After Turn 6

The bank now has net income of $40 and an ROE of 3.88%, which is less than half of what it should be by the end of the case study.

You have an average yield on earning assets of 5.69% and an average cost of funds rate of 1.78%, making your net interest margin 4.14%, which is good.

The bank has total assets of $8,000. Up to this point, its growth has been steady to moderate, and its overall capital position is 13.0%. Anything over 12% would be considered strong in the real world; 8.5% would be low but still acceptable. Your speed of growth and capital level would likely be pleasing to regulators, but what about investors?

Your current risk position is reasonably conservative. The Bank’s average credit score in the loan portfolio is 735, which is good; the liquidity level is 25.5%, which is OK; and interest rate risk is tolerable at -7.8%, but falling rates could hurt.

This conservative risk position may be comfortable, but how does risk affect earnings?