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The slope of the yield curve as measured by the difference between the 3-month and the 10-year Treasury yields averaged 172 basis points for the year, roughly in line with the 20-year average of 180 basis points.
On the surface, banks are nearly as profitable as they were before the financial system collapsed, while the number of banks continues to shrink. The singular reason why so many banks are still financially-distressed is the legacy loans trapped on their balance sheets, mismarked and unable to be sold without charging-off so much UPB (unpaid principal balance) that the equity of much of the banking system would be eviscerated.
as reflected in nonperforming assets, but if we scratch the surface it doesn’t take much to ascertain the reality of widespread insolvency Noncurrent assets (as a % of total assets) remain stubbornly high at 2.20% (down from a peak of 3.367% in 2009) while loan loss reserves are down for eleven consecutive quarters.
With leverage still high at 9x, the banking system is embedded with ~20% losses, and that ignores loans that are mismarked on the books of nearly all banks across the United States.
The bifurcation of the banking system is enabling one of the great profit opportunities of our time.
While under-capitalized banks are frozen, “zombies” in the parlance of our time, well-capitalized banks benefit from the government’s hand replacing Adam Smith’s.
With .5 billion of in-market deposits, United Bank is now the leading independent bank in Washington DC in terms of deposit share; however, the stock is already fully valued at 2.2x TB60%).
Nevertheless, Sandy Spring still earned a solid 1.0% ROA and 9.7% ROTCE in 2012, and at only 1.2x is an attractive target for any bank looking to build scale or buy its way into the Washington DC market.3.
The lower the ratio the better, with most banks striving for a sub-60% ratio. In of itself, efficiency ratio means little if it doesn’t translate into a high level of profitability.Credit quality is outstanding with an allowance for credit losses covering 104% of nonperforming assets (NPAs), and non-interest expenses are well-managed as evidenced by a 51.4% efficiency ratio in 2012.In terms of valuation, Eagle Bank is easily worth 2x TBV (of .62) equal to .24.Our Word of the Year choice serves as a symbol of each year’s most meaningful events and lookup trends.It is an opportunity for us to reflect on the language and ideas that represented each year.
The cost of running a bank has increased, requiring scale.