Southwest State Bank Case - Profitability/Swot Analysis

1569 Words Nov 27th, 2007 7 Pages
Key Trends Identified in SSB's Profitability from 1991 through 1993

According to the calculated ratios in Table-1, SSB had the following major trends in profitability during the time of 1991 to 1993:

• Decreasing return on equity (ROE) - shareholder return
• Gradual & unsteadily decreasing return on assets (ROA) - managerial efficiency
• Decreasing net non interest margin – less profit earned on non-interest banking components
• Increasing earnings spread – have established effective processes of borrowing and lending money with little immediate threat of competitors
• Unfavorably increasing operating efficiency ratio - there is an excess of operating cost in relation to operating revenues generated by SSB.
• Declining credit
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Threats:
• An increasingly unfavorable operating efficiency could be a potential drain on SSB's business if SSB does nothing to monitor and stabilize the operating expenses and increase the operating revenues.
• An unfavorably decreasing net profit margin (NPM) highlights management's lack of effective cost control and service pricing. Management should carefully examine NPM, looking for ways to favorably adjust net income and total revenues, possibly by decreasing costs and restructuring SSB's pricing of services.
• The gradually decreasing return on assets (ROA) is an indicator of decline in managerial efficiency could grow into a bigger problem if not addressed early on by SSB's management. Especially if SSB anticipates changes in the market due to regulation or competitors approaching the local area.

Strategic Recommendations for the Bank's Board of Directors
Based on the analysis of the calculated ratios in Table-1, the SSB Board of Directors' recommended course of action is as follows:
• Prepare shareholders to face more modest earnings per share and a hopefully temporarily decreasing ROE, allowing the funds normally distributed to shareholders to be put toward growth opportunities for SSB's future benefit. • Seriously consider the option of expanding customer segment served, offering financial services that could stimulate the

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