BankProspector V2 - Bank Note Sale Indicators

BANKS: Capital and Note Sale Indicators 

Members will then find the Banks Capital and Note Sale Indicator Sections (In our previous version, this was labeled as Loans and Leases Held for Sale).  These sections show a chart view of 8 pieces of data.  These data points help us understand which banks are likely to be selling NPNs and REOs.  These charts all contain an info icon that gives a bit more information describing the section being viewed.  These charts can also hover so members can see specific information for each piece of the chart.

Captial

BankProspector shows you all the key portfolio information (including ALLL), plus contacts, for every bank and credit union in the united states. 

  • What Are Loan Loss Provisions: If Allowance for Loan and Lease Losses (ALLL) is the bucket then “Loan Loss Provisions” is the ladle that fills the bucket. Loan Loss Provisions is the amount added or subtracted from ALLL each quarter.
  • What is ALLL (Allowance for Loan and Lease Losses): Allowance for Loan and Lease Losses (ALLL) is a special bucket where the bank puts cash in order to make up the difference when they are taking losses on non-performing assets.
    • The difference between ALLL and Provisions for Loan Losses is that the Provisions are the amount being added to or subtracted from the ALLL which is the total amount. So Provisions for Loan Losses is the amount the lender has moved in or out of ALLL that quarter (or period) while ALLL is the balance being affected (increased or decreased) by the Provisions.
    • How to Use ALLL and Loan Loss Provisions in Your Prospecting: ALLL acts as a reserve for anticipated losses in a lenders loan portfolio. When banks add to ALLL each quarter (through Loan Loss Provisions) this indicates an expectation of more trouble in their portfolio. When the lender takes away from ALLL (through negative Loan Loss Provisions) this is an indication that the lender is more optimistic about their portfolio and expects fewer non-performing assets.
  • What is Tier 1 Risk-Based Capital? Tier 1 Risk Based = Tier 1 Capital Adequacy   Regulators want the Tier 1 Risk-Based ratio to be a minimum of 4%, though there is talk of this going higher. Banks showing a ratio below 4% (some say 6%) are deemed to be undercapitalized.  When banks are severely undercapitalized, they cannot sell assets at a discount so we use these charts to indicate their capitalized status. Green indicates healthy, yellow indicates borderline, red indicates undercapitalized.
  • What is Total Risk-Based Capital? Tier 1 Capital plus Tier 2 Capital is the more common Capital Adequacy Ratio known as Total Risk-Based and this number should not be below 8% (some say 10%) for a bank to be considered to have sufficient capital. When banks are severely undercapitalized, they cannot sell assets at a discount so we use these charts to indicate their capitalized status. Green indicates healthy, yellow indicates borderline, red indicates undercapitalized.

How to Use Capital Ratios in Your Prospecting

Members can search for banks with a specific capital adequacy ratio by using the  Advanced Search feature inside of BankProspector.

The danger in prospecting banks that have an insufficient capital adequacy ratio is that you may well be wasting your time.

Banks have balance sheets and the assets that they hold are on these balance sheets at their last appraised value. If that appraised value is above what the real market value is for the property (as is all too often the case) then a disposition at a market rate could adversely affect them.

In many cases when a bank is severely undercapitalized, they will work to bring in deposits, merge with another bank, and/or enter into extended or creative workout negotiations with delinquent debtors.

Tier 1 Leverage Ratio

The  Leverage Ratio minimum is 3%.

Note Sale Indicators (previously labeled Loans and leases listed as ‘For Sale’) 

Note Sale Indicators are not necessarily real estate notes nor are they necessarily the whole body of available notes for sale, we track them anyway.

  1. Total Portfolio
  2. 30-89 Days Late
  3. 90+ Days Late
  4. Nonaccrual Loans

Very often a lender may be willing to entertain the sale of non-performing notes to investors or other lenders that are not reflected in their loans and leases held for sale totals but may be reflected in the 90 Day Late or Non-accrual columns. 

Past due 30 through 89 days and still accruing

These loans are a precursor of things to come for the bank and while they’re a problem area and important, they are not urgent.

Past due 90 days or more and still accruing

Loans that are 90 days late or more are reported in this section by asset type. 90 Day Lates are good to know if you are prospecting pre-foreclosures, appraisal work, workout consulting, foreclosure auction or legal work, non-performing notes for sale, and more.

At 90 days late the loans are a problem but they have not yet become critical. The truth is that a very small amount of loans that become 90 days late ever get back on track; 90 Day late balances are a precursor to non-accrual and eventually a sale or foreclosure and reporting as loans and leases held for sale.

Non-Accrual Loans Held for Sale

Non-accrual loans held for sale are the latest and most problematic loans for banks. Loans that are 30+ days late or ()+ days late and still accruing eventually feed into non-accrual unless the loans are sold or foreclosed upon before they hit that stage.

Resources: Check out this interview that goes into detail on how to use this data to find non-performing note deals.