excel

Viewing data on a screen is great, but there is nothing like having the numbers in front of you and being able to manipulate them in Excel.  Like all of our system we provide fine grained control of Excel exports allowing you to export everything from a single table all the way up to every piece of data we have on a bank or holding company in a single spreadsheet.

Exporting a table

The smallest amount of data that can be exported is a single data table.  Every data table in CompleteBankData is exportable.  To export click on the green arrow next to the table’s title.  A menu will appear giving the option of downloading that table to Excel.

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Exporting a bank or holding company

If you need more than a single table worth of data exporting either a summary or full bank detail is appropriate.  A summary export only includes the data tables shown on the Summary page for a bank or holding company.  These tables include, income statement summary, balance sheet summary, loan summary.  A full download includes all tables for the selected bank from all sub-pages.

On the bank’s Summary page click the green Actions menu.  A dropdown menu will appear with two options: Download Summary to Excel and Download All Details to Excel.  Select either of these options to export into Excel.

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Exporting a set of banks compared to each other

At times it’s helpful to compare banks against each other, or manipulate a given metric over a variety of banks.  CompleteBankData makes this possible by enabling users to export comparison results to Excel.

Anywhere in the application where a bank name is listed you have the ability to add that bank to the Compare page.  From any of these menus select Send to Compare.  The graphic below shows the menu in the search results.  The Send to Compare link is also available on bank detail pages and the My Banks page.

Select Send to Compare to add a bank to the Compare page.

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Alternatively you can add a bank directly to the Compare page by clicking the green actions menu and selecting Find.

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After you are satisfied with the set of banks you’d like to compare select the green Actions menu again to add additional fields to compare against.

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Your comparison screen show look similar to the following picture.  The only limit on the number of banks or fields that can be added to this page is your imagination.Capture05

When you are satisfied with your custom comparison set click the Download Results link in the upper right hand corner of the screen.  This will initiate the export to Excel.

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Shown below is a picture of our custom comparison set in Excel.Capture08

 

If you have any questions or would like further information please contact us.

Searching for banks with CompleteBankData.com

One of the advantages of CompleteBankData.com is that the tool provides almost unlimited access to current and historical banking data.  A user can create extremely customized point in time searches over very granular data.  Want to find how many banks had between $35,000-90,000 of auto lending in 2006 and less than 40 employees in Iowa?  Creating that search isn’t a problem, it’s actually very easy.

The problem is that while the complex can be made easy it’s sometimes harder to do the easy things.  In providing users with unlimited search capabilities we figured users would take advantage and create complex searches.  What users actually did wasn’t what we expected.  Most users craft searches over one or two data points and not much more.

In this post I want to show how to construct a simple search to find banks trading for less than 120% of book value, less than 3% of NPA/Assets and a return on equity (ROE) of between 5% and 20%.

Log into CompleteBankData.com and on the top menu bar hover over Search and select Search Holding Companies.

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CompleteBankData.com contains two search pages, one for banks, and one for holding companies.  Market data searches are on the holding company search page.  The holding company search page will load with one default criteria search, total assets for holding companies over the most recent report period.  The screen looks as follows:

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To add additional criteria click the Add Additional Criteria button.  This will bring up a dialog box with search criteria options.

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Scroll to the bottom and click on P/B to add the Price to Book metric.  Select additional metrics you wish to search over by clicking on them.  Once you are satisfied with your selections click on the Done button.  The criteria fields you selected will now be shown on the search page.

Adjust the ranges for each criteria by manually editing the lower and upper bounds, or using the slider to graphically adjust your selected criteria.  When you are satisfied with your selections and the ranges click the Search button to execute the search.

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Result matches are shown in the table below.  Click on a bank name to bring up the action menu.

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Select View Detail to bring up the detail page for the specific bank.  Once selected the detail summary page is opened.

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On the detail page relevant statistics are shown at the top of the page under the graphs.  Summary financials are shown below the Statistics table.  To access more financials select the Summary drop down menu at the top right of the screen.

If you have any trouble or would like additional help on creating more advanced searches please don’t hesitate to contact us.

High Yielding Bank Stocks

In a low rate environment finding investments with high yields is rare.  Even more rare is finding a set of bank stocks with high dividend yields.

I used CompleteBankData on the Bloomberg (APPS BANKS <GO>) to find a list of the highest yielding bank stocks with more than $1b in assets and yielding more than 4.4%.  The list of matching banks are shown below.

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It should be no surprise that New York Community Bancorp is the highest ranked stock.  The bank has built a reputation as favorite for dividend investors.

All of the banks on the list have low Texas Ratios.  The Texas Ratio is a short hand risk rating, the lower the Texas Ratio the better.  Bank with Texas Ratios below 20% are considered to have a very low probability of issues within the next few years.

One additional item worth highlighting is that this list of high yielding banks all have relatively strong returns on equity.  The bank with the lowest return on equity is Northwest Savings Bank, a recent mutual conversion.

For investors with an appetite for dividends there is probably a stock or two in the above list that’d make a great addition to your portfolio.

