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We have looked into 14 additional banks (from list 2 and list 3 -banks with relatively lower multiples and lower cushion compared with list 1).  Almost all the banks in the additional list have better metrics compared with the list of 8 banks sent yesterday.  We have selected two of the 14 banks analyzed today based on banks' loan and investment portfolio, operating metrics and  valuation ratio.

 

Washington Federal :

·         Although in terms of probability of bankruptcy this bank trails over four banks identified yesterday the bank still has weak balance sheet metrics compared to most of the 14 scanned banks.  However taking into consideration high liquidity and market cap (over 4 banks identified yesterday), poor operating metrics (over rest of 14 banks and industry standards), high valuation ratio and high absolute share price this bank merits itself in final list of 6 banks

·         The banks' Eyles test (a measure of banks loan loss reserve strength) is 58% (i.e) bank has negative cushion (NPA's less reserves) of 58% over tangible equity.

·         The bank has negative cushion of 54.4% as of June 30, 2009.

·         The banks NPA's to tangible equity as of 2Q09 stood at 59.3% while non performing loans plus 90 days past due loans to tangible equity stood at 68.6%.

·         The banks NPA's to loans is at 6.7% while non performing loans plus 90 days past due loans to loans is at 7.8%.

·         The bank has adjusted leverage of 10.4x.

·         The bank has market cap of $1.3 bn and share price of $15.0 and is trading at Price-to-tangible book value of 1.16x.

 

Capitol Bancorp :

·         While the probability of bankruptcy of this bank is relatively high over the 14 banks analyzed today, the low absolute share price makes and low valuation multiple makes it risky to short.  The bank has market cap of $93 mn and share price of $5.3 and is trading at Price-to-tangible book value of 0.37x

·         The banks' Eyles test (a measure of banks loan loss reserve strength) is the highest among the analyzed 14 banks at 75.8% (i.e) bank has negative cushion (NPA's less reserves) of 75.8% over tangible equity.

·         The bank has negative cushion of 60.1% as of June 30, 2009.

·         The banks NPA's to tangible equity as of 2Q09 stood at 147.4% while non performing loans plus 90 days past due loans to tangible equity stood at 105.8%

·         The banks NPA's to loans is at 8.0% while non performing loans plus 90 days past due loans to loans is at 5.8%.

·         The bank has high adjusted leverage of 22.6x.

·         Efficiency ratio is very high at 108.6% in 2Q09 and the bank has been reporting losses over the last five quarters

 

 

WASH FED

CAP BANCORP LTD

Price (August 27, 2009)

15

5.3

Market cap (in mn)

1320.7

92.8

P/B

0.9x

0.3x

P/Tangible BV

1.2x

0.4x

 

 

 

Loan Loss coverage YTD

3.1

-0.3

Texas ratio

74.1%

103.8%

Eyles Test

821390.6

303643.0

Shortfall from current reserve for loan loss

659695.6

189428.0

Shortfall as % of tangible shareholders' equity

58.0%

75.8%

 

 

 

Cushion (Reserve less NPL+90 days due)

-54.4%

-60.1%

Adjusted leverage

10.4x

22.6x

 

 

 

NPA / Equity

59.3%

147.4%

NPA / Total Loans

6.7%

8.0%

 

 

 

NPL and 90 days due/ Equity

68.6%

105.8%

NPL and 90 days due/ Total Loans

7.8%

5.8%

 

 

 

NPL and 90 days due and 30 days due/ Equity

na

na

NPL and 90 days due and 30 days due/ Total Loans

na

na

 

 

 

 

 

 

Loan exposure

 

 

Residential real estate loans to tangible common equity

6.88x

3.58x

Commercial real estate loans to tangible common equity

1.67x

11.21x

 

 

 

Investment securities exposure

 

 

Total investment portfolio to tangible common equity

1.79x

0.19x

Level 3 assets  to tangible common equity

0.00x

0.00x

 

 

 

AFS break up

 

 

Level 1

0.0%

0.0%

Level 2

100.0%

100.0%

Level 3

0.0%

0.0%

 

 

 

Unrealized gains (losses) as % of amortized cost

3.5%

0.3%

After tax unrealized gains (losses) as % tangible equity

3.9%

0.0%

 

 

 

Troubled Securities exposure

 

 

