a)
The ratio of average equity to the average assets improved in the last five years from 2010 to 2014. The value increased from 8.30% to 10.37%, the previous value for a company in the financial sector as banking is a value over the average value of the industry of 10%. A higher ratio of equity over assets gives the confidence to the clients that the bank has at least one dollar per ten dollars that the company “owns” to the clients in the form of deposits.
The ratio of return on average assets improved slightly from 1.10% to 1.33%. The previous number represents higher revenue over the assets of the company that increased 1.32 billion dollars to 1.40 billion dollars from 2013 to 2014.
The ratio of return on average equity decreased from 13.21% to 12.79%; that means that the growth of revenues was lower than the grow speed of the equity of the company.
The ratio of cash dividends declared as a percent of net income decreased from 22.97% to 29.76%. That value depends on of the decision of the company to pay dividends to the stockholders. The company decreased the cash dividend payment with the goal to increase the equity of the company (First Bancorp, Inc., 2015).
B)
The unrealized gains or losses are considered in the securities management of the company. The criteria to consider a gain or loss depend on of the maturity of the security and the decision of the company to hold or sell the security depending on the relative value of the security. The securities are registered in the Assets of the company as Securities, and the gain or loss of the asset depends on of the difference value between the registered value of the security and the market value. The gain or loss is registered in the balance sheet.
c)
The company, similar to other banks in the financial system has a high value of liabilities over the asset with a value near 90% of liabilities over assets. The company has a strong relative position over the average value of the industry. A lower value of liabilities over assets increases the costs of the bank and reduces the revenues of the bank. Analyzing the liabilities of the bank, more than 95% of financial liabilities of the bank are concentrated in the client’s deposits. The client deposits are the saving accounts and checking accounts that the bank offers to the client with a double function, The first function to offer a banking service to the clients with different financial instruments and the second function is to have available funds to offer loans and credits to the clients with an interest rate higher than the interest rate paid on savings and checking account clients.
d)
When the bank executes a loan to the clients assume the risk that the client may fail to pay the loan. The bank has historical data of the amount of loan unpaid by the clients in the past. With the historical data of the bank and the industry, the bank creates a provision or reserve in the Asset column of the Balance Statement to absorb the losses by unpaid loans. The bank registers a loss in the Balance Statement at the moment, the loan losses in one year overpasses the provision of that year. If the value is below the provision, there is no loss in the bank due to unpaid loans.
Reference List
First Bancorp, Inc. (2015). 2014 Annual Report. Virginia: First Bank & Trust Company.
