Ninety days and Counting.

We crunched some numbers on the Call Reports from the FDIC comparing Real Estate Secured Loans Past due 90 days or more as of March 2007 and as of March 2008. To keep it simple, we just looked at the Top 10 banks by asset size ranked by largest balances. The results are below:

Asset Size / Bank (FDIC Certno)	Period Ending March 2007	Period Ending March 2008	Percent Change
More than $50B in Assets	All figures in thousands
WELLS FARGO BANK, NATIONAL ASSOCIATION (3511)-SIOUX FALLS,SD	$3,818,000	$5,563,000	45.7%
NATIONAL CITY BANK (6557)-CLEVELAND,OH	$1,145,426	$1,849,928	61.5%
CITIBANK, N.A. (7213)-LAS VEGAS,NV	$806,000	$1,210,000	50.1%
U.S. BANK NATIONAL ASSOCIATION (6548)-CINCINNATI,OH	$641,482	$1,022,721	59.4%
SUNTRUST BANK (867)-ATLANTA,GA	$215,652	$518,280	140.3%
WACHOVIA BANK, NATIONAL ASSOCIATION (33869)-CHARLOTTE,NC	$192,000	$464,000	141.7%
REGIONS BANK (12368)-BIRMINGHAM,AL	$238,431	$455,562	91.1%
BANK OF AMERICA, NATIONAL ASSOCIATION (3510)-CHARLOTTE,NC	$137,631	$268,842	95.3%
FIFTH THIRD BANK (6672)-CINCINNATI,OH	$114,675	$197,966	72.6%
MANUFACTURERS AND TRADERS TRUST COMPANY (588)-BUFFALO,NY	$102,990	$73,604	-28.5%
$10B-$50B in Assets
FIRST TENNESSEE BANK NATIONAL ASSOCIATIO (4977)-MEMPHIS,TN	$161,562	$283,642	75.6%
LASALLE BANK MIDWEST NATIONAL ASSOCIATIO (22488)-TROY,MI	$140,449	$131,459	-6.4%
WF NATIONAL BANK SOUTH CENTRAL (5146)-FARIBAULT,MN	$15,193	$94,000	518.7%
BANCO POPULAR DE PUERTO RICO (34968)-SAN JUAN,PR	$69,000	$73,000	5.8%
ZIONS FIRST NATIONAL BANK (2270)-SALT LAKE CITY,UT	$10,842	$46,824	331.9%
TCF NATIONAL BANK (28330)-WAYZATA,MN	$9,971	$23,067	131.3%
HARRIS NATIONAL ASSOCIATION (906)-CHICAGO,IL	$26,513	$22,878	-13.7%
BANCORPSOUTH BANK (11813)-TUPELO,MS	$9,725	$18,436	89.6%
FIRSTMERIT BANK, N.A. (13675)-AKRON,OH	$10,295	$8,167	-20.7%
SKY BANK (5982)-SALINEVILLE,OH	$11,530		-100.0%
$1B-$10B in Assets
MUTUAL BANK (18659)-HARVEY,IL	$15,321	$44,969	193.5%
ORIENTAL BANK AND TRUST (31469)-SAN JUAN,PR	$26,764	$39,385	47.2%
FIRST MIDWEST BANK (3709)-ITASCA,IL	$11,114	$27,957	151.5%
EUROBANK (27150)-SAN JUAN,PR	$15,244	$23,079	51.4%
FIRST COMMONWEALTH BANK (7468)-INDIANA,PA	$11,933	$17,591	47.4%
FIRST MARINER BANK (31286)-BALTIMORE,MD	$18,390	$13,515	-26.5%
RABOBANK, NATIONAL ASSOCIATION (23364)-EL CENTRO,CA	$15,176	$9,991	-34.2%
STANDARD BANK AND TRUST COMPANY (16606)-HICKORY HILLS,IL	$13,717	$8,572	-37.5%
NEVADA STATE BANK (18113)-LAS VEGAS,NV	$24,099	$782	-96.8%
FRANKLIN BANK, S.S.B. (26870)-HOUSTON,TX	$40,115	$0	-100.0%
$500M-$1B in Assets
COMMUNITY BANK, THE (16490)-LOGANVILLE,GA	$10,175	$29,020	185.2%
MIDWESTONE BANK (14197)-OSKALOOSA,IA	$25,875	$28,139	8.7%
PENINSULA BANK (26563)-ENGLEWOOD,FL	$9,535	$15,356	61.0%
PREMIER BANK (21714)-MAPLEWOOD,MN	$7,275	$11,441	57.3%
ARCHER BANK (18625)-CHICAGO,IL	$5,431	$6,322	16.4%
FLORIDA COMMUNITY BANK (5672)-IMMOKALEE,FL	$12,898	$5,733	-55.6%
DELAWARE COUNTY BANK AND TRUST COMPANY, (16940)-LEWIS CENTER,OH	$5,167	$1,561	-69.8%
BARNES BANKING COMPANY (1252)-KAYSVILLE,UT	$10,977	$891	-91.9%
BANK OF BLUE VALLEY (32722)-OVERLAND PARK,KS	$5,376	$0	-100.0%
MILLENNIUM BANK, NA (35096)-RESTON,VA	$6,423	$0	-100.0%
$100M-$500M in Assets
BANK OF LINCOLNWOOD (17309)-LINCOLNWOOD,IL	$4,526	$7,819	72.8%
EQUITY BANK, SSB (23498)-DALLAS,TX	$6,101	$6,872	12.6%
NATIONAL BANK OF COMMERCE (19733)-BERKELEY,IL	$4,852	$3,247	-33.1%
TERRABANK, NATIONAL ASSOCIATION (26442)-MIAMI,FL	$6,864	$2,459	-64.2%
BUILDERS BANK (34613)-CHICAGO,IL	$9,209	$2,062	-77.6%
FIRST NATIONAL BANK OF BROOKFIELD (18564)-BROOKFIELD,IL	$20,475	$1,485	-92.7%
FIRST BANK AND TRUST COMPANY OF ILLINOIS (18641)-PALATINE,IL	$4,978	$1,238	-75.1%
LINCOLN PARK SAVINGS BANK (30600)-CHICAGO,IL	$4,810	$344	-92.8%
CAMBRIDGE BANK (34161)-LAKE ZURICH,IL	$5,095	$0	-100.0%
STOCKMANS BANK (33339)-ELK GROVE,CA	$4,633		-100.0%

