Commonly Used Bank Analysis Terms

For each of the bank holding companies discussed on the following pages, we'll be looking at capital strength, earnings quality and asset quality. Here are some of the terms we'll be using:


Return on Average Assets (ROA) - Income before extra items divided by average total assets, annualized, as calculated by SNL Financial. According to the Federal Deposit Insurance Corp., the aggregate return on assets for all U.S. banks and thrifts during the third quarter was 0.44%, improving from 0.09% a year earlier.


Net Interest Margin - This is essentially the difference between a bank's average yield on loans and investments and its average cost of funding (deposits and borrowings), annualized. Most holding companies report the margin on a tax-adjusted basis. The aggregate net interest margin for all U.S. banks and thrifts during the third quarter was 3.75%, rising from 3.51% a year earlier, according to the FDIC.


Nonperforming Assets (NPA) - While there are various definitions for this term, nonperforming assets here will be the total of loans past due 90 days, nonaccrual loans and repossessed real estate, less government-guaranteed loan balances. The FDIC reported an aggregate "noncurrent assets ratio" of 3.25% for all U.S. banks and thrifts as of September 30, rising from 3.07% in September 2009.


Net Charge-offs/ Average Loans - This is a bank's annualized ratio of net charge-offs - loan losses less recoveries - divided by its average loans, as calculated by SNL Financial. The national aggregate net charge-off ratio for banks and thrifts in the third quarter was 2.59%, rising from 2.38% a year earlier, according to the FDIC. While varying times of foreclosure processes and write-downs of problem loans can cause large swings in a bank's net charge-off ratio from quarter to quarter, it can be useful to compare the "pace" of charge-offs with a bank's ratio of loan loss reserves to total loans.


Capital Categories and Ratios - Please see TheStreet's discussion on regulatory capital categories for definitions of terms and capital ratios that apply to most banks, unless they are ordered by regulators to hold even more capital.