Monitoring Bank Earnings

Return on average assets (ROAA), defined as bank net income divided by average assets, is one of the most often used measures to judge bank performance. The chart below shows the derivation of ROAA from bank revenues, expenses and other items. By looking at the items that make up ROAA, you can gain an understanding of the reasons for a bank’s performance, good or bad.

From there, you can delve deeper into these areas, searching out root causes of bottom-line performance changes. Thus, the information in the graphic should be considered a beginning step in monitoring bank earnings performance. The terms used in the graphic are defined in the Composition of Bank Earnings section.

A good source of information for the ratios is the Uniform Bank Performance Report (UBPR). UBPRs may be obtained from the FFIEC website at: http://www.ffiec.gov/ubpr.htm.