Checking banks’ bottom lines

No industry sector will be more closely watched this earnings season than the financial firms, many of which are releasing their third-quarter financial statements this week and next.

Aside from their perch as keepers of the coffer in your territory, the health of your region’s banks is a good barometer of other economic pressures in the area. Sound loans and deposits make for sound banks; when business sours on either end it’s worth finding out who’s slumping, and why.

If you haven’t already, jot down a list of regional and national financial firms in your area and determine when the critical mass of earnings releases will be out. The dates of course are available on corporate Web sites, or use a handy calendar like this one from Bloomberg.

If you aren’t sure of the players in your area, use this handy tool from the Federal Deposit Insurance Corp. (FDIC), which allows you to run a report ranking banks by market share. You can sort by ZIP code, county or state, depending on the snapshot you seek. The ranking is based on deposits as of June 30, 2008 – a tad old but barring any major failures since then, a good read on financial institutions you should be watching.

One thing to keep in mind is that by the nature of their business, banks’ financial statements read somewhat differently than those of industries that sell tangible goods and services. Those companies report revenue (sales) and their net profit or loss after expenses.

Since banks don’t make “sales,” per se – they move money around between borrowers and depositors – their financial ratios are a bit different, and are roughly counted in terms of “assets” (deposits) and “liabilities” (loans.) Here’s a primer on reading bank financial statements from Investopedia.com.

While you have time to prepare, consider a large info graphic or spreadsheet-oriented story (if news hole is tight, refer to the Web) comparing and contrasting key financials at your market’s major financial institutions. A forensic accounting firm or finance/accounting experts at nearby business schools can help you decipher the balance sheets and point out red flags that you can take forward into interviews with the banks’ executives.

CNNMoney.com notes in this analysis that four of the nation’s six largest banks are expected to post profits, despite ongoing delinquencies by retail and commerical borrowers.

Marketwatch.com outlines more of what to look for in third-quarter results in this video. Specific line items include credit-card losses related to unemployment, other troubled assets including commercial real estate, which still looms as major liability for lenders.

If things seem really dire, you may wish to review this previous Tipsheet on how to cover bank failures.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

When banks go bad

Nothing quite kills that T.G.I.F. buzz like word that your bank has been seized by the feds.

But it’s even more of a downer if you happen to be the financial reporter on duty, with an empty notebook and two hours to go before that 7 p.m. deadline.

Think it can’t happen on your watch? So far this year, regulators have shut down nearly 80 banks, ranging from $25 billion household names like Colonial Bank to little Corn Belt Bank and Trust Co. of Pittsfield, Ill.

With four more months left to go in the year and a recent warning from Congress that many banks still are in jeopardy due to the troubled loans and other iffy assets they hold. (For basic information about understanding bank financials and regulation, check out this previous tipsheet.)

Doing a little advance work could save you a lot of stress one of these Friday nights. Besides, few things rattle readers like bank failures, and you’ll want to be their go-to site for updates and reassurance.

Few industries have such labyrinthine regulatory arrangements – depending on a bank’s charter they could be supervised by one of several state or federal agencies. Before crunch time, you might want to make a simple spreadsheet listing the financial institutions in your area, the relevant oversight body and key after-hours contact info for each.

Fortunately the Federal Deposit Insurance Corp. (FDIC)– the government body that insures deposits and usually becomes the receiver of troubled banks – also is a central clearinghouse for reporters and consumers.

Andrew Gray, the FDIC director of public affairs, says the FDIC sends out press releases on every bank closure concurrent with the release from the regulatory body. Nothing is ever embargoed or released selectively in advance, Gray said, because generally banks are scurrying until the absolute last minute to obtain financing or other means of staying liquid. So if you go to the FDIC site and sign up for e-mail releases, you’ll get the news at the same time everyone else does.

The FDIC and related sites also have a font of consumer protection info, with FAQs about deposit insurance and other things your readers want to know. With so many bank failures in the news right now, it would be smart to put together a little Web package outlining bank insurance basics, hotlines, Internet sites and other resources. Then, if one happens in your market, you can pop that up online with a few preliminary points from the press release and not waste precious time creating a fact box.

Bank failures tend to be announced on Friday nights, Gray said, because it gives the feds the weekend to straighten out paperwork and “make sure it’s business as usual on Monday morning. Consumers are going to see the same faces they saw on Friday.”


For reporters, it’s not as grim as after-hours news could be – Gray said the media is welcome on site at failed banks – the next day, if the bank in question has Saturday hours - and that one of his staff or an FDIC ombudsman will be on hand to field questions. Better yet, the media relations contact numbers on the FDIC releases are answered nights and weekends, so you won’t have to wring your hands until Monday for official comment. If the failed bank is being acquired, the FDIC likely can put you in touch with the new owners, Gray said.

Of course, you’ll also want to talk to bank patrons, industry analysts and shareholders – more people whose cell phone numbers you should get now, not next Friday at 5:45 p.m.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Checking up on local banks

Bank shares took an especially heavy beating in Monday’s stock market sell-off, and no wonder. Despite billions of taxpayer dollars spent on bailouts, financial institutions are failing at a pretty fast clip this year.

According to a report in Monday’s The Wall Street Journal, citing the FDIC, 77 banks have failed this year – five of them last Friday – and some 300 more are viewed by federal regulators as at risk.

And last week, the Congressional Oversight Panel supervising TARP bailout funds released this report warning that many banks are still holding troubled assets on their books.

The problem is particularly acute for smaller banks, the report says, because they hold more commercial loans, with a high default risk, and more whole loans, which also can be wiped out by default faster than a pool of securitized loans. Meanwhile, smaller banks don’t have the same access to capital as larger institutions.

“Given the ongoing uncertainty, vigilance is essential,” the report urges. They’re speaking to federal regulators, but as a journalist you should take this as a sign that your local banking institutions deserve a second look.

It’s not an easy task – banking and finance are complex disciplines with confusing and arcane accounting conventions, terminology, you name. Because they don’t produce ‘stuff’ or provide tangible services like hair cuts or computer repair, they record their numbers differently than those in other sectors.

For starters, here’s a very good article from Investopedia.com about analyzing a banking institution’s income statements, complete with explanatory graphics.

It explains how banks derive income – basically by taking deposits and lending the money out to others at a profitable interest rate. Major risks are that the borrower will default or that interest rates will fall and the bank be obligated to pay out more than it actually earns on loans.

Get to know the regulators at your state level; the National Association of State Credit Union Supervisors and the Conference of State Bank Supervisors can point you in the right direction.

Federal regulatory sites abound and you’ll need to dig to determine who’s in charge of specific companies in your market. The Web sites of the 12 Federal Reserve banks, as well as the federal Comptroller of the Currency, Office of Thrift Supervision and the Federal Deposit Insurance Corp. all offer other educational materials online.

One interesting place to start is this FDIC database; you can run a report by county or other parameters showing each financial institution ranked by market share of deposits. It’s a fast and convenient way to find out which institutions your readers trust the most with their cash.

Then, check those banks against the American University’s Investigative Reporting Workshop’s BankTracker database. In addition to detailing how much TARP money specific banks received, the database – a synthesis of FDIC reports on thousands of banks -- depicts each institution’s ‘troubled asset ratio’ compared to its capital and loan-loss reserves. The closer those two figures, the riskier the bank’s situation and the numbers provide an excellent opening for interviews with local bank execs.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.