canonical/modules/M089-banks-analyst-playbook.md

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<!-- Module: 089 | Title: Banks Analyst Playbook -->

## PART XV - SECTOR PLAYBOOKS | MODULE 089

# Banks Analyst Playbook

> Mission. Build a sector-specific research system for Banks that converts operating data into financial outcomes, highlights the accounting areas most likely to distort comparability, and selects valuation methods that reflect the sector's economics.

## Economic engine and binding constraints

Model loans, deposits, deposit beta/mix, asset yields, NIM, fees, expenses, charge-offs, reserves, CET1, AOCI, securities duration, and liquidity. Run parallel credit, rate, deposit-flight, and capital stresses.

## Primary KPI stack

| KPI | Construction / analyst control |
| --- | --- |
| NIM | Annualized net interest income divided by average interest-earning assets. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| loan growth | loan growth = current period / comparable prior period - 1; decompose organic, price, volume, mix, FX, and M&A where material. |
| deposit beta | Cumulative change in deposit rate divided by cumulative change in the reference policy/market rate over the same tightening or easing cycle. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| deposit mix | Noninterest-bearing, interest-bearing checking, savings, money-market, time deposits, and brokered deposits divided by total deposits. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| charge-offs | Net charge-offs divided by average loans for the period, annualized when reporting quarterly. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| NPLs | Nonperforming loans divided by total loans, with 90+ days past due and nonaccrual definitions reconciled to bank disclosures. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| CET1 | Common Equity Tier 1 regulatory capital divided by risk-weighted assets under the applicable regulatory framework. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| tangible book value | Common shareholders' equity less goodwill and identifiable intangible assets, divided by common shares for TBV/share. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |



## Sector-specific accounting and comparability traps

- Cecl allowance: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Afs/htm marks: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Nonaccrual loans: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Securities duration: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Off-balance-sheet commitments: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

## Valuation frameworks

- P/TBV versus ROTCE: price-to-tangible-book interpreted against sustainable return on tangible common equity, growth, payout, credit cost, and cost of equity.

- P/E: common equity value per share divided by normalized diluted EPS; normalize taxes, one-time items, dilution, cyclicality, and non-operating income.

- Dividend discount: present value of sustainable common dividends or distributable capital, constrained by regulatory capital, growth funding, payout policy, and cost of equity.

- Excess-capital analysis: value deployable capital above operating/regulatory requirements separately from the earnings franchise, net of tax and deployment constraints.

## Sector diligence questions

- What is the most important leading indicator for Banks, and how many months does it lead reported revenue or cash flow?

## Sector stress and falsification

- Stress NIM and loan growth together in the direction most likely to break the equity story; flow the result through working capital, capex, liquidity, financing, dilution, and valuation.

- Explicitly test CECL allowance. Determine whether it can make the reported sector comparison look better or worse without equivalent economic change.

## 99-point standalone execution extension

### Model architecture and forecast chain

Model average loans/securities, yields, deposits, deposit beta, funding mix, NIM, fees, expenses, charge-offs, provisions, capital, and buybacks.

### Leading-indicator dashboard

Track deposit flows and pricing, loan growth, credit delinquencies, charge-offs, securities marks, yield curve, funding markets, capital ratios, and regulatory actions.

### Primary-source map

SEC filings and call reports; FDIC BankFind/Quarterly Banking Profile; Federal Reserve Y-9C and H.8 data; FFIEC data; yield-curve/rate data; regulatory capital and stress-test disclosures.

### Accounting normalization test

CECL/reserve assumptions, AOCI, held-to-maturity marks, nonaccruals, loan modifications, and capital treatment are central.

### Valuation implementation

Use P/TBV, P/E, residual income, and excess-capital approaches tied to normalized ROE and cost of equity.

### Worked numerical mini-case

> Illustrative NIM and credit case.

Average earning assets $50bn and NIM 3.20% imply $1.60bn annual net interest income. A 20 bp NIM decline costs about $100m pre-tax. Separately, a 40 bp increase in net charge-offs on $35bn loans costs about $140m.

Bridge NII, fees, provisions, expenses and capital together, then value sustainable ROTCE relative to cost of equity and tangible book.

### Monitoring and falsification cadence

Breaks include deposit franchise weakening, credit losses above reserve, capital shortfall, funding stress, regulatory constraint, or asset-liability mismatch.

At every quarterly update, rebuild the driver bridge from operating units to revenue, margin, cash flow and valuation; compare leading indicators with the prior forecast; record definition changes; and precommit the threshold that would trigger a thesis reset rather than a cosmetic estimate change.

## Sector exit standard

The Banks work is complete only when the analyst can explain the business in its native operating units, reproduce the KPI history, identify the binding growth constraint and marginal price setter, normalize sector-specific accounting, quantify a coherent adverse case, and translate the current market price into the operating expectations that must be met or exceeded.