Would the Real Small Business Banking Customers Please Stand Up

Most of us interact with small businesses every day: we get a coffee from a local cafe; we drop off clothes at the dry cleaner; and we chat with our self-employed neighbor. It’s easy for us to tell the difference between a small business and a middle market and larger company. So why is it so hard for banks?

As part of our work with banks, we typically receive a portfolio of records ostensibly representing their small business customers. Once we crunch the numbers on the portfolio, we often find that what a bank considers small business and what we consider small business to be quite different.

For a banker, they apply the label of ‘small business’ based upon ownership of certain small business deposit and/or loan products. Quite reasonable.

For us, we apply the label of ‘small business’ based upon the sales size of the business from our business data and from the industry of the firm. Quite reasonable too.

What we then find are interesting yet false  ‘small business’ segments within the customer file:  internal accounts, municipalities, not-for-profits, trusts, and middle market companies. Clearly, these do not fit the definition of a small business yet flagging them or reclassifying them creates several issues for our  clients.

First, taking them out of the portfolio instantly creates a smaller portfolio. And frankly, we’re not making our clients look good by shrinking their small business portfolio. Yet, we can’t disguise the ugly truth on some of their customers.

Second, a smaller sized portfolio naturally leads to a smaller market share across their branch network. We recently evaluated small business market share for a major bank in one of their MSAs. According to their internal analysis, their small business deposit market share in their key MSA was 45% while our analysis showed their share closer to 28%!

After working through our process of overlaying sales and industry onto their small business customers, we did in fact find a significant portion of customers who clearly were not small business. Well-established middle market firms, internal accounts and high net worth individuals clearly should not be counted as small business. So while our numbers were quite defensible, they were shocking to our client.

Third, our experience shows that these falsely classified records create noise in their small business customer data. As a result, any analysis or insights flowing from this data may either obscure some relevant insights or worse, lead to less than optimal decision making.

So why is segmenting small businesses so difficult? Within their internal systems, banks do not capture much more than the contact and mailing address of the account holder so key segmentation variables (sales, employees, industry) are not available. As a result, banks turn to outside sources for customer data integration to overlay the key segmentation variables to their customers. While overlaying goes a long way to better segmenting small businesses, external data does not provide a perfect solution but a practical one.

In the end, segmenting a bank’s customers perfectly into small business and middle market buckets remains elusive. For banks who want to do better analysis and management of their small business banking programs, they should assess the state of their portfolio to glean as much insight as possible into their true small business customers versus their ostensible small business customers.