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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-3
Introduction
This chapter focuses on the most widely used indicators of
the quality and quantity of bank performance and their
principal competitors
Focus on the most important dimensions of performance
profitability and risk
Financial institutions are simply businesses organized to
maximize the value of the shareholders wealth invested in
the firm at an acceptable level of risk
Must continually be on the lookout for new opportunities
for revenue growth, greater efficiency, and more effective
planning and control
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-4
Evaluating Performance
Performance must be directed toward specific objectives
A fair evaluation of any financial firms performance should
start by evaluating whether it has been able to achieve the
objectives its management and stockholders have chosen
A key objective is to maximize the value of the firm
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-5
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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or
where
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-14
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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or
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-20
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-21
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-23
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
6-25
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
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McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
5-27
Quick Quiz
What individuals or groups are likely to be interested in the banks
level of profitability and exposure to risk?
What are the principal components of ROE, and what does each of the
these components measure?
What are the most important components of ROA and what aspects of
a financial institutions performance do they reflect?
Why do the managers of financial firms often pay close attention
today to the net interest margin and noninterest margin? To the
earnings spread?
To what different kinds of risk are banks and their financial-service
competitors subjected today?
What items on a banks balance sheet and income statement can be
used to measure its risk exposure? To what other financial institutions
do these risk measures seem to apply?
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.
5-28
McGraw-Hill/Irwin
Bank Management and Financial 2008 The McGraw-Hill Companies, Inc., All Rights
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
Reserved.