Guide · Education · 8 min read
How to Read Bank Financials
Bank financial statements look different from other companies. This guide explains the six most important metrics used to evaluate whether a bank is healthy, profitable, and safe.
The short answer
Six ratios tell you almost everything about a bank's health, capital strength, profitability, loan quality, cost discipline, shareholder return, and lending spread.
- ≥10%
- strong Tier 1 capital ratio
- 1–1.5%
- healthy return on assets
- <15%
- low-risk Texas Ratio
- <60%
- efficient cost ratio
Data from FDIC quarterly Call Reports; see our methodology for field codes and vintage.
Data from FDIC and NCUA quarterly call reports, covering banks and credit unions across all 50 states; see our methodology.
1. Tier 1 Capital Ratio
Formula: Core Capital ÷ Risk-Weighted Assets
This is the most critical safety metric. "Tier 1 capital" includes common equity and retained earnings, the bank's own money that can absorb losses. "Risk-weighted assets" adjusts the bank's loan portfolio by risk level (cash = 0% risk, corporate loans = 100% risk).
- Under 6%: Undercapitalized, regulatory intervention likely
- 6-8%: Adequately capitalized
- 8-10%: Well capitalized
- 10%+: Strong buffer against unexpected losses
2. Return on Assets (ROA)
Formula: Annual Net Income ÷ Average Total Assets
ROA measures how efficiently a bank converts its assets into profit. A bank with $1 billion in assets and $10 million in net income has an ROA of 1%. Most profitable banks target 1-1.5%.
- Below 0%: Operating at a loss, serious concern
- 0-0.5%: Low profitability
- 0.5-1.0%: Average performance
- 1.0-1.5%: Good performance
- 1.5%+: Excellent performance
3. Texas Ratio
Formula: Non-Performing Assets ÷ (Tangible Equity + Loan Loss Reserves)
Created in the 1980s to predict bank failures during the Texas oil bust. It measures whether a bank has enough capital to cover its bad loans. When Texas Ratio exceeds 100%, a bank has more problem loans than capital to absorb them.
- Under 15%: Low risk
- 15-30%: Elevated risk, worth monitoring
- 30-100%: High risk
- Over 100%: Historically, high probability of failure
4. Efficiency Ratio
Formula: Non-Interest Expense ÷ (Net Interest Income + Non-Interest Income)
This measures how much a bank spends to generate each dollar of revenue. A 60% efficiency ratio means the bank spends $0.60 to earn $1.00. Lower is better. Large regional banks typically operate at 55-65%; community banks can run at 70%+.
- Under 50%: Excellent efficiency
- 50-60%: Good efficiency
- 60-70%: Average
- 70-80%: Below average
- Over 80%: Inefficient, potential management or revenue issues
5. Return on Equity (ROE)
Formula: Annual Net Income ÷ Average Shareholders' Equity
ROE shows how much profit a bank generates for its shareholders. The banking industry average is typically 8-12%. High ROE is desirable, but very high ROE combined with low capital ratios can signal excessive risk-taking.
6. Net Interest Margin (NIM)
Formula: (Interest Income − Interest Expense) ÷ Average Earning Assets
NIM is the "spread" between what a bank earns on loans and pays on deposits. Rising interest rates generally increase NIM (banks reprice loans faster than deposits). NIM of 3-4% is typical for community banks; large banks often run 2-3%.
Quick Reference Table
| Metric | Good | Caution | Warning |
|---|---|---|---|
| Tier 1 Capital | ≥ 10% | 6-10% | < 6% |
| ROA | ≥ 1% | 0.5-1% | < 0.5% |
| Texas Ratio | < 15% | 15-50% | > 50% |
| Efficiency Ratio | < 60% | 60-80% | > 80% |
Where does the average bank actually sit? Across the 4,300+ FDIC-insured banks PlainBankData tracks: Tier 1 capital averages 16.9% (comfortably in the "Good" band), ROA averages 1.19%, Texas Ratio averages 5.1%, and efficiency ratio averages 67%. Most banks cluster in the healthy range, the thresholds above matter most for spotting the outliers.
Read any bank's numbers
Three ways to apply these six ratios.
- Open any bank profile to see all six ratios with their thresholds flagged. Browse banks
- See how the four headline ratios roll up into a single A–F grade. How grades work
- Compare the safest and highest-risk banks on these same metrics. Safest banks
Not financial advice. Health grades are PlainBankData's interpretation of public FDIC Call Report data, not official FDIC ratings.
Every figure on PlainBankData is rendered directly from FDIC federal source data, no number is typed in by an editor. This page draws directly on FDIC federal source data, no figure is typed in by an editor. See our editorial standards & corrections policy, the methodology behind these numbers, or report a data error. Data current as of Q4 2025.
Disclaimer: Data from the FDIC BankFind Suite. PlainBankData does not rate or rank banks as investment or safety recommendations. Health grades are informational only, computed from public regulatory filings. Always verify current standing directly with FDIC.gov before making financial decisions.