
Analyzing
Banking Data

Return
on Assets

USBR calculates Return on Assets (ROA)
by dividing net operating income by total assets.
Return on Average Assets = ( Net
Operating Income/ Total Assets )

Return
on Equity

Return on Equity = ( Net Income/Stockholder
Equity )
Return on Equity is determined by
dividing net income (minus preferred dividends) by average common
stockholders equity to get the return on equity.

Rate
Paid on Funds

The Rate Paid
on Funds is determined by dividing total interest expense by total
earning assets. The formula is as follows:
Rate Paid on Funds = Total Interest
Expense / Total Earning Assets
This indicates what percentage or
rate of interest is paid from assets.

Gross
Yield on Earning Assets (GYEA)

The gross yield
on average earning assets measures the total average return on the
banks earning assets. The gross yield on earning assets is computed
as follows:
GYEA = Total
Interest Income / Total Average Earning assets
Essentially,
the gross yield on earning asset ratio is really just the rate paid
on funds (RPF) plus the net interest margin which equals the GYEA.
Rate Paid on
Funds + Net Interest Margin = Gross Yield on Earning Assets

Risk
Ratios

Net
Interest Margin

Net Interest
Margin
Net interest
margin is computed by dividing net interest income by total earning
assets.
Net Interest
Margin = Net Interest income/ Average Earning Assets

Provision
for Loan Losses

This important
figure is a reserve account to cover unexpected defaults on loans
by borrowers. These are generally referred to as nonperforming loans.
Reserve as
a percentage of loans: ( Reserve/ Total loans )
Chargeoffs
as percentage of loans: (Chargeoffs/ Total Loans )
The higher the
nonperforming loan and chargeoff percentages, the higher the provision
for loan losses should probably be. Consequently, this would reduce
net income and earnings per share.

Long
Term Debt to Total Liabilites and Equity

The higher this
figure, the more difficult it would be for a bank to borrow more
funds.This figure is determined as follows:
Long Term
Debt to Total Liabilities and Equity = ( Long Term Debt / Total
Liabilities plus Equity )

LoanstoAssets

The loans to
assets ratio measures the total loans outstanding as a percentage
of total assets. The higher this ratio indicates a bank is loaned
up and its liquidity is low. The higher the ratio, the more risky
a bank may be to higher defaults.
This figure
is determined as follows:
Loans to
Assets = ( Loans / Total Assets )

Capital
Ratio

Leverage
Ratio

The Leverage
Ratio measures the banks equity to total average assets which is
a common measure used to analyze capital adequancy of a bank. This
figure is determined as follows:
Leverage
Ratio = ( Stockholders Equity / Average Total Assets )

EquitytoLoans

Equity to Loans
reflects the degree of equity coverage to outstanding loans. This
figure is determined as follows:
Equity to
Loans = ( Average Common Equity / Average Total Assets )

Tier
1 Capital

Tier I
Banks must maintain
a ratio which is within the guidelines set by the FDIC guidelines.
This figure is determined as follows:
Tier 1 Capital
= ( Stockholder Equity/ RiskAdjusted Assets )

Total
Capital

Total
Capital includes Tier I and the reserve for loan losses ( up to 1.25
% of Risk Adjusted Capital) plus subordinated notes (to 50 percent
of Tier I capital). This figure is also set by FDIC guidelines.


