Selected Banks

AI Prompt: Individual Stock Analysis

Generate a detailed investment research report on COMPANYNAME (COMPANYTICKER). The report should be structured for investors and traders, providing actionable insights.

Key Report Sections:

1. Company Overview and Business Model: Briefly describe COMPANYTICKER's core business, target markets, and key operational areas.

2. Strengths:

Identify and elaborate on COMPANYTICKER's competitive advantages.
Discuss strong financial metrics, market positioning, or unique business strategies.

3. Weaknesses:

Outline any operational inefficiencies, market vulnerabilities, or less favorable financial trends.
Address potential areas of concern for investors.

4. Risks:

Categorize and explain significant risks (e.g., credit risk, interest rate risk, regulatory risk, macroeconomic risk, competition).
Assess the potential impact of these risks on COMPANYTICKER's performance.

5. Competitors and Competitive Landscape:

Identify COMPANYTICKER's primary competitors in its key markets.
Perform a comparative analysis, highlighting how COMPANYTICKER differentiates itself or where it might lag.

6. Growth Potential:

Analyze historical growth trends (revenue, earnings, loan growth).
Discuss future growth drivers, strategic initiatives, and market opportunities.
Assess its potential as an acquisition target, considering its market niche, balance sheet, and strategic value.

7. Valuation:

Relative Valuation: Compare COMPANYTICKER's key valuation multiples (e.g., P/E, P/B, P/S) against its closest peers and industry averages. Provide a clear conclusion on whether it appears over or undervalued relative to its sector.
Absolute Valuation (Earning Power): Conduct an absolute valuation using an appropriate methodology (e.g., Discounted Earnings, Dividend Discount Model, or a simplified earnings power multiple). State assumptions clearly and arrive at a target intrinsic value range.

8. Overall Quality Conclusion:

Based on the analysis of strengths, weaknesses, risks, and growth, provide a concise conclusion on the overall quality of COMPANYTICKER as an investment. This should reflect its financial health, management effectiveness, and market position.

9. Investment and Trading Strategy Recommendation:

Provide a clear and actionable recommendation: Buy, Hold, or Sell.
Outline a comprehensive investment strategy, including:
- Entry Points: Suggest optimal price levels for initiating a position.
- Exit Points/Price Targets: Recommend price levels for taking profits or re-evaluating.
- Risk Management: Propose stop-loss levels or other risk mitigation techniques.
- Time Horizon: Specify whether the recommendation is for short-term trading, medium-term investing, or long-term holding.
- Catalysts: Identify potential events or news that could impact the stock price.

Report Format: The report should be well-organized with clear headings and bullet points where appropriate. Use a professional and analytical tone.

Bank Selection Strategy

1The Fortress Screen (Absolute Quality & Non-Negotiable)

This step is unchanged in its philosophy but refined with superior metrics. We are not comparing banks to each other yet. We are holding them to an absolute, high standard of safety and soundness. A bank must pass all of these tests to even be considered.

Metric	Threshold	Why It's Critical (The "Fortress Wall")
1. CET1 Capital Ratio	> 11% (up from 10%)	We raise the bar. In a world of uncertainty, we want banks that are unequivocally over-capitalized. This is the ultimate loss-absorbing buffer.
2. NPLs to Total Loans	< 0.75% (down from 1.0%)	We demand elite underwriting. A low NPL ratio is the single best indicator of a disciplined lending culture.
3. ALL to NPLs	> 150% (up from 125%)	We want banks that are proactively and conservatively provisioned, not just reacting to losses. This is a sign of forward-looking risk management.
4. Loan-to-Deposit Ratio	< 90%	Confirms the bank is funded by stable, low-cost customer deposits, not volatile "hot money." This was the lesson of the 2023 regional bank crisis.
5. Tangible Common Equity	TCE Ratio > 8%	New Metric. Tangible Common Equity / Tangible Assets. This ignores goodwill and shows how much real, hard equity supports the entire balance sheet. It's a key measure of leverage.

Action: Run your entire universe of banks through this five-point screen. The ones that survive are your "Fortress" list. They are the financial institutions built to withstand a storm.