Disclosure: No positions

A Basel III discussion regarding capital

There has been a collective groan from the leagues of bankers as they consider what they might need to do to comply with Basel III capital guidelines.

Basel III is a set of voluntary banking guidelines for capital adequacy, market risk and stress testing.  The Basel III accords do not regulate banks, but bank regulators have taken a liking to the Basel guidelines and have used them to form new regulations.

In the United States regulators approved an inter-agency proposal in October of 2014 outlining the US version of Basel III compliance.  The guidelines are comprehensive and the goal of this post isn’t to summarize what the regulators have decided.  Instead I want to focus on one specific aspect of Basel III compliance and look at how many banks will be forced to raise capital in the near future.

Under the new Basel III capital guidelines banks are required to have higher levels of capital to protect against losses.  Under the new guidelines banks are required to have 4.5% of equity capital and 6% of Tier 1 capital.  Regulators can require higher capital levels beyond those based on economic factors or risk weighted factors.  An additional rule is that common shares and retained earnings must be at least half of a bank’s capital.  This will be a high hurdle for some banks to overcome if they’ve had significant losses in the past due to the Financial Crisis.

A lot of the outcry over the new regulations has been that community banks will be unfairly punished.  The argument is that these small banks that serve local communities will be forced to raise significant amounts of capital and that regulations will imperil their business.

I decided to dig into the data.  At the end of Q4 2014 there were 42 banks in the US where their equity capital plus retained earnings were less than 50% of their Tier 1 capital.  These 42 banks will be required to merge or be forced to raise capital to be in compliance with the new Basel III guidelines.  As expected all of these potentially deficient banks are small community banks.  The largest potentially deficient bank has $1.03b in assets and the smallest $31m in assets.

If the criteria is loosened to include banks whose equity and retained earnings are less than Tier 1 the number of banks increases to 86.  In the increased set only two have assets over $1b, and four have assets over $500m, the rest are sub-$500m in assets institutions.

Many of these institutions will decide that it’s easier to merge rather than raise capital or exist under the new regulatory regime.  For investors there are 18 listed stocks in the first group and 42 listed banks in the second group.

Based on the data the criticism that Basel III will unfairly hurt small banks appears true at first glance.  The banks potentially most deficient are small community banks.  What the data misses is that all banks will be potentially impacted.  This is because the Basel III guidelines are more conservative in the types of assets banks can hold for regulatory purposes as well as requiring certain types of assets to meet liquidity guidelines.

What we do know from the data I pulled is that the banks most deficient are smaller community banks.  What happens to these banks is yet to be seen, but this will probably fuel the merger and acquisition story for the next few years.

Finding bank stocks on your Bloomberg Terminal

In this post I want to walk through two possible ways to use the Bloomberg Terminal version of CompleteBankData (accessible via APPS BANKS <GO>)  to find bank equity investments.

To access the CompleteBankData app enter the command APPS BANKS <GO>.  If you aren’t a subscriber you can sign up for a free app preview.

Finding Ideas Using Proven Pre-Configured Strategies

One of the advantages of CompleteBankData is that we’ve leveraged our banking expertise and built over 20 investment idea generation strategies.  These strategies are refreshed based on real-time data giving you a constant stream of new investment ideas.

The Find Ideas page is always loaded in your application and is accessible via the tabs across the top of the screen.  Ideas can be sorted by bank size or category.  A screenshot of the Find Ideas page is shown below. Screen Shot 2015-02-13 at 11.11.55 AM

Each strategy shows the top five matching results.  Clicking on a strategy will open a dialog box with a full list of matching banks as well as buttons to view details, compare banks or save banks for later viewing.  Here is what the dialog box looks like:Screen Shot 2015-02-13 at 11.36.03 AM

Select a bank you are interested in by clicking on the checkbox next to the bank name.  Once a bank, or multiple banks are selected the buttons at the top of the dialog will be enabled.  For our example select a bank and then click View Details.  The detail page contains detailed financial statements as well as a valuation model for your selected bank.  You also have the ability to chart any piece of financial data on this page.

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Finding Banks with the Customized Bank Screener

CompleteBankData on the Bloomberg Terminal (APPS BANKS <GO>) has the ability to create customized bank stock screens.  The screener has been optimized to contain both market and bank specific search criteria.  Because we know banks you won’t be seeing metrics that don’t apply to banks such as EV/EBITDA sneak into the screener.

The Customized Bank Screener is accessible via the main menu.  Open this menu by clicking on the green button titled Menu on the far left of the tab bar.

The top of the page contains the custom criteria.  To add additional screening criteria click the –Select a field– drop down and make your selection.  To remove a selection click on the orange X next to the criteria.

Once you have  configured the criteria as you wish click the Search button.  Matching banks will appear below your search criteria.  The screenshot below shows a search with multiple criteria and matching banks.

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Select a bank you are interested in by clicking on the checkbox next to the bank name.  Once a bank, or multiple banks are selected the buttons at the top of the dialog will be enabled.  For our example select a bank and then click View Details.  The detail page contains detailed financial statements as well as a valuation model for your selected bank.  You also have the ability to chart any piece of financial data on this page.

