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.