Analysis of Annual Reports of Two Banks: CEO messages, Financial results, and Community involvement

Important events or results from CEO messages

The Questions:

Read: The “interview with”, the “message to shareholders”, or the “letter from the President / CEO” of each of your two chosen banks.

Then, from each of those CEO’s messages, for their respective banks

a) Identify, with direct quotations, two (2) important events or results of what their banks did right, were successful with, or otherwise had good results from in 2020.

Then state, in your own words, why you consider them to be significant.

You must identify and respond to each of those events, or results, separately. You cannot combine the two of them and provide only one response to cover both events / statement

b) Identify, with direct quotations, one (1) important event or thing that the bank got wrong, failed to accomplish, or that caused disappointment to the bank in 2020, and explain why you think that event, or thing, is important for everyone to hear about

Note: If, after you have completely examined the message from the President, you cannot find anything “wrong” or “not right”, or “a disappointment” to report on, indicate that as your answer, and you will get full marks…but be sure you “got this right” , because your instructor has already read those messages from those CEO’s, and he / she will know if you are correct…or not

Question 2

Summarize which of the two CEOs came across as being more credible or “more believable” about his bank and its results and give two (2) clear examples, or statements, from that CEO’s interview, or letter, to support your answer

Do not just make statements such as: “He just seemed like an honest guy to me, so he is more credible”, because that is a “motherhood statement” and that earns “zero” marks.

Regarding each of the banks’ financial results in 2020

a) Identify each of the banks’ earnings per common share (or “diluted earnings per common share, your choice) for the year. It is always a dollar value, not a percentage

b) Identify each of the banks’ Tier 1 capital rate

c) Explain what Tier 1 Capital is, and why it is important that it be a high number.

d) Identify each of the banks’ efficiency ratios (if any bank reports more than one listing of that ratio, you will identify the lower ratio value).

Note: For part (d), one of your banks (maybe both) will have a ratio that is not called an “efficiency” ratio, but will have one that is related to “cost control” or “financial performance” or “productivity”. Here is what each of the banks may call it:

Assessment of CEO credibility

TD and RBC  - Efficiency Ratio    CIBC - Cash Efficiency Ratio     BMO and BNS - Productivity Rate

In parts (e) and (f), be very sure that the financial information is for the ENTIRE bank’s results

The banks often break their financial results down into sector types (retail, commercial, corporate activity) or it can be geographical (Canada, USA, International, etc.)

If you report on a ratio or a result that is only for a part of the bank’s ENTIRE activity, no marks will be earned 

e) Explain what an efficiency ratio is, how it is calculated, and what it means. Be careful that you provide information on this ratio in terms of what it means for banks, not what the ratio is for manufacturing and other companies, which is quite different).  

f) For this question, you may find the information toward the front of the report, perhaps in the first 8 to 10 pages, in a segment entitled something like: “Management’s Discussion and Analysis”, or “Financial Highlights” … or, you may have to locate it much further back into the annual report in a segment entitled something like: “Consolidated Statement of Income” or something similar.

locate, and record, each bank’s “Total Revenue” for each of 2020 and 2019 further down that page, locate and record each bank’s “Provision for Credit Losses” for each of 2020 and 2019.for each of 2020 and 2019, for each bank, calculate and record what percentage of their Total Revenue is represented by the banks’ Provision for Credit Losses.

Again, be sure that the information you are getting if for the ENTIRE bank, and not for a specific division, like Corporate Banking, or Retail Activity, etc

g) Has the percentage accounted for by the Provision for Credit Losses increased, decreased, or stayed the same in 2020 over 2019 for each of your two banks?

h) If the percentage of total revenue, accounted for by their provisions for credit losses, for each of your banks, has gone up in 2020 over 2019, is it a cause for any concern to you? You must explain why it is or is not a concern to you, if that is your view

Question 4

Summarize, for each bank, three ( 3 ) important focal points of their work within their community (what they do with charitable funding, service to the general public, or other events not associated with making money for the bank).