To gain further insight into where a bank's returns may have come from, it's necessary to examine the bank's assets and liabilities in a bit more detail.

The key ratios that will help us here are the loan to deposit ratio, the loan to total assets ratio, and the deposits to total funding ratio.

The loan to deposit ratio, as you might suspect, is calculated by dividing the bank's total loans by its total deposit level.

Since a bank can fund its loans with either deposit or wholesale financing, i.e. borrowing from other financial institutions or issuing bonds, this ratio tells us how a bank has financed its loan portfolio.

A relatively high ratio indicates that a bank is using more wholesale funding relative to its deposit funding.

This is important since deposits are generally taken to be a more stable, lower cost source of financing, so banks would be unlikely to choose wholesale funding in the first instance. A higher ratio could be indicative of a bank wishing to increase its level of lending activity, and without attracting more deposit funding, this would need to be financed through the wholesale market.

Despite the relatively higher cost of wholesale funding, if there was still a positive net interest margin on the new loans, this could still result in higher profits for the bank.

However, a relatively high ratio may also be indicative of falling deposit levels, suggesting that the deposits are not as stable as might have been assumed, potentially due to a weaker reputation of the bank and a generally weaker deposit franchise.

It may also indicate that the bank is less financially stable with greater liquidity risk. In times of financial stress, they may suffer further deposit outflows and be more reliant on wholesale markets for funding at a time when the wholesale market may be less willing to lend to them.

To delve deeper into this, the loan to total assets ratio will provide further insight into how the bank's assets are structured. An increasing loan to assets ratio could potentially indicate more aggressive lending, increasing the possibility for profits. But this also comes with increased risk, since loans are one of the more illiquid assets on a bank's balance sheet, with longer durations and with more default risk than cash or government securities.

In summary, more lending may lead to more profits, but also leads to more risk. The loan to total assets ratio is also helpful in gaining an understanding of the bank's business model.

Pure commercial banks will have a much greater proportion of their assets as loans, leading to a higher ratio.

While investment banks will hold a wider range of financial securities on their balance sheet, leading to a lower loan to asset ratio. A change in a bank's business model may be able to be observed from the evolution of this ratio over time.

The deposits to total funding ratio looks at the other side of the loan to deposit ratio, the funding side.

From a funding perspective, we're thinking about the debt funding of the bank rather than equity, so it includes deposits and wholesale funding, including any debt securities issued.

When it comes to funding a bank, deposits represent a relatively stable, lower cost source of funding, so the greater the proportion of total funding that comes from deposits, the more stable the funding and the lower any potential liquidity issues, since refinancing of maturing debts is less of a concern, resulting in less reliance on wholesale markets, in other words, financial institutions for financing.