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Eastern National Bank

Write a report and calculations on profitability ,leverage ,earnings ,liquidity
and other ratios on Eastern National Bank report and calculations on
profitability ,leverage, earnings, liquidity and other ratios on Eastern National

This is a report based on the ubpr report and calculations on
profitability,leverage,earnings,liquidity and other ratios on Eastern National Bank
from the period ending December 31 st 2007 to December 31 st 2010.The analysis
shows the financial status of Eastern National Bank.. It shows the effect of
management decisions on the performance of the bank and the reflections of those
decisions on the balance sheet statement. The report also shows the evaluation of
capital, assets and the management of earnings. The UBPR therefore allows the
evaluation of a firms immediate condition, trends in its comparisons with peer group
in form of ratios and percentile rankings.
Eastern National Bank was registered on 9 th march 1969. Its head office is based in
Miami, Florida. It has an asset accumulation base of between 300 million dollars to
one billion dollars.The bank is using ubpr reports to analyze and record its financial
dealings and transactions.
CAPITAL. The capital strength can be analyze by use of minimum statutory ratios
which when applied can give a clear indication of the bank’s performance. (Tiwari,

Capital strenth 2008 2009 2010
a) Core capital 46865 41441 36194
b) minimum statutory capital
c) Excess (a – b)
d) supplementary capital 0 0 0
e) Total capital (a +d) 46865 41441 36194
f) Total risk weghted assets 302748 297282 274657
g) Core capital/Total deposits liabilities 12.13 10.21 9.13

h) Minimum statutory ratio 8 8 8
i) Excess (g – h) 4.13 2.21 1.13
j) Core capital/Total weighted assets 15.47 13.93 13.17
k) Minimum statutory ratio 8 8 8
l) Excess (j – k) 7.47 5.93 5.17
m) Total capital/Total risk weighted assets. 15.47 13.93 13.17
n) minimum statutory ratio 12 12 12
o) Excess (m – n) 3.47 1.93 1.17
p) Total deposits liabilties 386210 405593 396628
a) Liquidity ratio 90.53 82.07 87.06
b) minimum statutory ratio 20 20 20
c) Excess (a – b) 70.53 62.07 67.06
The core capital compared to total deposits liabilities gives an average of 12% which
compares favourably to the minimum statutory ratio of 8% in 2008, 10 % and 9 % in
2009 and 2010 respectively. This shows a trend that’s reducing and needs to be
addressed. The core capital compared to total weighted assets gives a ratio of
15.47 %, 13.93 %, and 13.17 % in 2008, 2009 and 2010 respectively. All these ratios
give an excess of more than 5 % against the minimum statutory ratios. The liquidity
ratios compare favourably to the minimum statutory ratio of 12 %.The growth
achieved between the years 2007 and 2010 on capital is encouraging. From a
negative 22% to a positive growth of 0.5 % shows a reasonable improvement in
trading activities and creation of capital. Equity to asset ratio of 8% is satisfactory
and the risk based capital ratio is below 15% and improving .The leverage
calculations are also good. The quality, composition and kind of assets the bank
deals in dictates the level of capital required. The risk structure will increase if the
bank operates with few staff or less trained staff, the bank will require additional
capital. The composition and kind of earnings available for capital consolidation
depends on the source of earnings. Ratios of interest and coverage , and Debt to
equity are not impressive. (Darrat, Ali F. and Tarun K. Mukherjee, 1995)

ASSET EVALUATION. The average asset accumulation shows a slight decline
between the years under review. From a high of 442058 in the year 2007 to a low of
397810 in 2010. This trend is not good for the bank. .Average assets that generate
income are reducing. The chart below shows a comparison of average earning
assets from the years 2010 to 2007.

Earning assets


loans and leases which are not current increased from 0.8% in the year 2007 to
4.41% in 2010.This are loans and leases that no longer attract any income, they are
unprofitable and any increase represents a relative loss to the bank. Asset growth
rate is negative and the provisions for losses are inadequate.Net losses to average
The level and quality of management determines the success or failure of a firm.
There are several factors which the management should consider when analysing
the financial statement, the following are the risks which should be considered in the
case of Eastern National Bank,

a)Credit . The risk on credit issued to a borrower who fails to pay should be
anticipated and adequate provision set aside to provide a cover for such eventuality.
b)Market. The risks associated with market trend on rates and interests connected to
foreign exchange. Management should consider the effects of market trends on the
c) Liquidity. The risk associated with liquidity should be analyzed and the results
interpreted .The bank, Eastern national bank should be able to meet all its obligation.
.d) Operational. Risks on operation of the bank should also be factored. Internal
control procedures, information systems, and unexpected losses and other
uncertainties should be considered.
e)Legal. These are legal challenges that may be associated with the bank, i.e.
contracts which can’t be enforced and judgements that may be unfavourable to the
f) Reputational. These are risks associated with bad publicity of the bank that may
erode the customer base and reduce its earning capacity.
Management should be thorough when employing new employees. The use of ubpr
recording shows some achievement in part of the management to standardise its
reporting styles. Lack of trained and skilled personnel in an organisation increases
the risk factor and the capital to be injected in the industry. This report helps the
management in understanding the performance and financial composition of the