A screenshot of a bank detail is shown below:

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More Information

Looking for more information for how CompleteBankData can give you the ultimate edge in bank equity investing?  Information about CompleteBankData including a full user guide can be found on your Terminal with the command APPS BANKS <GO> or on our website linked below.  Or contact our sales team via email or phone.

Web: https://www.completebankdata.com/bloomberg

Phone: 1-866-591-8315

Email: info@completebankdata.com

Interest rate portfolio positioning

Banks can take an explicit bet on short or long term interest rates by how they position their loan portfolio.  CompleteBankData provides a breakdown for banks showing a maturity and repricing schedule of a bank’s loan portfolio.  I spent some time today running some statistics to see how banks are positioning themselves regarding rates.

When a bank expects rates to rise they keep the maturity of their loan portfolio short term (short duration).  A bank keeps the duration short it’s because they expect their lower yielding loans to be replaced by new higher rate loans.  When rates rise banks with short duration portfolios see increases in their NIM if deposit costs don’t rise as fast as portfolio yield.  If rates don’t rise as quickly as a bank expects them to then short duration portfolio can result in a lower net interest margin (NIM).

A bank that doesn’t expect rates to rise might be more willing to lock in longer term loans.  If a bank expects rates to decline then they would want the majority of their portfolio to mature as late as possible.

Most banks in the US have positioned themselves for a rise in interest rates.  But before looking at the majority I think it’s worth looking at the minority rate opinion.

There are 18 banks in that have 80% or more of their portfolio maturing in longer than 15 years.  This means that 18 banks have decided that they are happy with current rates and would like to lock them in for the next 15 years.  This is an implicit bet on rates decreasing or staying stable for the next 15 years.

Banks making this bet range from Territorial Bancorp (TBNK), a $930m bank that primarily loans to residential borrowers to First Federal Savings & Loan a small $15m bank located in West Virginia also focusing on residential borrowers.

Before the advent of mortgage securitization if a bank wanted to keep their portfolio duration short they would need to limit their lending to only short term loans.  Securitization created an opportunity for banks to manage their portfolio duration regardless of the types of loans they originate.  Now a bank can originate a 30-year mortgage and if they decide they don’t want to hold it sell it to a GSE and retain servicing rights only keeping short term loans on their books.

Securitization makes the following statistics meaningful.  These banks have all actively managed their portfolios to keep their duration short.  As shown below the majority of US banks are expecting rates to rise sooner rather than later.

  • 3538 (more than half) banks have 50% or more of their portfolio maturing or repricing in less than three years.
  • 1099 banks have 70% or more of their portfolio maturing or repricing in less than three years.
  • 142 banks have 90% or more of their portfolio maturing or repricing in less than three years.
  • 836 banks have 50% or more of their portfolio maturing in less than a year.
  • 97 banks have 80% or more of their portfolio maturing in less than a year.

The numbers are clear, banks are expecting rates to rise within the next three years.  Some banks are expecting rates to rise in the next year, although those banks are in the minority.

What does RBC see in City National?

The Royal Bank of Canada (RBC) announced on January 22nd that they were acquiring City National Bank for $5.4 billion dollars.  RBC is paying 2.75x tangible common equity, and 1.86 times book value.  The deal price is one of the richest buyout multiples since the financial crisis.

City National is a $32b bank headquartered in Los Angeles, CA.  The bank has branches in entertainment hotspots throughout the country including, Beverly Hills, Nashville, Las Vegas, New York City, and Reno, Nevada.

The question is what does RBC see in City National that they’d pay such a high premium?

From a quantitative aspect there are a few things about City National that stand out.  The first is they earn a respectable ROA of .8% and have a declining Texas Ratio.  Secondly their foreclosure portfolio is declining and under control.  The bank is well capitalized, but not overly capitalized.  The bank has used excess capital to grow their loan portfolio, which in turn has contributed to growing earnings.

The true value for RBC are City National’s clients.  City National Bank has a reputation for being a primary destination for money coming from the entertainment industry.  This is clearly visible when one looks at their managed assets compared to their lending.  The bank has $13b in managed assets compared to $19b in net loans and leases.  While City National Bank has the word ‘bank’ in their title a significant amount of their earnings come from managing assets outside of the normal course of banking.

Beyond a jet-set list of clients RBC sees the opportunity to expand into Texas.  As a Canadian bank RBC is well versed in energy markets and they are hoping to expand in the US into the previously booming energy market of Texas.

The biggest question is whether RBC overpaid for City National Bank.  When setting the high water mark for deal metrics either one of two things is true.  Either the economy is in a strong recovery and we’ll continue to see deal volume at increasingly higher metrics.  Or RBC overpaid like they did with their last acquisition in the US in the fall of 2007.  A purchase that resulted in a massive write-down and a quick exit from US retail banking.

Only time will tell if RBC’s deal timing is poor, or if they overpaid.