Question

The financial statements for THE Bank are shown below: Balance Sheet THE Bank Assets Liabilities and Equity Cash $ 280 Demand deposits $ 2,530 Demand deposits from other FIs 680 Small time deposits 4,880 Investments 1,880 Jumbo CDs 1,505 Federal funds sold 980 Federal funds purchased 1,080 Loans 6,980 Equity 735 Reserve for loan losses (900 ) Premises 830 Total assets $ 10,730 Total liabilities/equity $ 10,730 Income Statement THE Bank Interest income $ 2,490 Interest expense 1,710 Provision for loan losses 130 Noninterest income 320 Noninterest expense 490 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))

Answer 1

Ans. A	Earning assets = Investments + Federal funds sold + Loans - Reserve for loan losses
	$1,880 + $980 + $6,980 - $900
	$8,940
Ans. B	ROA = Net return - Total assets * 100
	$420 / $10,730 * 100
	3.914%
	*Calculation of Net return:
	Particulars	Amount
	Interest income	$2,490
	Add: Non interest income	$320
	Total income (a)	$2,810
	Less: Expenses
	Interest expenses	$1,710
	Provision for loan losses	$130
	Non interest expenses	$490
	Tax	$60
	Total expenses (b)	$2,390
	Net revenue (a-b)	$420
Ans. C	Total operating income = Interest income + Non interest income
	$2,490 + $320
	$2,810
Ans. D	Spread = (Interest income / Earnings assets) - (Interest expenses / Interest bearing liabilities)
	($2,490 / $8,940) - ($1,710 / $7,465)
	0.27852 - 0.22907
	0.04945
	or    4.945%
	Calculations of Interest bearing liabilities :
	Small time deposits	$4,880
	Jumbo CDs	$1,505
	Federal funds purchased	$1,080
	Total	$7,465