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We are a team of academics and technologists, who are passionate about banking sector and numbers. We believe that numbers tell a profound story — only you have to find the trends and patterns.
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BankVega - Understand Your Banks
  • Durbin Amendment’s Impact on Bank’s Earnings

    The recent Fed ruling on Durbin Amendment limits the amount of debit card interchange fees that banks can charge to the participating merchants. Many observers have argued that this act will reduce the bank's income from debit fees by almost half. We decided to look at the amount of income that banks make from these fees to get a sense of which banks are more likely to be impacted by this amendement of the Dodd-Frank Act. We looked at their full year of operations in 2010 and classified banks based on the ratio of debit card fees to total assets. To better understand these numbers, we calculated these rankings seperately for small (less than $500 million in asset), medium (between $500 million and $10 billion), and big banks (greater than $10 billion). Here is the list of top five banks for each categories with maximum income from Debit cards as % of total assets:
     

    Big Banks
    NameIncome from Debit Cards% of Asset
    AMERICAN EXPRESS CENTURION BANK3,172,05210.59
    USAA SAVINGS BANK513,2203.55
    CAPITAL ONE BANK (USA), NATIONAL ASSOCIATION1,330,4821.84
    DISCOVER BANK993,0541.59
    CHASE BANK USA, NATIONAL ASSOCIATION1,966,8091.50

    Mid Sized Banks
    NameIncome from Debit Cards% of Asset
    WORLD’S FOREMOST BANK231,3477.93
    WRIGHT EXPRESS FINANCIAL SERVICES CORPORATION46,0344.63
    FIRST NATIONAL BANK TEXAS DBA FIRST CONVENIENCE BANK25,6252.72
    ILLINOIS NATIONAL BANK13,1672.33
    WOODFOREST NATIONAL BANK61,1791.90

    Small Banks
    NameIncome from Debit Cards% of Asset
    RBC BANK (GEORGIA), NATIONAL ASSOCIATION14,6575.81
    TCM BANK, NATIONAL ASSOCIATION8,1154.77
    FORT HOOD NATIONAL BANK3,3951.59
    TOWN NORTH BANK NEVADA, NATIONAL ASSOCIATION1651.49
    ACADEMY BANK, N.A.4,5251.35

    Note: Debit card fees are in thousands of dollars for full year ended December 31, 2010.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jul 17 8:06 PM | Link | Comment!
  • The First State Bank, Oklahoma: Importance of Liquidity for a Bank

    The First State Bank, Camargo, Oklahoma, was closed on Jan 28, 2011 by the Oklahoma State Banking Department, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. This makes it the eighth ailing bank to be shut down nationwide in 2011.

    Safety Ranking

    BankVega safety ranking for this bank for the last quarter was 13. The safety rank for its peer banks in the country (banks with similar size and mix of assets and deposits) was 83. Thus this metric for the Bank was very low as compared to its peers and we had raised it as a matter of serious concern for the bank in our safety report for the bank.

    Recovery Rate

    Our estimates suggest that the bank will be able to recover 75.20 % of its value in post-failre auctions. In our opinion this is relatively a poor recovery rate as compared to similar bank failures in the past.

    Key Performance Indicators


    An interesting aspect of the failure of First State Bank emerges from a study of the trends of its key financial performance indicators. The reasons for the failure of this bank were not the same as those that have led to the bankruptcy of most banks in recent times.
    This bank was not plagued by bad mortgage exposure and non performing assets. In fact real estate exposure formed only 13% of the banks total assets. The strength of its assets is reflected in its Asset Quality Indicator (78) which has been consistently higher than its peer banks (61).
    Further the Bank’s Earnings index has been very high as well compared to its peer banks. Earnings Index was 98, 97, and 96 for 2010 Q1, Q2, Q3 respectively for First State Bank while these values for its peers were 50, 51 and 50. Based on these indicators one could easily make the mistake of assuming that First State Bank, Oklahoma was a safe bank.

