Relationship Between Balance Sheet Income Statement A i Dollar magnitude of the

Relationship between balance sheet income statement a

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Relationship Between Balance  Sheet & Income Statement A i = Dollar magnitude of the i th asset L j = Dollar magnitude of the j th liability NW = Dollar magnitude of equity y i = Average pre-tax yield on the i th asset c j = Average pre-tax cost on the j th liability 43
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44 Relationship Between Balance  Sheet & Income Statement NW L A m j j n i i 1 1 n i i i A y 1 Income Interest m i j j L c 1 Expense Interest
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Relationship Between Balance  Sheet & Income Statement Net Interest Income Changes with changes in: Composition Volume 45 SG - T LL Burden - P L c A y Net Income m i j j n i i i 1 1 m i j j n i i i L c A y 1 1 Income Interest Net
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Return on Equity Model Profitability Analysis Return on Equity (ROE) Return on Assets (ROA) 46
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Return on Equity Model Profitability Analysis Return on Equity Net Income/Average Total Equity ROA x EM Net Income/Average Total Assets x Average Total Assets/Average Total Equity 47
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Return on Equity Model Expense Ratio and Asset Utilization Asset Utilization (AU) Total Revenue/Average Total Assets TR/aTA Expense Ratio (ER) Total Operating Expenses/Average Total Assets EXP/aTA Tax Ratio (TAX) Taxes/Average Total Assets 48
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Return on Equity Model Expense Ratio and Asset Utilization Net Income/Average Total Assets ROA = AU – ER – TAX 49 aTA Taxes aTA EXP aTA TR aTA NI ROA
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Return on Equity Model Expense Ratio and Asset Utilization Expense Ratio (ER) Total Operating Expense/Average Total Assets EXP/aTA 50 aTA PLL aTA OE aTA IE aTA EXP ER
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Return on Equity Model Expense Ratio and Asset Utilization Expense Ratio (ER) IE can change due to changes in: Volume Different levels of liabilities versus equity Composition Different mix of liabilities Rates 51 aTA PLL aTA OE aTA IE aTA EXP ER
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Return on Equity Model Expense Ratio (ER) Non-Interest Expense OE can change due to changes in: Personnel Expenses Occupancy Expenses Technology Expenses Other Overhead Expenses 52 aTA PLL aTA OE aTA IE aTA EXP ER
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Return on Equity Model Income: Asset Utilization Components Total Revenue Includes: Interest Income (II) Non-Interest Income (OI) Realized Security Gains or Losses (SG) 53 aTA SG aTA OI aTA II aTA TR A U
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Return on Equity Model Income: Asset Utilization Components II can change due to changes in: Volume Different levels of earning assets to total assets Earnings Base (EB) = Average Earning Assets/aTA Composition Different mix of earning assets Rates 54 aTA SG aTA OI aTA II aTA TR A U
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Return on Equity Model Income: Asset Utilization Components Non-Interest Income (OI)
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