Banking Project FINA 458
This project will take place in multiple parts. We’ll walk through these parts together throughout the
remainder of the course.
Part 1: Bank Selection and Data Gathering
Complete part 1, by following these steps:
1. For part 1, begin by selecting a bank from the list of largest banks in the US from the FFIEC.
https://www.ffiec.gov/npw/Institution/TopHoldings
2. Once you’ve selected a bank, go to the SEC Edgar page and look up the most recent 10-K report,
and the 2 most recent 10-Q filings. https://www.sec.gov/edgar/search/
3. Risks, and sources of income:
a. Read through the 10-k and 10-q reports and find the list of business risks. The list should
be early on in the document, though the format may be slightly different from one bank
to another.
4. On the 10-K, read the section titled Management Discussion and Analysis.
a. Take notes on how the business operates, what factors affect the business the most.
5. Look at the Income Statement and Balance Sheet for your company (Should be item 8 on the
table of contents)
a. How much does your bank hold in loans. (If your bank separates loans into investment
and held for sale, record both of these numbers and the total).
b. How much does your bank have in deposits? (fair value if reported that way)
c. What is the ratio of loans to deposits? Does this seem high or low to you? Or fair?
d. Are these deposits broken down into different types? (Time deposits vs demand
deposits, or something else?) You may have to search elsewhere in the filing to find the
loan breakdown. Try looking for “demand deposit” or “time deposit”
e. Can you find the number of deposits that are not covered by FDIC insurance?
Part 2: Create a CAMELS Rating
For this assignment we will create our own CAMELS rating for your chosen bank. Using the FDIC Risk
Management Evaluation Manual, create a report on your bank’s risk profile.
The Manual is located here: https://www.fdic.gov/resources/supervision-and-
examinations/examination-policies-manual/
The CAMELS ratings for banks are not made public, so we can’t just look them up. Instead, we can see
how they are measured, and can use publicly available data to create our own ratings.
CAMELS stands for:
C – Capital Adequacy
A – Asset Quality
M – Management Capability
E – Earnings
L – Liquidity
S – Sensitivity to Market Risk
C: Capital Adequacy
Using what you’ve learned in the 10-k and 10-q documents, let’s start with the “C” of CAMELS, capital
adequacy.
Review your bank’s Income Statement and Balance Sheet. (You might use ctrl+F to search through the
documents).
A: Asset Quality
Next, let’s evaluate the asset quality of the bank. Your bank should report on the “allowance for loan
losses” Section 3.1-3.8 are relevant here.
M: Management Capability
This one will be a bit harder to evaluate, section 4.5 may be helpful. Legal hurdles, board turnover,
changes in the C-suite, or regulatory problems would all be issues to consider under the management
capability section.
E: Earnings
Profitability, especially as it compares to your bank’s peers is a good way to evaluate earnings. This is a
section that can have graphs or charts. Earnings over time or profitability ratios are relevant here.
L: Liquidity Your bank will likely have a projection for earnings in the coming year, this would be useful to have. Each
publicly traded bank will release a 10-k each year, and will have earnings guidance for the public along
with it. You may also want to search for press releases regarding earnings that come out at the same
time as the 10-k.
You can also use the Bloomberg Terminal to compare these values across banks. Under RV for Relative
Valuation, you can find “Custom” and add fields. The field titled
S: Sensitivity to Market Risk
The manual outlines many different kinds of risk a bank could be exposed to. Some risks are larger than
others. Use the 10-k and 10-q documents to determine what exposures your bank has and at what levels
those exposures exist.
For example, your bank may have larger holdings of long-term bonds than other kinds of assets. These
may be defined as “Assets held until maturity” by your bank. If those values represent a larger
proportion of the investment assets of your bank, then that may pose duration (interest rate) risk.
You can also use the Bloomberg Terminal to compare these values across banks. Under RV for Relative
Valuation, you can find “Custom” and add fields. The field titled “SENS NII For 100 BPS Inc” stands for
sensitivity of net interest income to a 1% change in bond yields.
Report Guidelines
Your report should be a word document (or google docs, PDF, or something similar). It should be written
in standard font sizes 11 or 12 and standard font style of Calibri, times new roman, or similar font. There
is no specific length or word count required. The format of your report should at a minimum include a
section for each of the CAMELS ratings, an introduction and a conclusion. You can include other sections
as needed.
The report should be roughly 5 pages, including charts or graphs as needed. Graphs may include
important ratios, comparisons to peer banks, or timelines.
You should have a section of your report for each of the CAMELS components and an explanation of
your findings. Citations do not need to fit APA or MLA. You can embed links or use phrasing such as,
“According to Section 3.2 of the FDIC Risk Management Examination Manual…”
Your report should assign a score (1 through 5) for each of the CAMELS ratings, either in a table or a
score in each section as you address the topic.
Scoring
The report will be out of 100 points.
Each section of the CAMELS criteria will be worth up to 15 points. 10 points will be for depth of analysis,
appropriate evaluation metrics, reasonable assumptions, and reasonable rating score assigned to each
section. The remaining 5 points will be for appropriate interpretation of the rules as outlined in the FDIC
risk manual. (90 total)
There will be 10 points for writing quality, including grammar and spelling, as well as appropriate
introduction and concluding sections.
