Bank Analysis School Case Study eBook

Sunny State Bank

EARNINGS - OVERHEAD RATIOS

Overhead/Average Assets

4.20% 4.08%

(All)

4.00%

20X9Q2

3.72%

3.80%

3.70%

3.61%

20X9Q3

3.60%

Metrics

3.48%

3.63%

3.45%

20X9Q4

3.40%

Bank State All Banks

20X0Q1

3.20%

20X0Q2

3.00%

2.80%

20X0Q3

20X0Q4

20X9Q4

20X0Q4

20X1Q4

20X2Q4

20X3Q4

20X4Q4

20X5Q4

20X1Q1

Overhead Costs Less Noninterest Income/Average Assets

Efciency Ratio

20X1Q2

3.40% 3.33%

100.00%

98.48%

3.24%

20X1Q3

3.20%

95.00%

3.12%

3.08%

91.35%

20X1Q4

93.50%

2.99%

89.51%

92.82%

3.00%

90.00%

20X2Q1

2.99%

2.92%

87.01% 87.47%

2.80%

85.00%

20X2Q2

20X2Q3

2.60%

80.00%

20X2Q4

2.40%

75.00%

20X3Q1

2.20%

70.00%

20X3Q2

20X3Q3

20X9Q4 20X0Q4 20X1Q4 20X2Q4 20X3Q4 20X4Q4 20X5Q4

20X9Q4 20X0Q4 20X1Q4 20X2Q4 20X3Q4 20X4Q4 20X5Q4

• Overhead costs consist of salaries & employee benefts, depreciation and maintainance of premises & fxed assets, and various other operating expenses. The ratio of overhead costs to average assets could be infuenced by the size of the bank (larger size typically results in greater operating efciencies). Other factors include the number of ofces (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 Efciency 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.

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