| 30-89 Day Assets |
(def.) Lending assets in default between 30 to 89 days.
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| Acid Test Ratio |
(formula) Acid Test Ratio = Current Assets / Current Liabilities
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| Actual to Provisions Ratio |
(computation) The ratio of gross charge-offs to provisions for loan losses in a given reporting period.
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| Asset-Liability Liquidity Test |
(analysis methodology) Priority tiered paydown analysis of the capacity of tangible assets to liquidate the bank liabilities arranged by seniority of payout. Both nominal and stressed scenarios are tested.
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| Bank Efficiency Ratio |
Bank efficiency is a standard industry measure of operational business efficiency. It us used by bankers to track their cost of doing business. It is similar in concept to gross operating margins. Bank efficiency numbers are useful for analysis because they reveal how hard a bank is working to stay where it is in the marketplace. High efficiency numbers indicate a bank has to go to extraordinary efforts to retain customers and may be losing money doing so. Sometimes a bank will elect to do this in order to grow market share. It is usually not a good thing if they are doing it and market share is not growing or is growing in an unsustainbable direction.
Efficiency is a normative measure; that is, banks want to be within a certain ideal zone. The zones are,
- Under 55% - Operations are "coasting" and potentially under working the business potential.
- 65% - This is the ideal target efficiency for a bank. It roughly equates to a 35% gross margin on operations.
- Over 80% - Is considered Stressed
- Over 100% - Is considered Very Stressed
- Over 120% is considered Distressed
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| Brokered Deposits |
Portion of deposits that were brokered as percentage of total deposits.
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| Business Design |
Measures the business model split between the lending business model and the investing business model of an entity.
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| CAMELS |
CAMELS is a bank regulatory acronym which stands for,
- Capital Adequacy
- Asset Quality
- Management
- Earnings
- Liquidity
- Sensitivity to Market Risk
CAMELS are computed by the FDIC for each bank unit certificate holder. The ratings go from 1-best to 5-worst to indicate the safety and soundness condition of the bank. A similar measurement process by the Federal Reserve is known as a BOPEC. Due to the nature of the measurement process, CAMELS tend to be lagging indicators of bank soundness revealing degradation only after a confluence of issues of surfaced.
Because of the explicit use individually identified records as part of the examination process, by legal edict, official CAMELS are private and restricted for communications between a bank and its regulators.
In 2009, IRA was contracted by the Securities and Exchange Commission to develop a "Shadow" CAMELS measurement system based on using public data only as reported in FDIC Call Reports to estimate CAMELS for screening, analysis and surveillance purposes. Whereas regulatory CAMELS are integers, IRA's "Shadow" CAMELS are specified to track risk granularity down to 1/10ths.
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| Capital Adequacy |
Capital adequacy is the measure of whether or not a bank meets the minimum regulatory requirements to absorb losses and continue to operate.
A bank may be,
- Well Capitalized
- Adequately Capitalized
- Under Capitalized
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| CERT |
(term) FDIC Certificate ID - The identification number of an individual banking institution within the FDIC regulatory system.
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| Computed Gross Income |
(formula)
IRA Computed Gross Income = Interest Income less Interest Expense plus Gross Non-Interest Revenue.
Annualized Computed Gross Income = 4/QTRNO times YTD Computed Gross Income
where QTRNO is the quarter reporting number.
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| Counterparty |
Counterparty transactions take place between banks and bank related entities. Examples include loans between depository institutions, services purchased from vendors, debt deals.
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| Default Experience |
Realized losses or charge-offs from loan losss reserves, annualized.
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| Economic Capital (EC) |
Measure of risk-based capital on a stressed basis for lending, trading and investing silos. Maximum probable loss is generate for each silo and sum equals EC.
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| EPS |
Earnings per share.
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| Exposure at Default (EAD) |
EAD = Unused credit lines/total loans and leases. Expressed in percent of total loans and leases.
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| Exposure to Assets |
Exp-to-Assets = (Total Loans + Commitments) / Total Assets
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| FDIC Moral Hazard Score |
The FDIC Moral Hazard Sco
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| FHLB |
Federal Home Loan Bank
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| FHLB Advances |
Portion of assets funded via the Federal Home Loan Banks
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| Foreign Deposits |
Portion of deposits that are held by non-US residents.
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| Gross Defaults |
Current lending defaults before recoveries. The FDIC also tracks net defaults.
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| GSE |
Government Sponsored Entity
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| Hot Money |
Volatile deposits that can disappear in bulk from a bank because their placement is controlled by professionals. Hot money can also manifest as individual CD placements accumulated via the offering of higher than competitor CD rates because these are semi professionally managed funds that can also shift based on external market conditions.
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| IRA Bank Stress Index |
IRA's BSI ratings are designed to give early warning indicators. BSI's were originally designed to assist
bank management to pinpoint and mitigate operational stresses prior to them becoming regulatory compliance
issues. They make going concern business stress transparent to counterparties and competitors who can then use the information
for competitive strentgth/weakness analysis or portfolio risk management purposes. The tests were originally design guided by
principles from the Basel II initiatives of the early 2000's. The following operating characteristics into account,
- Profitability
- Loan Default Rates
- Capital
- Lending Capacity
- Efficiency
Bank Stress Index Grades are computed for each bank on a quarterly basis. The grades are based on a performance
index calibrated to 1.0 as of December 1995. The indexes are further simplified into letter grades.
A+ -
Shows less stress than 1995 1.0 Index baseline.
A -
Overall stress is considered good.
B -
Shows stress levels slightly elevated.
C -
This institution exhibits operating stress sufficient to merit additional scrutiny.
D -
This institution exhibits significant stress possibly impacting the future viability of the institution.
F - This institution exhibits elevated stress levels.