2The Engine Scorecard (Relative Performance)

Now, for the "Fortress" list, we identify the best-run profit engines. This is where we integrate the disciplined, peer-comparison methodology from your framework, but with more precise metrics and a ranking system instead of a simple binary score.

For the banks that passed Step 1, we will rank them against each other on the following three metrics.

The Engine Scorecard

Metric	What It Measures	How to Rank It
1. Return on Tangible Common Equity (ROTCE)	The purest measure of profitability.	Rank from highest to lowest. A bank in the top quartile of its peers gets 3 points, second quartile 2, third 1, bottom 0.
2. Efficiency Ratio	Operational excellence and cost control.	Rank from lowest to highest. Top quartile (lowest ratio) gets 3 points, second 2, etc.
3. Net Interest Margin (NIM)	Lending profitability and funding advantage.	Rank from highest to lowest. Top quartile gets 3 points, second 2, etc.

Calculate the Total Engine Score (Max 9 points)

The banks with a score of 7 or higher represent the elite—the intersection of safety and high performance. These become your prime candidates.

                        Why these metrics are superior:
                        ROTCE over ROE: By using tangible equity, we strip out goodwill and get a truer picture of returns on the capital that actually runs the business.
Ranking over Binary Score: Your +/- 1 system is good, but a ranking system is better. It differentiates between a bank that is barely above the median and one that is a true industry leader on a given metric.

                    

3The Final Checks (Qualitative & Dividend Sanity)

For the top-scoring banks from Step 2, we perform the final due diligence.

1. Qualitative Vetting (Unchanged):

This remains critical.

Management Integrity: Read the conference call Q&A. Are they forthright or evasive?
Deposit Franchise Quality: What percentage of deposits are non-interest-bearing? (Higher is better).
Insider Ownership: Is management's wealth tied to the stock?

2. Dividend Sanity Check (A Critical Refinement):

Your framework includes Dividend Yield in its main score. This is a common but dangerous mistake. A high yield can be a "value trap" signaling a collapsing stock price or an unsustainable payout.
New Rule: We only consider the dividend after we've confirmed quality. For our top-ranked banks, we check the Payout Ratio (Dividends per Share / Earnings per Share).

Action: The Payout Ratio should be below 40%. This ensures the dividend is well-covered by earnings, leaving ample capital for reinvestment, growth, and a buffer in case of a downturn. A bank with a 70% payout ratio is returning too much capital and may have to cut its dividend in a crisis.

4The Valuation Gate (The Final Decision)

This is the final, crucial step. Your framework mixed valuation (P/B) into the quality score. We must separate them. Valuation does not determine a bank's quality; it determines your potential return.

We will only buy a top-ranked "Fortress & Engine" bank when it trades at a reasonable price.

Valuation Metric	Thresholds & Action
Primary: Price to Tangible Book Value (P/TBV)	< 1.5x: Strong Buy territory for a high-quality bank.
	1.5x - 2.2x: Fair Value. A reasonable entry point for a world-class institution.
	> 2.5x: Hold / Avoid. The price likely reflects perfection. We wait for a better entry point, no matter how good the bank is.
Secondary: P/E to ROTCE Ratio	Contextual Check: A bank with a 20% ROTCE trading at a 12x P/E is more attractive than a bank with a 12% ROTCE trading at the same 12x P/E. This ensures you are paying a fair price for the level of profitability.

The Enhanced Strategy in Action

1. Screen

Start with 100 banks. The "Fortress Screen" eliminates 70, leaving 30 safe institutions.

2. Score & Rank

The "Engine Scorecard" is applied to the 30 survivors. We identify the 7 banks with a total score of 7-9.

3. Vet

We review the conference calls for these 7 banks and confirm their payout ratios are all below 40%.

4. Buy

Of the 7 vetted banks, 3 are trading at a P/TBV below 2.2x. These are our buy candidates. The other 4 go on a watchlist, and we wait patiently for a market pullback to provide a better entry point.

Strategy Summary

This V2.0 strategy combines the best of both approaches. It uses absolute standards to ensure safety, a relative ranking system to identify elite performers, and a disciplined, separate valuation gate to ensure we buy great businesses at a fair price. This is how you systematically build a portfolio of the strongest banks while protecting yourself from value traps and undue risk.