Pacific City Bank is a community bank that mostly focused on Korean-American in California. The company has it’s headquartered in Los Angeles, California, and other centers in eight s the states within the United States (Asaduzzaman, 2019). In terms of financial capacity, Pacific City is the third largest Korean American bank after Hanmi Bank and Bank of Hope. The bank was founded in the 2003 by Henry Kim, president and chief executive officer. By 2017, the bank had total revenue of $ 67.2 million. The main areas of operation on Pacific City include mortgage, debit cards, savings, automobile and student accounts. The bank also operates as a community bank with all the community services. The bank will be compared to the Wells Fargo and Westfield Bank. To compare Pacific City Bank with the two banks, Wells Fargo and Westfield Bank, we will use the profitability ratio.
Financial Statement
Return on equity or investment will be used to measure the profitability of the two firms and then compare them.
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Well Fargo
ROE Net income – $ 4.6 billion (Tayan, 2019)
Total equity capital -$ 63.9 billion
Pacific City Bank
Net income – $16.4 million
Total equity capital-$ 141.2 million (Asaduzzaman, 2019)
Westfield Bank
Net income – 3125
Total equity capital -132, 059
= 2.3665%
It is evident from the report that Pacific City Bank is significantly the second most substantial bank compared to Wells Fargo and Westfield Bank. The bank is on a climbing ladder in the capital scale.
For more financial comparison, return on asset (ROA), can be used. The ratio helps to gage the managerial performances on the capital invested.
ROA
Well Fargo
Net Income = $4.6 billion
Total Asset =$ 1.895 billion
Pacific City Bank
Net income = 0.0164 billion
Total Asset = 1.44 billion
Westfield Bank
Net income – 3,125 billion
Total assets – 1,360, 113 billion
Pacific City Bank once more comes after Wells Fargo and Westfield Bank with a higher net income to total asset ratio. Wells Fargo has almost half more ration made by Pacific City at the quarter of the financial period. On the other hand, Westfield bank stands second after the Wells Fargo Banks. The business completion is a clear show of progress that has been made by Pacific City. It is this progress that has put the company at the fourth position behind Bank of America, California Bank, and Union Bank.
The next ration in the examination is Net interest margin. The interest margin gives span of interest income with interest expense. The ration is achieved by calculating the interest income over the expenses in a financial period. In this case, the comparison with the two banks will reveal the one with the highest interest development over a given period.
Net Investment margin
Wells Fargo
Investment income –investment expense – (39,923-7,508) (Tayan, 2019)
2, 602, 301
=1.4034%
Pacific City Bank
Investment income –investment expense – (16,201 – 1,424)
944, 234
= 1.565%
Westfield Bank
20, 456-5,256
1,361, 004
= 1.1380%
This calculation demonstrates that Pacific City Bank is a medium bank compared to Wells Fargo and Westfield Bank. However, it was slightly lower than the Wells Fargo but higher than Westfield bank. Looking keenly at the three banks, there is a close relationship that indicates a stiff competition in the market. For the banks to make a significant interest margin, the banks will have to go past the revenue deficit that is enjoyed by the other big banks in the market (Chang, 2016). Although the interest margin showed by the three institutions demonstrates a positive response to investment, they still have room to improve their return on interest investment. According to Chang (2016), the positive expense indicates a positive return on investment.
Net Nominated margin
Well Fargo
(Noninterest revenues-provision for loan and lease Losses-Noninterest expenses) NIR-NIE = (26,360-0-24,043) (Tayan, 2019)
Total assets = 1,818,953
= -0.12738
Pacific City Bank
NIR-NIE = 80,214-100-24,435
Total Asset = 1,440, 000
= -0.3867%
Westfield Bank
NIR-NIE= 2,252 -650-13,868
Total asset = 1,360, 113
= – 0.9018%
Always in the industry, the net interest margin emerges negative even with a positive fee income. This is because the cost of operation consistently exceeds the fee income in the market. In the calculation, Pacific City still demonstrates a strong interest ration with the smallest interest margin though lower than Wells Fargo but higher than Westfield Bank. This shows a little loss in the loan recovery by the bank as it conducts its business. The bank offers loans but with the security and works mostly with the significant sectors that do not default or fail to pay.
The final profitability ratio will be the net operation margin. This is determined by calculating the pretax net operating income. Net operation income is a function of total operating revenues, less total operating expenses. The result is then divided by total assets. In most cases, this value is positive to indicate positive operation in the business. Any business with a negative operation margin deserves closer.
Net operation margin
Wells Fargo
Pretax net operating income= 22, 324
Total asset = 1,818,953
1.227%
Pacific City Bank
Pretax net operating income = 16,213
Total asset = 1,440, 000
= 1.126%
Westfield Bank
Pretax net operating income = 3,090
Total Asset = 1,360, 113
= 0.22719%
Finally, Pacific City has maintained its position. It has registered the medium pretax net operating income compared to the two competitors. With all the result registered from the ROA, ROE, and the other profit margins, Pacific City still stand above the three competitors in terms of profitability.
- Asaduzzaman, M. (2019). Financial Condition of City Bank. International Journal of Tax Economics and Management.
- Chang, S. (2016). Korean Ethnic Banking Los Angeles. Indian Journal of Science and Technology, 9, 41.
- Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version, 2, 17-1.
