Rate of Return on Equity
(Profit Ratio)
ROE = NI/TE (net income after taxes/total equity)
ROE = ROA x TA/TE (total assets/total equity or equity multiplier)
thus by decreasing equity, a bank can increase ROE for any given level of ROA
ROE = (NI/OR) x (OR/TA) x (TA/TE)
- NI/OR ratio is the profi
Rate of Return on Assets
(Profit Ratio)
ROA = NI/TA (net income after taxes/total assets)
Net Interest Margin
(Profit Ratio)
NIM = (Total interest income - Total interest expense)/Total assets
Note: muni bond interest may not be taxable, such that it must be grossed up to a pre-tax equivalent basis by dividing munis interest earned by the factor (1 - tax rate of bank)
Leverage Ratio
(Risk Ratio: Capitalization)
Total equity/Total Assets
Total Capital Ratio
(Risk Ratio: Capitalization)
(Total equity + Long term debt + Reserve for loan losses)/Total Assets
Provision for Loan Loss Ratio
(Risk Ratio: Asset Quality)
0
Loan Ratio
(Risk Ratio: Asset Quality)
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Loss Ratio
(Risk Ratio: Asset Quality)
0
Reserve Ratio
(Risk Ratio: Asset Quality)
0
Nonperforming Ratio
(Risk Ratio: Asset Quality)
Nonperforming assets (non accrual loans and restructured loans)/ Total loans and leases
Operating Efficiency (Cost Control)
(Risk Ratio)
#NAME?
Temporary Investments Ratio
(Risk Ratio: Liquidity)
#NAME?
Volatile Liability Dependency Ratio
(Risk Ratio: Liquidity)
0
Tax Rate
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Dollar Gap Ratio
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Risk Adjusted Return on Capital (RAROC)
EXAMPLE:
Cost of Funds 5.00%
PLL 1.00
Direct Exp. .50
Indirect Exp. .25
Overhead .25
Total Charges before capital charge = 7.00%
Capital Charge^ 2.29
Total Required Loan Rate = 9.29%
^The capital charge is determined by multiplying the equity capital allo
Economic Value Added (EVA)
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