The return on assets (ROA) is very poor. An average of 1.76 %,.02%,-5.49% and –
2.14 % in the yrs 2007.2008.Return on Equity is neglible and currently -64%.
2009, 2010.The net figure is very low and even negative in 2009 and 2010.
Income on total loans and leases improved from 7% in 2007 to 45% in December
2010.Income on capital employed dropped significantly from 0.16 in the year 2007 to
negative 26 in 2010. Margin on net profit reduced from 23 % to -85%.
Ratios of liquidity are calculated to show if a bank can pay short. term obligation and
can remain liquid for some time. The main ratio is the current ratio which normally is
Total Current assets/total liabilities. The ratio should be 1 or less. Eastern National
bank has over 70 %. It means it’s a very risky business. The ratios are too high and
not favourable at all. The main (net non core) fund deposit increased in the years
under review to surpass even those of peer group. The availability of liquid asset is a
big problem to Eastern Bank National. The net incomes for the last two years under
review are negative.
gradually shrinking from a high of 3.11 in the year 2008 to 3.08 in 2010.The bank
has more liabilities reprising in a rising rate an increasing rate environment than
assets,its the reason net interest margin is decreasing.
Solvency ratios
Solvency calculations are ratios that inform us if a bank is as a going concern is
worth investing in and if it’s a long term investment choice. Loans to asset ratio will

give us a true value of its solvency. In these case its 75%, 73% and 74% in
2008,2009 and 2010.The more the bank ratio is ,the more unstable is the bank. The
ratios should be at most 1:1. In Eastern National Bank the ratios are extremely high
this makes the bank a very risky business venture. It means the bank gives more
loans than its deposits exposing itself to a very risky situation and can only survive
by borrowing. Other loans which should be considered are the bad loans. It shows
how much of the bank’s asset are not loans. These loans should be provided with
provisions to cushion the bank against undue losses.

Eastern National Bank has liquidity problems. Its operations need to be restructured.
Whereas there was a significant growth in its equity capital the banks performance is
still below average. The losses made during its operations in the years under review
paints a grim picture of a bank trying to get of its loses. The bank needs restructuring
to survive. The net incomes are made up of losses and most of its income is tied in
noncore loans and leases.
The ratios and rates of Eastern National Bank are moving in similar patterns.
The income base rates compared to the peer groups are lower and show a
decreasing trend. These can only be associated with low income due to low volumes
of business or poor marketing skills leading to below par trading activity. The other
reason may be due to a slump in the economy leading to poor saving and borrow
habits among its clients…

The other pattern is increase in ratios relating to expenses. These expenses
are higher than the average of the peer groups and the trend is increasing .These
higher expenses can only be due to inefficiencies on the part of Eastern National
Bank. The increase in expenses maybe the reason behind the losses the bank is
The trend in average equity capital, average earning assets, average total
assets, and average net loans and leases are all decreasing. These maybe due to
below average performance of the Eastern National Bank. The other liabilities i.e.
average core deposits are increasing. These means that the liquidity ratio is very low
and the assets can’t cover the liabilities.
The bank can restructure its assets portfolio and reorganize its capital
structure to widen its capital base. More marketing and advertising is needed to
increase its clients and improve the banks business volume.
For someone looking for a bank as an ordinary client then i would recommend
Eastern National Bank. But if an investor is interested in buying shares and investing
in the bank then he has to be aware of the below average performance of the bank
and decide if he’s interested in taking chances as the bank is not very stable.

Darrat, Ali F. and Tarun K. Mukherjee, “Inter-Industry Differences and the Impact of
Operating and Financial Leverages on Equity Risk,” Review of Financial Economics
(Spring 1995), p. 141-155.
Blazenko, George W., “Corporate Leverage and the Distribution of Equity Returns,” JEASTERN NATIONAL BANK ANALYSIS 10
ournal of Business & Accounting (October 1996), p. 1097-1120).
Tiwari, M, “Statutory Liquidity Ratio” , The Economic Times,

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