Question

FDIC - Statistics on Depository Institutions Report
	Regions Bank	Peer Group	Regions Bank	Peer Group
	12/31/2017	12/31/2017	12/31/2016	12/31/2016
Performance Ratios (%, annualized)
Yield on earning assets	3.40%	3.88%	3.35%	3.78%
Cost of funding earning assets	0.23%	0.37%	0.20%	0.32%
Net interest margin	3.17%	3.50%	3.15%	3.45%
Noninterest income to assets	1.63%	1.73%	1.49%	1.80%
Noninterest expense to assets	2.69%	2.80%	2.74%	2.84%
Loan and lease loss provision to assets	0.21%	0.42%	0.20%	0.32%
Net operating income to assets	1.03%	1.15%	0.90%	1.20%
Return on assets (ROA)	1.03%	1.14%	0.91%	1.19%
Pretax return on assets	1.49%	1.63%	1.32%	1.71%
Return on equity (ROE)	7.86%	10.04%	6.90%	10.56%
Retained earnings to average equity (YTD only)	0.62%	3.51%	1.58%	4.04%
Net charge-offs to loans and leases	0.34%	0.56%	0.30%	0.48%
Loan and lease loss provision to net charge-offs	94.44%	112.55%	101.26%	101.58%
Earnings coverage of net loan charge-offs (x)	7.63	5.48	7.64	6.39
Efficiency ratio*	60.68%	56.72%	63.98%	57.37%
Assets per employee ($ millions)	5.86	7.09	5.55	7.04
Cash dividends to net income (YTD only)	92.14%	65.03%	77.05%	61.72%
Condition Ratios (%)
Earning assets to total assets	86.79%	89.45%	87.23%	89.28%
Loss allowance to loans and leases	1.35%	1.41%	1.36%	1.43%
Loss allowance to noncurrent loans and leases	84.50%	101.12%	97.06%	100.37%
Noncurrent assets plus other real estate owned to assets	1.16%	0.98%	1.01%	1.02%
Noncurrent loans to loans	1.60%	1.39%	1.49%	1.42%
Net loans and leases to assets	63.76%	66.10%	64.34%	66.04%
Net loans and leases to deposits	79.40%	86.57%	80.92%	87.74%
Net loans and leases to core deposits	83.42%	98.15%	85.38%	98.65%
Domestic deposits to total assets	80.15%	74.43%	79.32%	73.04%
Equity capital to assets	12.87%	11.25%	12.89%	11.30%
Core capital (leverage) ratio	10.34%	9.25%	10.28%	9.33%
Tier 1 risk-based capital ratio	12.14%	10.96%	11.68%	10.92%
Total risk-based capital ratio	14.00%	13.01%	13.59%	12.95%
Common equity tier 1 capital ratio	12.14%	10.71%	11.68%	10.69%
*Efficiency ratio: Noninterest expense less amortization of intangible assets as a percent of net interest income plus noninterest income

1. Based on the information above, which of the following statements about Regions Bank’s profitability is accurate?

a. Regions Bank has been more profitable than its peers because it has achieved a larger spread
between its yield on earning assets and its cost of funds.

b. Regions Bank has been less profitable than its peers because of its higher operating expenses.

c. Regions Bank has been less profitable than its peers because of its lower yield on earning assets,
which is the reason for its lower net interest margin.

d. Regions Bank has been less profitable than its peers because it has a higher cost of funds.

2. Which of the following statements about Regions Bank’s asset quality is accurate?           

a. Regions Bank has better asset quality than its peers.

b. Regions Bank is better positioned than its peers to cover future losses from its lending activities.

c. Regions Bank has incurred more losses in its loan portfolio than its peers have.

d. Regions Bank has more problem loans in its balance sheet than its peers, which could adversely affect future profitability.

3. Which of the following is not an accurate assessment of Regions Bank’s performance?

a. Regions Bank has more room to grow its loan portfolio from its deposit base than its peers.

b. Regions Bank meets all the requirements of a well-capitalized bank.

c. Regions Bank derives a larger proportion of its income from non-traditional banking activities (e.g. investment banking services and other fee income-generating activities) than its peers.

d. Regions Bank has been consistently less profitable than its peers over the past two years.

Answer 1

1. Based on the information above, which of the following statements about Regions Bank’s profitability is accurate?

Answer - c Regions Bank has been less profitable than its peers because of its lower yield on earning assets, which is the reason for its lower net interest margin.

Particulars	Regions 2017	Peers 2017	Regions 2016	Peers 2016	Remarks
Yield on earning assets	3.40%	3.88%	3.35%	3.78%	Yield on earning assets is one measure of a financial industry's solvency used by banking regulators. It looks at total interest, dividend and fee income earned on loans and investments as a percentage of average earning assets. Regions bank YEA is less when compared to its peers. Also, Banks with a low yield on earnings assets are at an increased risk of insolvency, which is the reason the YEA is of interest to regulators. A low ratio means that a company is providing loans that do not perform well since the amount of interest from those loans is approaching the value of the earning assets
Net interest margin	3.17%	3.50%	3.15%	3.45%	Net Interest Margin (NIM) is the sum of incoming interest (income) from loans. mortagages etc and outgoing interest (paid) on savings accounts and deposits etc. A positive net interest margin suggests that an entity operates profitably, while a negative figure implies investment inefficiency. Regions is less profitable than its peers because its NIM stands at 3.17% when compared to peers which is 3.50%. The yield on assets is a financial solvency ratio that compares a banks interest income to its earning assets, as the YEA of Regions is lower which has resulted in a lower NIM.

2. Which of the following statements about Regions Bank’s asset quality is accurate?

Answer - b Regions Bank is better positioned than its peers to cover future losses from its lending activities.

Reason - As it is given that Net loans and leases to assets, Net loans and leases to deposits and Net loans and leases to core deposits for Regions Bank

Particulars	Regions2017	Peers 2017	Regions 2016	Peers 2016	Remarks
Net loans and leases to assets	63.76%	66.10%	64.34%	66.04%	Loans given by Regions to its assets is at 63.76% which is lower when compared to its peers which is at 66.10% which could mean that Regions bank has a better asset base to counter the possible losses from the Loans and Leases given to others.
Net loans and leases to deposits	79.40%	86.57%	80.92%	87.74%	Loans given by Regions to its deposits is at 79.40% which is lower when compared to its peers which is at 86.10% which could mean that Regions bank has a better asset base to counter the possible losses from the Loans and Leases given to others. Ideal Loan-Deposit % for a bank is between 80-90%.
Net loans and leases to core deposits	83.42%	98.15%	85.38%	98.65%	Loans given by Regions to its core deposits is at 79.40% which is lower when compared to its peers which is at 86.10% which could mean that Regions bank has a better asset base to counter the possible losses from the Loans and Leases given to others. Ideal Loan-Deposit % for a bank is between 80-90%.

3. Which of the following is not an accurate assessment of Regions Bank’s performance?

Answer - c Regions Bank derives a larger proportion of its income from non-traditional banking activities (e.g. investment banking services and other fee income-generating activities) than its peers..

Particulars	Regions 2017	Peers 2017	Regions 2016	Peers 2016	Remarks
Noninterest income to assets	1.63%	1.73%	1.49%	1.80%	Non-interest income of Regions is at 1.63% when compared to its peers which is at 1.73% which is not far apart. And also the bank doesnt desrive its large proportion of income from non-traditional banking activites.