-Years 1 and 2-
Letter to Stockholders Over the past two years Bigger Red Bank has performed very well. In order to perform at the level intended, Bigger Red had to put all earnings back into the bank. With that said, no dividends have been paid. Even though our management has decided not to issue dividends, our performance relative to the market has been exceptional, and our return to the shareholders has been apparent in a steady increase in share price. We are a top tier bank and intend to maintain that status. Bigger Red’s stock prices for quarters 0, 4 and 8 were $20.75, $68.58, and $128.01 respectively. Bigger Red bank had a return of 231% at the end of year one. Bigger Red Bank finished in fourth place at the closing of year one behind First American Bank, who finished first, yielding a shareholder return of 295.2%, and ahead of the last place bank, PW, with a return of 156.5%, however. With the closing of year two, Bigger Red Bank ended in fifth place behind First American Bank, who ended first, and ahead of PW Bank, who ended last. Our year two shareholder return was 86.66%, lower than First American’s return of 126.89%, alongside PW having a return of 116.44%. There has been a trend for First American and Bigger Red of increasing shareholder return with every quarter(Please refer to the graph below for stock price changes between the three banks).With stock prices performing as well as they have compared to the market, Bigger Red ended up yielding a return of close to 100%.
Bigger Red Bank had many contributing factors to its performance throughout its two year lifespan. Bigger Red had minimal Discount Window activity. Furthermore, IRA’s and PASS accounts had their yields lowered throughout quarters 0 to 8. The reason for this decrease was because these accounts were too costly to be maintained at the quarter 0 level. In regards to the Discount Window, Bigger Red Bank has consistently stayed away and borrowed to only a small degree in quarter 7, due to decreases in assets through lowering rates. Throughout our many strong performance measures, our Demand Deposits throughout Bigger Red’s existence have not been utilized to their full potential, giving us much room for improvement, while showing strong returns despite the weakness. Mortgages have also been a consistently profitable asset for Buffalo with a quarter four yield of 8.02%, and Q8 yield of 7.51%. Given the strengths listed above, we, Bigger Red Bank, believe we have performed optimally and maximized our shareholder weah.
Presentation of Financials
We will discuss our Bank’s most important ratio calculations. These calculations include ROA, ROE, and NIM. Our ratios along with our consolidated income statement are in the attached document. ROA (return on assets) is an indicator for profitability, as to how efficient management is at using its assets to generate earnings. It is calculated by Net Income divided by Total Assets, then annualized. Due to banks being highly leveraged, having an ROA of 1% would indicate high profitability. Bigger Red Bank has a year one annual ROA of .63% (Q1 .42%, Q2 .30%, Q3 .91%, Q4 .87%). Overall, we are happy with our annual ROA, which, despite a slow start, managed to recover. In Q3, our Net Income increased $1,555.55. This is because our income was significantly higher compared to the other quarters. Furthermore, our bank brought in considerably more assets than liabilities. The reason our third quarter ROA bounced back was due to our bounce back in net income. In quarter two we underperformed and generated a Net Income of $782.57. While in quarter four we corrected our underperformance, and we brought a total net income of $2,338.12. For the second year, we reported an annual ROA of 0.99% (Q5 0.81%, Q6 0.88%, Q7 1.02%, Q8 1.21%). This shows that our Bank significantly improved our profitability of our assets compared to Year 1. We had hoped for a better ROA in quarter five, but our expenses