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Christopher "Kit" Menkin is of editor (, an internet trade publication for the finance/leasing industry. He has 41 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on... More
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  • Federal Reserve Report: Mobile Financial Services

    ##### Press Release ###########################

    Federal Reserve Report: Mobile Financial Services

    The use of mobile phones to access a bank account, credit card, or other financial account continued to increase in prevalence among adults in the United States last year, according to the Federal Reserve Board's latest report on the use of mobile financial services. As of December 2013, 33 percent of all mobile phone users and 51 percent of smartphone users had used mobile banking in the past 12 months. This is an increase from 28 percent in December 2012 for mobile phone users and 48 percent for smartphone users. The use of mobile phones to make payments at the point-of-sale has experienced substantial growth over the past several years, increasing threefold between the 2011 and 2012 surveys, and again between 2012 and 2013. In 2013, 17 percent of smartphone owners, representing 9 percent of the U.S. adult population, reported having used their phone to make a purchase at a retail store in the past 12 months.

    Mobile phones are also increasingly used to help make decisions while shopping. Among smartphone owners, 44 percent had used their phone to compare prices while shopping and 42 percent had used their phones to browse product reviews in store. Over two-thirds of those who had used their phone to do price comparisons had changed where they made their purchase based on that information.

    The Federal Reserve Board completed its first Survey of Consumers' Use of Mobile Financial Services in December 2011, and released a summary report in March 2012. The Board has continued to conduct the survey and release a report annually to monitor trends in the use of mobile financial services, and to understand how the rapidly expanding use of this technology affects consumer decision-making and the overall economy.

    The Board's report looks at how consumers access their bank's services using mobile phones ("mobile banking"), at their payment for goods and services using mobile phones ("mobile payments"), as well as their use of mobile phones to inform their shopping decisions.

    The most common mobile banking activities continue to be reviewing account balances, monitoring recent transactions, or transferring money between accounts. The use of mobile phones to deposit checks by taking pictures of them using the phone's camera again increased substantially between surveys, with 38 percent of mobile banking users having deposited a check with their phone in 2013.

    The use of mobile financial services is particularly prevalent among the 17 percent of the population that is under banked (people with bank accounts but who also use check cashers, payday lenders, auto title loans, pawn shops, or payroll cards). Among the 88 percent of under banked consumers with mobile phones, 39 percent had used mobile banking in 2013. Mobile phones may also allow for the extension of financial services to an additional 10 percent of the population that is unbanked (those without a bank account), as 69 percent of this group has a mobile phone, 64 percent of which are smartphones.

    While the use of mobile banking continues to increase, the report indicates that those consumers who do not use mobile banking are becoming more skeptical of the benefit of mobile banking and the level of security associated with the technology. Well over half of mobile phone owners who do not currently use mobile banking say they have no interest in using this technology. Consumers are similarly skeptical of the benefits and security of mobile point-of-sale payments, or believe it is simply easier to use another method of payment. Almost three quarters of all mobile phone owners said that they were "unlikely" or "very unlikely" to use their mobile phones to buy things at the point-of-sale if given the option.

    The survey was conducted on behalf of the Board by GfK, an online consumer research firm. Data collection began December 6, 2013, and concluded on December 23, 2013. Just over 2,600 respondents completed the survey. A report summarizing the survey's mobile financial services findings may be found at: (Note: 47 page report).

    ### Press Release ############################

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 27 12:51 PM | Link | Comment!
  • Banks With Highest Texas Ratios

    By Tahir Ali

    An SNL Financial Exclusive

    (click to enlarge)

    Georgia had 40 banks and thrifts over the 100% adjusted Texas ratio mark at Dec. 31, the most of any state. However, the median adjusted Texas ratio for all Georgia-based banks and thrifts was 27.87% at the end of the year. Illinois reclaimed second spot for hosting 24 institutions, with an adjusted Texas ratio of over 100%. Florida, the state with the third-highest number of institutions over 100% adjusted Texas ratio, reported an overall median Texas ratio of 27.38% as of Dec. 31, 2013.

