This chapter analyzed the financial statements of commercial banks. The assets, liabilities, and equity capital were described as they appear in the balance sheet. The financial statements of other FIs such as savings banks and credit unions take a similar form. The income and expenses were described as they appear in the income statement. From the items on the financial statements, the profitability of two banks was analyzed using a return on equity (ROE) framework. What might appear as a favorable sign of profitability and performance can sometimes, in fact, indicate risk problems that management should address. Many problems and areas of managerial concern can be identified by performing a detailed breakdown of the financial ratios of banks. Thus, both profitability and risk management are interlinked and should be of concern to managers. The various risks to which FIs are exposed are examined in more detail in the next several chapters.