    The Bank however failed and the reason was its poor liquidity position. The bank had put itself into risk of sudden withdrawal of funds by depositors or drawdown by their borrowers by maintaining low level of liquidity. The liquidity index for 2010 Q1, Q2, Q3 was 1, 1, and 7 respectively for First State bank, Oklahoma while corresponding values for national peer banks were 68, 63, and 61. The graph shows that the bank had consistently had poor levels of liquidity compared to its peer banks. This led to the bank’s eventual demise

    The above analysis shows that there are many critical factors that need to be taken into account in order to make a judgment on the financial health and stability of a bank. Any ranking based only on the assets quality (proportion of nonperforming loans) and earnings would have failed to capture the problems with this bank. This demonstrates the strength of BankVega safety rankings in recognizing financial distress in banks. 
    Feb 26 3:14 PM | Link | Comment!
  • Citizens Bank of Effingham, Georgia: Sudden Decline in Last Year
     On Friday, February 18, 2011, Citizens Bank of Effingham, Springfield, GA was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. It is one of the two Georgian banks to fail this week which takes the total number of bankruptcies in Georgia for 2011 to six. The FDIC entered into a purchase and assumption agreement with HeritageBank of the South, Albany, Georgia, to assume all of the deposits of Citizens Bank of Effingham.

    Safety Ranking

    BankVega had included this bank in our included in our list of bankruptcy predictions for 2010. Our prediction was based on our low safety score for this bank since 2009Q4. BankVega Safety Rankings for this bank were 2, 2, 1, 1 from 2009Q4 to 2010Q4. In comparison safety scores for its peer banks (banks with similar size and similar mix in assets and deposits) in Georgia were above 25 during these four quarters. Analyzing the trends in safety index for this bank however gives us an interesting fact – which is that the safety ranking for this bank dropped suddenly in 2009Q4 from 25 to 2. The bank was in a relatively safe financial condition comparable to its peer banks before this sudden drop in its rankings.

    Recovery Rate

    Our estimates suggest that this bank will be able to recover about 83.9% of its asset in post-failure auctions. In our opinion this is a relatively lower recovery rate as compared to similar bank failures in the past.

    Enforcement Order

    The sudden decline in the financial condition of the bank reflected by drop in BankVega Safety Index was also noted by the FDIC. It issued a Consent Order under which it directed the bank to immediately increase its Tier 1 capital and Total risk-based capital ratio to minimum level of 8% and 10 % respectively and reduce its exposure in Assets classified as “Substandard” or “Doubtful”

    Key Performance Indicators


    Asset Quality: From the bank’s Profile report, we find that about 21.37 % of its asset exposure came from residential mortgages. Other real estate exposure (i.e., non residential mortgage related) accounted for 42.95 % of total assets. Thus this bank was classified as a high mortgage exposure bank as compared to the entire U.S. banking sector. BankVega Asset Quality index for this bank was 1, 2, and 2 for 2010Q3, Q2 and Q1 respectively. Thus our index tells us that the bank was operating with excessive level of adversely classified loans. As stated earlier, our analysis was also corroborated by FDIC in its enforcement order.

    Earnings: A high percentage of nonperforming loans contributed to negative profitability for the bank. The bank experienced continued losses in the last four quarters. This is reflected in average BankVega Earnings index of 5 for the bank during this period while corresponding score for peer banks in Georgia was 32. It is interesting to note however that the bank consistently showed profits before 2009Q4. Earnings Index for the bank before 2009Q4 was also consistently higher than peer banks.

    Capital:  BankVega Capital Index for the bank was 1 compared to a value of 36 for its peer banks across Georgia. This shows that the bank was undercapitalized for the kind and quality of assets it held in its portfolio as noted by the FDIC in its directive.

    Liquidity: BankVega Liquidity index for Citizens bank was 22 which is low compared to its peer banks in Georgia (36). However while this was a cause of concern for the bank, it was not the reason for its sudden failure which can be attributed to poor assets and continued losses and decreasing capital over the last four quarters.

    Feb 26 3:05 PM | Link | Comment!
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