    As of March 25, three of the five institutions that have failed in 2014 reported an adjusted Texas ratio over 100% the quarter prior to failing. Millennium Bank NA posted the highest adjusted Texas ratio among banks and thrifts at Sept. 30, 2013, at 3,330.21% and failed on Feb. 28, 2014. Vantage Point Bank reported an adjusted Texas ratio of 213.85 % at Dec. 31, 2013, and failed on Feb. 28. Bank of Union reported an adjusted Texas ratio of 345.17% at Dec. 31, 2013, prior to its failure on Jan. 24, 2014.

    The number of institutions with an adjusted Texas ratio over 100% fell to 203 at the end of 2013, compared to 235 at September 30, 2013. However, the median adjusted Texas ratio among those companies above the 100% mark ticked upward over the final quarter following a steady decline in the three prior quarters. Banks with adjusted Texas ratio over 100% reported a median adjusted Texas ratio of 161.7 % for the fourth quarter of 2013, compared to 155.57% in the prior quarter.

    A high Texas ratio does not guarantee failure, but the ratio is a good measure of a bank's ability to absorb future losses. SNL defines the adjusted Texas ratio as nonperforming assets plus loans 90 days or more past due - excluding delinquent government-guaranteed loans and other real estate owned covered by loss-sharing agreements with the FDIC - divided by tangible equity plus reserves. Institutions that reported a negative tangible equity are excluded from the analysis.

    Eastside Commercial Bank reported an adjusted Texas ratio of 1,030.75% at the end of the fourth quarter of 2013, the highest among all U.S. banks and thrifts. The undercapitalized bank reported a $2.7 million decrease in adjusted nonperforming assets and a $1.03 million decrease in tangible equity during the fourth quarter, resulting in an adjusted Texas ratio increase by 26.63 percentage points quarter over quarter.

    First City Bank of Florida posted the second-highest adjusted Texas ratio in the fourth quarter at 639.12%, an increase of 29.73 percentage points over the third quarter. The bank posted a loss of $423,000 in the fourth quarter, and its tangible equity fell by $502,000 quarter over quarter.

    First South Bank reported an adjusted Texas ratio of 512.75% at Dec. 31, 2013, down 152.03 percentage points from the end of the third quarter, the largest decrease among the top 30 banks and thrifts by adjusted Texas ratio at year-end 2013. First South's adjusted nonperforming assets fell by $6 million quarter over quarter. At the other end of the spectrum, AztecAmerica Bank's 112.86 percentage point increase in its adjusted Texas ratio was the largest among the top 30. The company's adjusted Texas ratio was 534.37% at the end of the fourth quarter.

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    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 26 2:35 PM | Link | Comment!
  • Dodd-Frank Stress Test Catches Zions Off-Guard

    By Nathan Stovall and Salman Aleem Khan

    A SNL Financial Exclusive

    (click to enlarge)

    While the Street took the annual Dodd-Frank Act stress tests mostly in stride, Zions Bancorp's performance in the exercise left some questioning if the company has a capital hole and what actions it will take to address it.

    The Dodd-Frank Act stress tests, or DFAST, largely showed that the banking industry is on strong footing, even under fairly draconian scenarios, including one where housing prices fall 25% and commercial real estate prices plunge nearly 35%. Analysts said the results could even offer some support for the capital plans a handful institutions submitted to regulators as part of the Comprehensive Capital Analysis and Review, or CCAR process, which will surface March 26. Compass Point analysts noted that American Express Co., Inc. Regions, Wells Fargo & Co., KeyCorp and Ally Financial Inc. demonstrated notable improvement in their minimum Tier 1 common ratios in the DFAST exercise, giving the market confidence about the capital deployment requested by the publicly traded institutions and the latter's possible IPO.

    The DFAST results did leave questions about Zions' future capital plans. The Fed disclosed that Zions would have a 3.5% Tier 1 common ratio under the Fed's severely adverse stress scenario, well short of the 5% minimum. Zions said the stress test results were worse than it had projected due to significantly higher commercial real estate losses, significantly greater risk-weighted assets and lower pretax, pre-provision net revenue. Most of the projected losses in the Fed's scenario came from Zions' commercial real estate bucket, where the Fed assumed $1.5 billion in losses, or 60% of total loan losses, based on a portfolio loss rate of 8.3%. The average loss rate on commercial real estate projected by the Fed across the 30 BHCs that participated in the exercise was 8.4%.

    Zions also noted that the original submission it made to the Fed occurred before it sold a block of collateralized debt obligations, or CDOs, in January and February that would result in a substantial reduction in risk. The company said during its investor day in February that the CDOs would "have contributed disproportionately to hypothetical projected losses." Zions said it had included over $600 million of "stress case" losses on its CDO portfolio.

