Small Banks. Potential for Riches or Rags
First off, props to streetflame & posting great resources at his blog here
See towards the bottom of my reply for a full fledged listing of bank tickers I looked at & my thoughts on them.
What is the key criteria for bank in my mind?
Two things: 1) Asset Quality 2) Core Deposits (& its growth/stability)
1) Because I tend to look @overall numbers fairly quickly on many, numerous banks, I don't delve deep enough into asset quality. However, there's one key concept that I do stick to. I look for banks that have not aggressively expanded its assets from 2005 to 2008. The more they expanded, the more of a penalty I assess them. Asset prices on both residential/commercial side were too high during this time period & expected income levels at that time either by a household or a business were likely too close for comfort in their ability to make loan payments for the loan life, therefore I penalize these assets. Observing cash flows may be a more accurate, (also) more timely way to acheive this.
Another factor is geographic area. I also tweak the penalty/bonus on valuation of these banks depending on the area. IE Banks in New Condo City, Florida would be penalized much mroe than say a major city in a midwestern state. Any areas that were red hot during teh upward sky-high movement of asset prices during the bubble from 2003-2008 are weak, conversely the opposite is true for areas that remained cool.
2) Any bank in the world is NOTHING without deposits. Deposits are key, and what is respected most & also very crucial in the banking industry are core deposits. For my due diligence purposes I'm counting only non-interest bearing demand deposits as core deposits. For all the tickers I've looked at, I brought up call reports/TFRs for Q3 2008, Q4 2008, Q1 2009, & Q2 2009 & noted down both core dep. & total dep. for each of the quarters. I computed the ratio & compared them across the quarters & compared the ratios across peers. I tried to keep an eye on any funny movements & also an eye on movement of total deposits through recent quarters. I assigned penalties/bonuses in my valuation accordingly.
Then I just look at total (normal) equity in more recent quarter, make my adjustments, add in (if I believe there's) potential for future income, and then compare that total to today's market value.
List of tickers looked at todate:
ORPB, CWBK, NARA, CVBF, PFBI, FRGB, FPTB & north carolina banks: ASFE, SSFC, & CSBC
From my valuation I liked: ORPB, FPTB, & PFBI alot
I thought ASFE, CWBK & CSBC were close to fairly valued
& think that the rest were too risky to touch.
There's still quite a few tickers I'm going to look at in the next week.
USEfUL TOOLS & RESOURCES
1) http://www.faqs.org/banks/ : great for finding banks by state, figuring year opened, observing balance sheet changes over the years (estimating by graphs).
2) http://www2.fdic.gov/Call_TFR_Rpts/ (or typing in "call report" 1st google result) : great for pulling up detailed information on banks by quarter (I liked to pull latest quarter equity, and also deposit information by quarters)
3) http://www.google.com/finance : get market cap, & also (click financials on left, click annual data) another resource to see annual changes in balance sheet for just about ANY company
4) http://www.thestreet.com/screener/index.html?src=ratingsindex&tab=3 (a link provided by downescalator on above mentioned blog) It's street.com's bank report card on health, I looked at it, but dont really use it/don't see the value.
Some disclosure on mentioned tickers:
I bought ORPB today, & hoping to fill an order on a buy for ASFE. Holding onto PFBI.
Looking to get rid of long positions on NARA & CVBF & FRGB sometime soon.
Ending on a morality note: Any person not satisfied in the direction our country has taken in the past 20 years is advised to move all their deposits out of the bigs (BofA, Chase, Wells Fargo, Etc) and into a smaller community bank (or credit union) - this will vastly change representationship within the Federal Reserve & in many cases may be much more powerful than your vote.