FBN RESEARCH PROCESS

MISSION: Give an investment edge to our buy-side clients.

FRONTSIDE Bank Notes (FBN) uses research tactics and information sources that no one else is using. We seek the research solutions we would want if we were buy-side investors.

Primary Marketplace Research: FBN is driven by investigative reporting tactics that include targeted interviews with a broad network of bank industry experts, employees and customers. Our "kick the tires" investment research approach gleans intelligence from the people who are shaping bank trends but are not being tapped by other analysts.

The Four S's: The FBN research process can be framed by the four S headings: SUBJECTS, SOURCES, SEARCH and SOLUTIONS

SUBJECTS: FBN separates its principal research efforts along some of the main business lines of the banking industry: mortgage loans, business loans, home equity loans and credit cards. From this foundation, our research subjects vary between and across broad industry themes and company specific items. For example, if a broad mortgage loan analysis points to weakening trends in California, we may focus further analysis on a large mortgage player in that state. In addition to ideas generated by our frequent marketplace studies, FBN also will target research subjects based on information derived from nontraditional, secondary sources.

SOURCES: FBN probes the information sources that are not being tapped by other analysts. We develop broad networks of primary sources that offer firsthand insights into the banking business. We also closely monitor a variety of nontraditional secondary information sources.

  1. Primary Sources — We seek those people who are engaged in their work and leading their peers and industry trends. These sources include bank executives, corporate loan officers, home equity financing specialists, ISOs, real estate speculators, small business financiers, wholesale mortgage brokers and bank-based consumer panels.
  2. Secondary Sources — We target the often-overlooked secondary sources that can help uncover still unknown investment issues. The information flow on the Internet, for example, has exploded in the form of industry/trade blogs, company Web sites and lesser-known financial trade press.

SEARCH: We use the above information sources by applying investigative reporting techniques, targeted interviews and intelligent analysis. Our search is focused on information that speaks to, among other things, emerging trends, current business conditions, key business issues and competitive performance.

  1. Emerging Trends: It is vital for investors to learn about emerging business trends to get a read on how a market or product area might look in three to six months. FBN seeks predictive insights from bank operator and customer trendsetters, forward looking and acting bankers and customers who typically lead the market. (Example: Bank executive interviews point to a strong push to grow their "organic" home equity loan base in 2005.) These prospective trendsetters will be important information sources and closely monitored on how accurately their views and actions highlight emerging trends.
  2. Current Business Conditions: Every investor appreciates the significance of discerning any sign of change in the pace or quality of current business. With each FBN study, we look for any early indicators that might mark such a beginning change for the business line or company being researched. (Example: Independent mortgage brokers and industry blogs tell FBN that Bank Z has just lost several of its biggest mortgage loan producers to other companies.) Early indicator findings will often spur our follow-up analysis to learn more about what is going on.
  3. Key Business Issues: FBN surveys banking sources to name and rank in importance the key business issues affecting the operating outlook for a particular company or the broader industry. (Example: Credit card lenders are increasingly worried about the impact of new personal bankruptcy laws.) By tracking these findings, we help our clients focus on the relevant and changing challenges or opportunities faced by select banks.
  4. Competitive Performance: Marketplace rankings/ratings of competitors are a proven method to determine which specific companies and products/services are best positioned for success. FBN will use power rankings as part of our interview and analysis process to help us and our clients anticipate surprise winners and losers in the bank sector.

SOLUTIONS: FBN seeks the research solutions we would want if we were buy-side investors. Applying the tactics and process discussed above, we are constantly looking for new information that will help predict bank stock price performances. Further, we frame our intelligence against the same contextual issues likely to be considered relevant by our clients. For example, if we've learned that Bank Y is losing share in the corporate lending business, how significant a contributor is corporate lending to Bank Y's financial results? And does the Wall Street consensus view already incorporate this news? As these are questions a buy-side analyst or portfolio manager would consider, so must we. Ultimately, we measure the success of our research effort by how well it helps our clients make smarter investment decisions.