Volume 6, Issue 2
Page 9
Return on Assets for Commercial Banks
State Bank Department
has given us the opportu-
nity to move that closer to
1.40
$4.0 [million]. Regardless
1.20
of your peer group, if you
look at the averages, you’ll
1.00 see that more and more
0.80
banks are right around that
$4.0 or just barely south of
0.60
$4.0 million in assets.”
As of March 31, 2009,
0.40
commercial banks in Ar-
0.20
kansas have an aggregate
ratio of $3.13 million of
0.00
12-31-05 12-31-06 12-31-07 12-31-08 03-31-09
assets per employee.
“There are no short-“There are no short-
United States Arkansas
cuts to success.”cuts to success.
Even the best-managed
Source: FDIC Quarterly Banking Profile
financial institutions have
Hot
Arkansas bankers are “All rating components
“problem” loans. Admini-
Topic
smart. They know this seem to be somewhat
stration of these loans
stuff already. Sometimes, driven by the asset quality
should not end when they
however, the simplest, because if they’re [bank
become a problem. But it
Continued from Page 8 most valuable lessons are regulators] asking you to
does take time.
ments obtained.
lost in the commotion of increase your provisions
“Bankers will need to
Concentrations of
everyday life – and the for loan losses, obviously
continue to attack problems
credit risk should be lim-
modern-day workplace. that impacts earnings,”
head on and as soon as they
ited by loan policy. Ex-
First-year trainees at Jason Rader, a certified
surface,” a staff member at
ceptions to that policy
the Bank Department public accountant with
Pacific Coast Bankers’ Bank
should be rare and fully
learn the long-term im- BKD, LLP, said in a Web-
wrote in the June 16 issue
documented.
pact of poor underwriting cast earlier this month.
of Banc Investment Daily.
If a loan being consid-
when they discuss a case “It can have impacts on
“Finally, don’t be shy about
ered cannot be supported
study of an actual bank at your management ratings,
hiring outside expertise if
by projected cash flow
which poor loan deci- your liquidity.”
needed and make sure to
and/or would result in
sions were pervasive. The management com-
have a strong workout spe-
substantive exceptions to
During a five-year pe- ponent rating can be a
cialist at the helm. The
loan policy, it probably
riod, the bank averaged a reflection, in part, on how
process of working through
should not be made.
respectable return on as- effectively a bank’s human
a portfolio of problem
For a loan already on
sets of 0.90 percent. This resources are utilized.
loans is a marathon and not
the books, officers should
includes subpar years Tim Holt, founder and
a sprint, so it is important
not wait to contact the
four and five, during president of Profit Re-
to remember that loan is-
borrower until the note
which asset quality weak- sources Incorporated, a
sues are part of daily life
becomes 30 days overdue.
ened and net loan charge- financial services consult-
and will be so for a while
A telephone call at 10 or
offs almost tripled. ing firm, provided insight
longer.”
15 days past due is rea-
In year six, the bottom on this subject during the
EDITOR’S NOTE:
sonable.
fell out. In that one year BKD Webcast.
The Webcast referred to
Finally, monetary incen-
alone, the bank made “We’ve all talked about
in this piece, “Current
tives to the lending staff
loan-loss provisions that targeting $3.0 million in
Banking Environment:
that are based on loan
represented 7½ years of assets per FTE (full-time
Weathering the Storm,”
volume should be ad-
average annual earnings equivalent employee) as a
is archived on BKD’s
justed to factor in loan
for the prior five years. measurement,” Holt said.
Web site at:
performance.
Lesson learned. “And, actually, technology
http://www.bkd.com/industry/
financial_services/Webcast/.
June 30, 2009
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