Last week, we began to explore the concept of using other types of data (non-GAAP) to enhance our analysis on publicly-traded companies. While the focus was on insurance companies, this week we are focusing on another industry we enjoy getting under the hood of: Banks. Next week, in the third and final part of this series, we will hit the consumer industry.

READ PREVIOUS ARTICLE ON INSURANCE COMPANIES: The Many Benefits of Analyzing Non-GAAP Data  

Also, we recently published an in-depth report on how we analyze insurance companies, so if this content is of interest to you, please click here to download the report.

Again, we ask the question: if you had access to more detailed information other than the GAAP (Generally Accepted Accounting Principles), wouldn’t you use it? It turns out, there are multiple sets of reporting books beyond GAAP for many of the companies we look at. These include regulatory filings that are more detailed than the GAAP data that most of the street spends their time analyzing.

Banks 

In addition to GAAP filings, we utilize Call Reports filed with the FDIC as well as Financial Statements filed with the Federal Reserve.

Why?

This data can provide us with additional insight into loan and deposit composition. With this we can better understand the risk profile given the loan composition and have a better idea as to the quality of the deposits.

This data can also provide:

• Additional insight into the composition of the securities book
• Additional data on asset quality by loan type
• Additional data on non-performing assets
• Additional insight into capital adequacy/composition
• Further breakdown of noninterest revenue sources (along with expenses)
• Details of exposure to foreign lending/income

We strive to identify smaller banks that are overcapitalized. This tends to make the banks less susceptible to the ups and downs of credit cycles and allows for flexibility in terms of capital management. To learn more about our approach, we encourage you to read another one of our blogs: Balance Sheet Detectives - How We Analyze Bank Stocks.