Each sector has their different metrics to determine how profitable the company is and what to expect in the future. Today the issue is how are the banks converting a dollar of revenue into profit.

Ryan Gottschalk works for Thomson Reuters Eikon which provides news and information to companies look at Tier 1 North American banks. His criteria was:

The market capitalization of the bank would be $ 2 billion or more.

In the bank, an good method to look at its efficiency ratio which is measuring the bank’s overhead as a percentage of overall revenue. 65% is the tops with lower being better.

Another measure is the earnings efficiency – the difference between the estimated net income growth for this year divide by estimated net income from last year subtracted the estimated revenue growth for this year divided by revenue growth for last year. or net income growth minus revenue growth.

The Tier 1 capital which measures the bank’s core equity capital to total risk-weighted assets. For this list the answer has to be above 10%.

Finallly, the dividend yield is put in the chart.

Company                         Ticker       Mkt Cap    Efficiency    Net Income Growth  Tier 1  Dividend

(US Bil)       Ratio           – Revenue Growth       Cap      Yield

HomeBancShares      HOMB-Q         2.88         39.5                       6.5                         11.3         1.4

First Republic Bk           FRC-N          10.00       59.9                       6.1                        13.2         0.8

M &T  Bank                    MTB-N          18.52       57.0                      19.7                11.5          2.4

BB&T Bank                      BBT-N            28.73      58.9                       4.4                  11.9           3.0

Western Alliance          WAL-N            3.40       45.6                       3.7                   10.1            0.0

Bank of Hawaii               BOH-N           2.94        59.2                      1.5                    14.1            2.6

MB Financial                  MBFI-N          2.722      64.3                      3.4                    11.8           1.8

Royal Bank                          RY-T          89.26        53.7                     1.1                      12.2           3.9

PrivateBancorp               PYTB-Q           3.46       51.1                      1.2                     10.5           0.1

Regions Financial               RF-N          10.85        64.6                   1.6                     11.8            2.7

Huntington Bancsh        HBAN-S           7.07     64.8                   0.0                     10.6           2.8

Linking to dividend paying stocks, as long as asset values remain constant, the banks should be able to be profitable and pay dividends. Understanding the metrics of the companies you own help you to decide how long you will hold the stocks. A financial company is generally a stable part of your portfolio but individual banks can be traded for those that seem to do their job even better than the competition. In the above grouping Home Bancshares has a great efficiency rating and M&T is doing a great job turning revenues into profits. What are they doing that is so much better than the others?

There are more questions than answers, till the next time – to raising questions.