BAS Case Study - March 2023

Sunny State Bank

EARNINGS - OVERHEAD COSTS

Overhead/Average Assets

3.80%

3.72%

3.70%

3.63%

(All)

3.61%

3.60%

3.48%

2013Q4

3.45%

3.40%

2014Q1

Metrics

2014Q2

3.20%

Bank State All Banks

2014Q3

3.00%

2014Q4

2.80%

2015Q1

2015Q2

2013Q4

2014Q4

2015Q4

2016Q4

2017Q4

2018Q4

2015Q3

Overhead Costs Less Noninterest Income/Average Assets

Efficiency Ratio

2015Q4

98.48%

3.40%

100.00%

3.24%

2016Q1

3.20%

95.00%

3.08% 3.12%

91.35%

2016Q2

93.50%

2.99%

92.82%

3.00%

90.00%

2.92%

87.01%

2016Q3

2.99%

87.47%

2.80%

85.00%

2016Q4

2017Q1

2.60%

80.00%

2017Q2

2.40%

75.00%

2017Q3

2.20%

70.00%

2017Q4

2018Q1

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 2018Q4

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 2018Q4

• Overhead costs consist of salaries & employee benefits, depreciation and maintainance of premises & fixed assets, and various other operating expenses. The ratio of overhead costs to average assets could be influenced by the size of the bank (larger size typically results in greater operating efficiencies). Other factors include the number of offices (more branches would lead to higher occupancy expenses) and activites that generate non-interest income activities (more staff needed for trust department, investment advisory services, etc.) • Because banks with high noninterest income tend to also have higher overhead costs, the Overhead Costs Less Noninterest Income/Average Assets ratio can be reviewed to assess that relationship. • The Efficiency Ratio is calculated as total overhead expenses divided by net interest income and noninterest income. It shows how much it costs to generate each dollar of income and a lower ratio is desirable.