MGT473 - EOY 2006 ROAA .88 EOY 2005 1.08 % Change from...

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EOY 2006 EOY 2005 % Change from 2005- 2006 Peer Median Peer Average ROAA .88 1.08 -18.5% 1.06 1.05 ROAE 10.15 14.01 -27.6% 12.76 13.61 EFFICIENCY RATIO 68.52 63.15 8.5% 59.90 58.57 TIER 1 RISK CAPITAL 12.47 9.62 29.6% 9.83 9.83 BANK BURDEN/ TA .028 .0238 17.6% .007 .009 NIM 4.89 4.64 5.4% 4.14 4 EQUITY MULTIPLIER (TA/TE) 11.55 12.95 -10.8% 13.73 13.47 Information was obtained from the First State Bancorporation website. ROAA Return on average assets tells us what earnings were accumulated from invested capital, or the assets of the company. Considering the banking industry’s main source of income is loans (Accounts Receivable), we were reluctant to find that the return on assets was so low in our industry. The ROAA for First State Bank has dropped off since 2005 from 1.08% to .88% (a -18.5% decrease). In order to stay competitive management needs to start gaining a continual positive ROAA. This means concentrating harder on the crucial allocation of its investments. The overall goal for First State Bank, obviously, is for management to manifest the largest possible profit with minimal investment. Although the 2006 figure may appear low, First State Bank is still competing with its peers. The peer average is at 1.05%, which is not significantly higher than first state bank, at .88%. The benchmark for ROA is at 1.33%, and FSNM has an ROA of only .88%. ROA can be decomposed into income generation (asset utilization) and expense control. The asset utilization of FSNM came out to .0778; the expense ratio for FSNM is .069. When you subtract expenses from income generation you get the ROA; which comes out to .0088. Since FSNM’s expenses are extremely high, they should focus on avoiding any unnecessary expenses. Most of FSNM’s expenses came from non-interest expenses, which include salaries and employee benefits,
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occupancy expenses, and other operating expenses. They should start cutting back non-interest
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MGT473 - EOY 2006 ROAA .88 EOY 2005 1.08 % Change from...

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