Analyzing regional banks

[alwaysinvert]

I'm looking at a very small regional bank and I'm not really a bank guy, despite making a few bets in the sector in the past (perhaps against better knowledge). Was wondering if someone had any good resources/primers on valuing small banks.

 

Anyone?

[matjone]

I know nothing but I was once searching for the same thing and a blogger somewhere recommended a book called "bank management" by Tim Koch.  I've never read it.

[oddballstocks]

How small are you looking?  I've done some community bank investing.

 

I know board member Kraven is a bit of a small bank expert, you might try PMing him.

[alwaysinvert]

I know nothing but I was once searching for the same thing and a blogger somewhere recommended a book called "bank management" by Tim Koch.  I've never read it.

Will check it out, thanks.

How small are you looking?  I've done some community bank investing.

 

I know board member Kraven is a bit of a small bank expert, you might try PMing him.

$1.4b in total assets, $1b in lending.

 

I am still in the very beginning of looking at it and thought that there may be some resources which would make my work more effective  in looking at some of the peculiarities of banking, like reserving, credit quality and such. My other 'bank' investments have been in in companies that had no mortgage business so this is a different animal to me.

[cayale]

I'm looking at a very small regional bank and I'm not really a bank guy, despite making a few bets in the sector in the past (perhaps against better knowledge). Was wondering if someone had any good resources/primers on valuing small banks.

 

Anyone?

 

Bankstocks.com - scan Tom Brown's writings for their technical aspects, not his anti-regulator screed or his investment picks (which in my opinion always run close to the edge) http://seekingalpha.com/article/128284-a-loan-loss-reserve-primer-beyond-simplistic-ratios --is a good example

 

Read US Bank and Viewpoint Financial filings and earnings call transcripts.  The former is a super-regional with an ideal community banking mindset; the latter is an ideal community bank in my opinion

 

Like insurance, a lot of assumptions around the accounting (only more financial leverage in a bank).  Bankers basically have to be right 98.5% of the time to make money through a cycle, so make sure your managers reflect that understanding.  If you are levered and wrong, you are quickly wiped out.  And once the market recognizes you need to raise capital, you're basically done.

 

 

[beerbaron]

Here is a free resource to start with:

 

http://www.scribd.com/doc/83007803/Banking-101-for-Large-Cap-Banks-May-2011

 

BeerBaron

[alwaysinvert]

Thanks for those links!

[Junto]

I know nothing but I was once searching for the same thing and a blogger somewhere recommended a book called "bank management" by Tim Koch.  I've never read it.

Will check it out, thanks.

How small are you looking?  I've done some community bank investing.

 

I know board member Kraven is a bit of a small bank expert, you might try PMing him.

$1.4b in total assets, $1b in lending.

 

I am still in the very beginning of looking at it and thought that there may be some resources which would make my work more effective  in looking at some of the peculiarities of banking, like reserving, credit quality and such. My other 'bank' investments have been in in companies that had no mortgage business so this is a different animal to me.

 

I have written some posts that could be of interest on New York Community Bank http://www.businessbankertwincities.com/search/label/NYB

 

Tim Koch is good for management review. I have seen poor bank performance and been involved first hand on working through a tough banking scenario. Currently in the process of raising capital to fully recap a community bank after a very tough four years.

 

I have also studied strong performing banks. There is a laundry list to go through but here are some to consider:

Loan loss history, not reserves but actual charge offs and gain or loss on sale of Oreo

Efficiency ratio

Loan concentrations

Book value

Return on capital

Market position, competitive position

Interest rate sensitivity

Economic environment immediately surrounding bank market area

It has a lot do with trends and performance. Management is very important.

 

Regulators look at banks and rank them on capital, asset quality, management, earnings, liquidity, and sensitivity. Not a bad start to do it that way as well. Capital is always king in the banking world.

[Rabbitisrich]

Tariq Ali posted an interview with a bank analyst on his site, Street Capitalist.

 

Plan Maestro has a lot of strong posts regarding financials on Variant Perceptions.

 

Junto's post above is great.

 

Tom Brown's technical posts are also strong.

 

The long, but thorough, way is to read an AR of a top super regional like USB and focus on their notes, particularly the significant accounting policies. I like USB's AR because it doesn't read like a barrage of semi-useful figures. A careful read-through will inform you about how to think about banking.