Bank Analysis School - Case Study & Resources

EARNINGS - OVERHEAD RATIOS

Sunny State Bank

Overhead/Average Assets

4.20%

4.08%

4.00%

3.72%

3.80%

3.70%

3.61%

3.60%

3.48%

Metrics

3.63%

3.45%

3.40%

Bank

State

3.20%

All Banks

3.00%

2.80%

20 X9 Q4

20 X0 Q4

20 X1 Q4

20 X2 Q4

20 X3Q4

20 X4 Q4

20 X5 Q4

Overhead Costs Less Noninterest Income/Average Assets

Efficiency Ratio

3.40% 3.33%

100.00%

98.48%

3.24%

3.20%

95.00%

3.12%

3.08%

91.35%

93.50%

2.99%

89.51%

92.82%

3.00%

90.00%

87.01%

2.99%

2.92%

87.47%

2.80%

85.00%

2.60%

80.00%

2.40%

75.00%

2.20%

70.00%

20 X9 Q4 20 X0 Q4 20 X1 Q4 20 X2 Q4 20 X3 Q4 20 X4 Q4 20 X5 Q4 • 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. 20 X9Q4 20 X0 Q4 20 X1 Q4 20 X2 Q4 20 X3 Q4 20 X4 Q4 20 X5 Q4