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| IRA Counterparty Quality Score |
The IRA Counterparty Quality Score (CQS) is a proprietary rating that provide users with a current stress condition of the bank. These scores add balance sheet considerations based on additional analyses of asset quality and are considered active indicators of a bank's likelihood of coming under regulatory coorective action or failure. The following scores are assigned,
8 -
Superior rating. Institution exhibits strong overall characteristics. This institution is considered to be a excellent business credit risk.
7 -
Good rating. Overall operating stress is superior. This institution is considered to be a good business credit risk."
6 -
Borderline rating. While operationally stressed, this institution is not considered to be a business credit risk.
5 -
Stressed but operating. Net income issues are now present but overall troubled assets continue to be less than 10 percent of total assets. You may wish to inquire if the stresses are due to one time or short term events.
4 -
Initial Watch Condition. Actively monitoring of the stresses within this institution over the next 12 months are recommended. Actions to limit taking on additional counterparty exposure or being compensated for the added risks may be prudent.
3 -
Elevated danger. This institution's troubled indicators have risen to significant levels. Increased monitoring of stresses is recommended. There is an elevated probability that the FDIC may act against this institution, see below. Watch for Capital Adequacy collapsing as a danger indicator.
2 -
Extreme danger. This institution is now exhibits trouble in multiple key areas. Monitoring continuously and actions to draw down excess counterparty exposure are warranted. An FDIC Cease and Desist consent decree is likely to be in place.
1 -
Unviable counterparty. Key measures are deeply degraded. It may still be listed as active by the FDIC but may have collapsed or be operating as a zombie. In some cases the bank may have been healthy but a merger or other push down accounting event may have resulted in a transient low score. Regardless, the institution does not presently have characteristics indicating suitability as a counterparty.
IMPORTANT: Analysis of patterns of FDIC bank failures since January 2008 indicate that bank closures tend to occur when a bank's CQS rating is in the 3 to 4 range. This follows an observed pattern whereby the FDIC primarily wishes to sell a failing institution to a healthier one. At the 3/4 point, there is still sufficient residual value to support a distressed merger transaction.
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| IRA Stress Score |
A numerical form of the IRA Bank Stress Index
Measure of the relative stress reported by a bank in a given period. Benchmark year of 1995 is equal to 1. Maximum score is 100 or two orders of magnitude above the base year.
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| Lending Support |
Measures the amount of liabilities support behind each lending asset dollar.
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| Leverage ratio |
Total capital less some intangibles divided by total assets
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| Loss Given Default (LGD) |
Defaults less recoveries in the current period, annualized. Also referred to as net charge-offs.
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| MVE |
Market Value of Equity ratio = (Market Cap - Intangibles + Allowances)/(Total Assets - Intangibles + Allowances).
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| Non-Accrual Assets |
Assets in default that have reached a statutory point where they need to cease accuring interest.
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| OBS |
Off Balance Sheet
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| Off Balance Sheet (OBS) Derivatives |
Total notional amount of OBS derivatives reported by the subsidiary banks.
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| Over 90 Assets |
Loans in default more than 90 days.
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| P(D) Rating |
Defaults in basis points converted by IRA into a bond-equivalent letter rating using breakpoints emulating published in academic literature about Moodys and S&P guidelines.
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| Price-to-book value |
Market cap divided by book value of equity.
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| RBC |
Risk Based Capital
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| Real Estate Owned (REO) |
Total carrying value of real property owned by the bank as the result of a foreclosure.
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| Return on Assets (ROA) |
Net income divided by total assets.
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| Return on Equity (ROE) |
Net income divided by total equity.
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| Risk Adjusted Return on Capital (RAROC) |
RAROC = Net Income/Economic Capital
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| Risk Weghted Assets |
Total assets of bank weighted by regulatory risk factors.
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| RSSDHCR |
Identification of the Bank Holding Company of Record. A BHC may be a composed of a collection of subsidiary CERT institutions.
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| RWA |
Risk Weighted Assets
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| SD |
Standard Deviation
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| Tangible Common Equity |
Total capital less all intangibles and preferred equity
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| TCE |
Tangible Common Equity ratio = (Total Equity - Preferred Equity - Intangibles + Allowances)/(Total Assets - Intangibles + Allowances)
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| Texas Ratios |
Texas Ratio is a measure originally designed for assessing savings and loan institutions first used during the 1980's Savings and Loan crisis. It gets its name from the number of S&L's that were affected in that State. It measures the strength of the bank to absorb losses.
How are IRA Texas Ratios computed?
TEXAS RATIO = DISTRESSED ASSETS / (TANGIBLE EQUITY + INTANGIBLE ASSETS + BALANCE SHEET LOAN LOSS RESERVES)
Where,
DISTRESSED ASSETS = (P9ASSET+NAASSET+ORE)
Consisting of,
P9ASSET = Over 90 Day Delinquent Assets
NAASSET = Non-Accrual Assets
ORE = Other Real Estate Owned
TANGIBLE EQUITY = EQCS+EQSUR+EQUP-EQPP
Consisting of,
EQCS = COMMON STOCK
EQSUR = EQUITY SURPLUS
EQUP = UNDIVIDED PROFITS, NET
EQPP = PERPERTUAL PREFERRED STOCK
INTAN = INTANGIBLE ASSETS, as reported
LNLSRES = BALANCE SHEET LOAN LOSS RESERVES, as reported
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| Ticker |
Stock market ticker symbol.
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| Tier One Capital |
Regulatory measure for capital that excludes preferred stock and some intangibles.
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| Troubled Asset Score |
IRA tracks troubled lending at banks and uses this information to determine the degradation of the asset quality of the bank.
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| Weighted Average Maturity (WAM) |
Sum of the weight maturity of loans and leases.
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