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Analyzing Bank Performance
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Comparison of the performance of Anderson Bank, Cincinnati, OH compared to its peer group
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In this report I would be focussing on the performance of Anderson Bank for the period October 1, 2005 to September 30, 2006. Analysing the performance from the UBPR (attached as a separate file) and comparing with its peer group median (50th percentile) consisting of 376 banks matched according to FFIEC’s uniformity criteria. Its relative performance within its peer group is expressed as a percentile, which means that Anderson has outperformed that specified percentage of banks within its peer group on that criterion.
Interest Income: Total interest income, that a bank earns as interest from its lending e.g. personal loans, business loans, mortgages etc is higher for Anderson than its peer group (70th percentile). The bank has improved its interest income performance relative to its peers substantially from 2003 (when it was substantially behind the average) onwards. This indicates that in recent years, Anderson has aggressively lent money to its customers.
Interest expenditure: Total interest expenditure (e.g. interests it pays for its funds that it has acquired from various sources- savings, money market and brokered deposits, other borrowings) is higher than that of its peer group, specifically at 77th percentile. This indicates that Anderson is prepared to pay more interest than the average bank within it is per group for acquiring funds to pursue its aggressive lending policy. Again, the figures show consistency from 2003, establishing this as part of its policy.
Interest margin or net interest income refers to the difference between income and expenditure, which for Anderson in 2006 is roughly similar to that of its peer group (53rd percentile). But it represents a substantial improvement over the past few years, indicating a successful policy of aggressive lending to improve its performance.
Non-interest incomes: This refers to the bank's income from activities not related to lending like service charges, fees from sale of insurance, loan origination fees, proprietary trading and safe deposit rent. In 2006, Anderson's performance has been quite poor within its peer group compared to the median (53rd percentile). Again, comparing to the trend over previous years, Anderson has always relied less than its peers on non-interest earning.
Non-interest expense: This refers to the bank's expense on personnel, services and maintenance of fixed assets like premises. Compared to its peer group, Anderson has outperformed its peers over the recent years, and in 2006, it was ranked at 29th percentile. This indicates that Anderson has kept its operating costs relatively low, and has been cost-efficient.
6. Return on Assets (ROA) is good metric for assessing the management performance of banks, defined as the net income as a percent of total assets (highly leveraged in case of banks due to heavy borrowings). For Anderson, it is 1.15% compared to the peer group median of 1.21 %, thus making its ROA similar to that of its peers at the 52nd percentile. By banking standards, these figures show that Anderson's performance, like the average bank in its peer group, was quite good in 2006. Over the last few years, since 2003, Anderson’s own performance has improved significantly within its peer group (mid-40th percentile to 52 at present).
Anderson bank website
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