Privately issued RMBS to tangible common equity

na

na

CMBS to tangible common equity

na

na

AMBS to tangible common equity

na

na

Other debt securities to tangible common equity

na

na

Equity securities to tangible common equity

na

na

Total

na

na

 

 

FDIC imposed a special assessment charge on all FDIC insured depository institutions in 2Q09- which amounted to 5 basis points of bank's total assets less tier 1 capital. However, the charge was capped at 10 basis points of the bank's domestic deposits. FDIC has indicated to levy a similar charge (in terms of formula) in third or fourth quarter of 2009

 

Washington Federal - In 2Q09, Washington Federal recorded a FDIC special assessment charge of $5.5 million (0.5% of the tangible equity as of June 30, 2009).The amount is about 13.1% of total revenues (net interest income after provisions) in 2Q09 and 32% of pretax income before special assessment charge. Based on the total assets and tier 1 capital as of June 30, 2009, we arrive at the same figure. If FDIC imposes another special assessment charge for 3Q09, the bank is likely to record an approx. equal charge in 3Q09.

 

SunTrust banks - In 2Q09, STI recorded a FDIC special assessment charge of $78.2 million (0.7% of the tangible equity as of June 30, 2009) and the same shall be paid on September 30, 2009.The amount is about 6.5% of total revenues (net interest income after provisions and non interest income) in 2Q09. Based on the total assets and tier 1 capital as of June 30, 2009, we arrive at special assessment charge of about $79 million. If FDIC imposes another special assessment charge for 3Q09, the bank is likely to record an approx. equal charge in 3Q09.

 

SunTrust banks was one of the 22 banks analyzed in detail during the screening, the latest STI data was retrieved during our screening process (pls refer to tab " Comparison sheet 2 " in the file sent on Friday).  STI is currently trading at Price to tangible book value of 0.8x. Updated data points about STI as of June 30, 2009

·        Adjusted leverage was 15.2x

·        Non performing loan plus 90 days due loans as % of tangible equity (including reserve for loan losses) is 50.7%. NPL and past due 90 days loans as % of loans are 5.3%

·        Texas ratio is 62.3% and Shortfall of Eyles test from reserve for loan losses is 45.4% of the tangible equity.

·        The bank has net unrealized gain on its investment portfolio (largely Govt agency backed securities).

·        Loan loss coverage for 1H09 was 0.5x.

 

SUNTRUST BANKS

Price (August 28, 2009)

23.68

Market cap (in mn)

11478.0

P/B

0.5x

P/Tangible BV

0.8x

 

 

Loan Loss coverage YTD

0.5

Texas ratio

62.3%

Eyles Test

7775244.9

Shortfall from current reserve for loan loss

4879839.9

Shortfall as % of tangible shareholders' equity

45.4%

 

 

Cushion (Reserve less NPL+90 days due)

-37.4%

Adjusted leverage

15.2x

 

 

NPA / Tangible Equity

66.0%

NPA / Tangible Equity (incl reserve for loan losses)

52.0%

NPA / Total Loans

5.4%

 

 

NPL and 90 days due/ Tangible Equity

64.3%

NPL and 90 days due/ Tangible Equity (incl reserve for loan losses)

50.7%

NPL and 90 days due/ Total Loans

5.3%

 

 

NPL and 90 days due and 30 days due/ Equity

82.0%

NPL and 90 days due and 30 days due/ Equity (incl reserve for loan losses)

64.6%

NPL and 90 days due and 30 days due/ Total Loans

6.7%

 

 

 

 

Loan exposure

7.43x

Residential real estate loans to tangible common equity

5.55x

Commercial real estate loans to tangible common equity

1.88x

 

 

Investment securities exposure

 

Total investment portfolio to tangible common equity

1.57x

Level 3 assets  to tangible common equity

0.05x

 

 

AFS break up

 

Level 1

3.1%

Level 2

93.9%

Level 3

2.9%

 

 

Unrealized gains (losses) as % of amortized cost

2.3%

After tax unrealized gains (losses) as % tangible equity

0.6%

 

 

Troubled Securities exposure

 

Privately issued RMBS to tangible common equity

3.9%

CMBS to tangible common equity

0.0%

AMBS to tangible common equity

0.2%

Other debt securities to tangible common equity

2.2%

Equity securities to tangible common equity

5.7%

Total

12.1%

 

 

We have started with initiating coverage of Washington Federal