The Bank Investor's Handbook

Nathan Tobik and Kenneth Yellen wrote this practical guide to analysing and investing in banks, aimed particularly at the small and community banks that institutional investors ignore.

The analytical content covers what a bank actually is as a financial structure: the balance sheet with deposits as the funding and loans as the asset, the net interest margin and what drives it, the loan book composition and its risk characteristics by category, the allowance for loan losses and how to assess its adequacy, non-interest income and expense, and the capital ratios that regulators apply. They explain how to read a call report, which is the regulatory filing every American bank makes and which contains more detail than the annual report.

The investment content covers the specific opportunities in small banks: the discounts at which illiquid community bank shares trade, the mutual holding company conversion process and why it creates value, acquisition as the standard exit and what acquirers pay for, and the situations where a bank is over-capitalised relative to its opportunities. The authors also cover the ways banks fail, principally concentration in a single loan category and growth funded by wholesale rather than core deposits. The book is practical and written for individual investors willing to do work that institutions will not. It predates the 2023 deposit runs, which demonstrated the deposit franchise risk it discusses.