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It Appears that the Doo Doo Bank List is Not for Everyone
I received this message the other day through the messaging system in my site:
"I read your article from early Sept about the next four banks likely to fail. I writing to let you know we filed our thrid quarter call report but more importantly, we are filing our earnings release today, It should be out there within the hour. I know your article was based on call report data and you can't base your analysis on other factors that you don't have, but I think the title of your article was a stetch and way too provacative. It probably helps sell your services but is a great diservice to those struggling daily to clean up the mess. I hope after your read the new informtion you'll write an article closer to reality and retract anything you may have said that isn't likely. Thanks, Very Interested Party, United Security Banchares "UBFO""
I removed his identity since he contacted me privately and didn't expressly communicate he wanted his opinion published. He is far from a disinterested party though, and is referring to an article that I wrote on the Doo Doo banks in September, "More Doo Doo Banks Available to the Public". For those of you who do not know, I used this term to coin the list of banks that I predicted may hit the fan in the spring of 2008 - "see 32 banks in deep doo-doo". If one peruses the list of the Who's Who in Doo Doo, one can see that it appears that I had a valid point as many of those banks collapsed or had to be rescued. In re-reading the article in question, I don't think the title of the article was a stretch at all, nor too provocative, considering the path of previous banks with similar metrics have taken. In addition, I never said these banks were likely to fail. They are in trouble, though. I understand his point, but I do not agree with it. I am sure if he viewed this from outside the bank as compared to inside, he would consider his bank's numbers to be precarious as well.
Now, let it be known that I am a disinterested party here. I simply scanned the numbers for a list of banks that appear to have significant credit issues. I also do not have a position in this company, long or short, thus I feel I am more likely to be objective than the person who wrote the note above. Ironically, the bank who was to be the subject of the forensic analysis turned out to be one of the healthiest of the bunch (still unhealthy, but relatively healthier than many in the group it was presented with), thus at this time we have postponed moving forward with it.
Alas, to be fair I did have the guys go over the latest numbers as per this reader's request and this is what we concluded:
As of the most recent quarter, the company came into profits of $0.7 mn in 3Q09 against a loss of $1.3 mn in 3Q08 primarily because of reduced provisioning for loan losses . Provision for loan losses were 0.4 mn in 3Q09 against 6.4 mn in 3Q08. The bank’s net interest income declined 3.6% (y-o-y), non-interest income declined 36% (y-o-y) and non-interest expense increased 31% (y-o-y). Below is a trend matrix for the various credit ratios.
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Credit ratios |
4Q08 |
1Q09 |
2Q09 |
3Q09 |
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Gross charge-off rate (annualized) |
2.4% |
1.9% |
1.1% |
1.4% |
|
Net charge-off rate (annualized) |
2.4% |
1.8% |
1.0% |
1.4% |
|
Provisioning rate (annualized) |
1.7% |
1.0% |
5.0% |
0.3% |
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NPL as % of total loans |
8.24% |
9.71% |
10.25% |
10.35% |
|
Other real estate owned as % of total loans |
5.49% |
5.37% |
6.76% |
6.53% |
|
NPA as % of total loans |
13.73% |
15.08% |
17.01% |
16.88% |
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90 days past due as % of total loans |
0.15% |
0.11% |
0.00% |
0.12% |
|
30 days past due as % of total loans |
0.52% |
0.87% |
1.06% |
1.37% |
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Allowance for credit losses as % total loans |
2.4% |
2.2% |
2.9% |
2.7% |
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Texas ratio |
96.0% |
104.6% |
116.6% |
111.3% |
Following are our key observations –
- In 3Q09, the provisioning rate reduced to 0.3% of total loans from 5.0% in 2Q09 while the gross charge off rate increased to 1.4% from 1.1% in 2Q09. Consequently, the allowance for credit losses shrunk to 2.7% of total loans from 2.9%
- While the allowance for credit losses declined owing to lower provisioning, the non accrual loans, 90 days past due loans and 30 days past due loans all continued to increase. Non accrual loans increased to 10.35% from 10.25% while the 90 days past due loans increased from 0% to 0.12%. The 30 days past due loans saw the maximum jump reaching 1.37% of total loans from 1.06%. The excess of NPLs over allowance increased to 7.64% of the total loans from 7.36%
- Although the non performing assets declined from 17.01% of total loans to 16.88%, the decline was owing to decline in other real estate assets which were disposed off by the company, largely at a loss. Management cites the sale of property worth $9.5 million at loss of 4.8% in 3Q09. The Management also says that post 3Q09, the bank will sell 21.6 mn of properties at a loss of 1.7%. In 3Q09, the Bank’s write downs on foreclosed properties and expenses on foreclosed properties increased by 0.8 mn and 0.9 mn, respectively. This is actually a very interesting trend to note. The banks get these properties at significant discount to market retail, yet somehow still take a loss upon liquidation. This goes to show how low property values can actually drop.
- While the credit metrics continued to deteriorate, the improvement in Texas ratio is primarily because of an increase in tangible equity coming from the reduction in unrealized losses on investment securities and reduction in intangibles.
