The continued viability of a Bank depends on its ability to earn an appropriate return on its assets, which enables the institution to fund expansion, remain competitive, and replenish and/or increase capital.
In evaluating and rating earnings, it is not enough to review past and present performance alone.
Future performance is of equal or greater value, including performance under various economic conditions. Examiners evaluate “core” earnings: that is the long-run earnings ability of a Bank discounting temporary fluctuations in income and one-time items. A review for the reasonableness of the Bank’s budget and underlying assumptions is appropriate for this purpose. Examiners also consider the interrelationships with other risk areas such as credit and interest rate.
Key factors to consider when assessing the Bank’s earnings are: