Bank Analysis School - September 2023

Internal Use Only

High risk, High potential return

Return

Credit risk Liquidity risk Interest rate risk

Low risk, Low return

Risk

Internal Use Only

• Total assets $500 million and ROAA of 1.00% Which bank would you give a higher rating? Bank A • Total assets $500 million and ROAA of 1.00% Bank B

• Recently launched new high yielding but high-risk lending program which is rapidly growing. • Capital ratios have been falling due to the rapid growth. • Allowance has been dwindling due to loan losses.

• Consistently profitable with no changes to product lines for many years. • Modest growth rate. • Capital ratios have been steadily increasing.