Bank Analysis School Case Study

Sunny State Bank

EARNINGS - OVERHEAD COSTS

Overhead/Average Assets

3.80%

3.72%

3.70%

3.63%

(All)

3.61%

3.60%

3.48%

20X0 Q4 20X1 Q1 20X1 Q2 20X1 Q3 20X 1 Q4 20X2 Q1 20X2 Q2 20X2 Q3 20X2 Q4 20X3 Q1 20X3 Q2 20X3 Q3 20X3 Q4 20X4 Q1 20X4 Q2 20X4 Q3 20X4 Q4

3.45%

3.40%

Metrics

3.20%

Bank State All Banks

3.00%

2.80%

20X0 Q4

20X1 Q4

20X2 Q4

20X3 Q4

20X4 Q4

20X5 Q4

Overhead Costs Less Noninterest Income/Average Assets

Efficiency Ratio

98.48%

3.40%

100.00%

3.24%

3.20%

95.00%

3.12%

3.08%

91.35%

93.50%

2.99%

92.82%

3.00%

90.00%

2.92%

87.01%

2.99%

87.47%

2.80%

85.00%

2.60%

80.00%

2.40%

75.00%

2.20%

70.00%

20X0 Q4

20X1 Q4

20X2 Q4

20X3 Q4

20X4 Q4

20X0 Q4

20X1 Q4

20X2 Q4

20X3 Q4

20X5 Q4

20X5 Q4

20X4 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.