Question

In: Finance

The financial statements for THE Bank are shown below: Balance Sheet THE Bank Assets Liabilities and...

The financial statements for THE Bank are shown below:

Balance Sheet THE Bank
Assets Liabilities and Equity
Cash $ 220 Demand deposits $ 2,470
Demand deposits from other FIs 620 Small time deposits 4,820
Investments 1,820 Jumbo CDs 1,445
Federal funds sold 920 Federal funds purchased 1,020
Loans 6,920 Equity 815
Reserve for loan losses (700 )
Premises 770
Total assets $ 10,570 Total liabilities/equity $ 10,570
Income Statement THE Bank
Interest income $ 2,470
Interest expense 1,650
Provision for loan losses 100
Noninterest income 260
Noninterest expense 430
Taxes 60


a. Calculate THE Bank’s earning assets.
b. Calculate THE Bank’s ROA. (Round your answer to 3 decimal places. (e.g., 32.161))
c. Calculate THE Bank’s total operating income.
d. Calculate THE Bank’s spread. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Solutions

Expert Solution

Solution:
a)
THE Bank's earnings assets = Investments + Federal Funds sold + Loans - Reserve for loan losses
$1820+$920+$6920-$700
$8960
b)
THE Bank ROA = Net Income /Total Assets*100
$490/$10570*100
4.635761589
THE Bank ROA = 4.636%
Net Income = Interest income - Interest expense - Provision for loan losses + Noninterest income - Noninterest expense - Taxes
$2470-$1650-$100+$260-$430-$60
$490
c)
THE Bank's Total Operating Income:
THE Bank's Total Operating Income = Interest income + Non interest Income
$2470+$260
$2730
THE Bank's Total Operating Income = $2730
d)
THE Bank's spread:
Spread = (Interest Income/Earnings Assets )Less (Interest Expense/(Small time deposits+Jumbo CDs+Federal Funds Purchase)
[($2470/8960)-($1650/($4820+$1445+$1020)]
0.049176849
THE Bank's spread = 4.918%

jeff jeffy answered 1 year ago
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