I am not sure why the interested party quoted above feels I should post a retraction based upon the metrics above, unless the sole reason is because he is an interested party. From what I can discern, the accounting provisions for losses were reduced in the face of an increasing trend of credit quality deterioration. If he came from an accounting background, it is possible that he feels the reduction in provisions is a reason to rejoice. While that may be a plus from an accounting earnings perspective, it is counter-intuitive and apparently in error from an economic or prudent owner/investor perspective - at least in my opinion. If I am somehow reading this wrong, I welcome any and all to point it out to me and if valid I will gladly post it publicly on my blog.
I do believe I am a fair arbiter of value and am not out here with an agenda.
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"Those struggling daily to clean up the mess"
He probably is an infantryman in the foxhole, but he forgets to reply a question...
Yo dude, who exactly created the mess in first instance ?
Deny the mess will not help your struggle, but articles like this may open your eyes on the exact nature of your Commanding Officer...the one who puts you in the frontline every day...to clean a mess and not to do honest banking work.
Sorry for you dude...but crap, cannot be called food...or you may be asked to eat it to prove is food, and i don't want.
let me get his straight. you people are arguing over gramical errors , while the western civilization as we know it is imploding? and you wonder why the sheep have no where to turn for direction.
Let's cue up the "missing the point" music for the overly dramatic anon...
Point (which I might add has been pointed out previously by TraderTim):
If you're going to take the time to get after Reggie's quality work, you better bring it! Bringing it constitutes both factual assertions and simple spell check so you don't sound like a schlep. UBFO does neither => FAIL.
As for direction, there's plenty here - the sheeple don't want any, hence they are sheeple. A critical eye helps to separate the wheat from the chaff, not to mention it shows people are paying attention.
Lighten up Francis...
Reggie, you may notice that misspellings and other errors indicate you've hit a nerve (emotionally tinged writing). Unfortunately, they need to feel the blowtorch of love while in the process of "struggling daily to clean up this mess." It will sear the lesson into them. Just keep on keepin' on.
Actually, I make spelling and grammars errors as well (and I am well versed in grammar and have a decent vocabulary). They stem from banging posts out at 3:30 in the morning on only 2 hours of sleep :-)
Nobody cares. They just want the substance. Anyone who nitpicks the spelling mistakes is just trying to be overly critical and unfocus you. Thank you for your posts Reggie.
I'm getting the impression I'm being misunderstood. I wasn't slamming Reggie at all - I was commenting on the UBFO that was taking him to task.
No comment was to Reggie not you. It just showed up under your post not Reggie's as the second comment to the post. I know you weren't slamming reggie!!! We were just 2 people saying 2 different things to Reggie's original post.
Reggie's comment
Your comment to Reggie
My comment to Reggie
If I had been commenting to you
Reggies comment
Your comment to Reggie
My comment to your comment to reggies comment. ;)
I hear you - we all do it. I just have noticed, more times than not when I specifically do collections work, the quality of spelling/prose degrades rapidly as emotion increases (sleep deprivation notwithstanding). Get some sleep man; only the Tyler Durden(s) of the world can do that polyphasic sleep thing.
They don't really want to 'clean up the mess', they just want to apply defibrillation and keep it just alive long enough to suck more money out of everyone before it truly heaves its last breath..
Sorry he has to work so hard to clean up the mess. But really why bother? It's not like anyone has to. The banking system is a lie, a scam, a perception distorter about supposed debt based on unrealistic gains that are never achievable and levels of debt that are never sustainable if they were to be strictly or even loosely enforced. Why waste your time trying to get accounts and numbers that by nature won't work and won't add up to work?
That line bothered me too. It's as though some external force compelled him to lever up a unidirectional bet on continued residential and commercial real estate price appreciation using illiquid instruments and equally illiquid hedges.
His first step to "clean up the mess" should be to mark all this crap to market.
Just to nitpick - regarding the following:
"way too provacative."
I believe the use of "too" is correct. He is referring to an excess of provacative-ness, so it would be correct to use "too."
provocative
obviously the too is "correct"
lol..like i said..im not an english major either, so you're probably right, but if i was someone from inside United Bank Shares bank taking the time to point out how terribly wrong reggie's analysis is, i might at least take the time to use the spell checker and proof read my rebuttal so i could sound a little more professional and make my case why "we shouldn't be on the doo doo list".
thx johnicon
You're welcome. I do so enjoy playing the spelling/grammar Nazi. :-D
"If he came from an accounting background,..."
he obviously didn't come from a grammar background. im not an english major but jeez, my 12 year old can write better than this: "I writing to let you know" "our thrid quarter call" "title of your article was a stetch" "way too provacative." "but is a great diservice" "after your read the new informtion"
i think this person works in the fax department for $8.50 an hour.
"I do believe I am a fair arbiter of value and am not out here with an agenda."
absolutely reggie...keep up the fantastic work. :))
Thats a function of outsourcing the execs, he probably speaks with a Kentucky accent.
i love you man....keep calling crap on crap....we need honesty, truth, and a gigantic bullshit detector....
Where are the original articles? The links don't work.
It should work now.