    The Salt Lake City-based bank said after the DFAST results surfaced that it plans to resubmit its capital plan and include additional actions aimed at further reducing risk and/or increasing common equity capital such that its capital ratios at least meet the minimum.

    Klock further noted that risk-weighted assets used in the stress tests were higher than the company expected. He said it is hard to know what credit was given to the total return swap Zions has against its CDO portfolio that helps lower the company's level of risk-weighted assets.

    (click to enlarge)

    (click to enlarge)

    More importantly, though, were the pretax, pre-provision net revenue assumptions used by the Fed, he said. The Fed disclosed that Zions would post $200 million in pretax, pre-provision net revenue over the nine-quarter period under the severely adverse scenario, which Klock said equates to just 12% of his estimates for the company during a non-stressed environment.

    "That's lower than anyone else, than any of the peers," Klock said.

    Some other members of the sell-side community expressed greater concern over Zions' performance in the DFAST exercise. Evercore analyst John Pancari said Zions' credit performed materially below expectations and the results suggested that the company has a capital hole. The analyst said in a March 21 report reviewing the stress tests that Zions' shortfall in the stress tests might make a common equity raise "necessary as other options may not be as beneficial or feasible." He said that Zions could sell the remaining $1.2 billion in CDOs it holds and reduce losses by up to $300 million. He said the company could sell a portion of its CRE portfolio to reduce credit losses, but the analyst noted that would come at the cost of lost revenue.

    "However, this would also hurt PPNR and would be a significant impediment to growth and a shift in Zions core business model," Pancari noted, adding later: "In our view, Zions is most likely to sell down the CDO portfolio and pursue a common equity raise up to $300 [million], which we estimate would be about 5% dilutive to annual EPS."

    Zions made clear that it will take actions to increase its capital ratios, though did not provide much detail on its plans. Klock believes that a common equity raise is unlikely and thinks the company can build its capital ratios through other means, including further sales of its CDO portfolio. He said the CDO sales the company already conducted in January and February likely would improve its capital by close to 70 basis points, putting it roughly halfway to the 5% minimum level laid out in the stress tests. Zions has a $70 million embedded gain in its insurance CDO portfolio due to the change in the Volcker rule, he said, giving the company the opportunity to sell those assets at a gain while reducing risk.

    "In my opinion, it's a very minimal possibility that they're going to raise any common equity," Klock said. "They've proven ways to go about raising capital without diluting capital. I think the easiest way for them to do it here is sell more of the CDOs."

    Other banks participating in the DFAST are less likely to take any actions based on the results of the exercise. Fourteen of the 30 institutions - Bank of America Corp., BB&T Corp., Citigroup Inc., Capital One Financial Corp., Comerica Inc., Huntington Bancshares Inc., JPMorgan Chase & Co., KeyCorp, Northern, PNC Financial Services Group Inc., Santander Holdings USA Inc., SunTrust, U.S. Bancorp and Wells Fargo - had provided their results as of this publication.

    Those institutions simply released the results of their own exercises and did not offer any real commentary on the stress tests or insight into the capital plans they submitted in connection with CCAR. The institutions' own stress tests results boasted an average Tier 1 common ratio that was 98 basis points higher than the Fed's stress tests.

    However, BB&T took a harsher stance in its own stress tests, disclosing that it would post a minimum Tier 1 common ratio of 6.8% under the severely adverse scenario. The Fed measured that BB&T's Tier 1 common ratio would fall to 8.2% under that scenario. The more aggressive approach by the Winston-Salem, N.C.-based bank comes after it received an objection to its capital plan in the 2013 CCAR exercise due to the Fed's qualitative assessment. The Fed insinuated at that time that it could not rely on the numbers that the company provided in its capital plan due to a recent change in risk weighting of assets.

    BB&T and others remained quiet on their plans for the upcoming CCAR, but Discover Financial Services decided to release its plans a week early. The company said that its capital plan aims to increase its dividend by 20% and repurchase up to $1.6 billion of its common stock. The proposed capital actions in Discover's capital plan are subject to the receipt of a "nonobjection" from the Federal Reserve on March 26.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 24 11:52 AM | Link | Comment!
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