Question

The financial statements for THE Bank are shown below:

Balance Sheet THE Bank
Assets					Liabilities and Equity
Cash	$	260			Demand deposits	$	2,510
Demand deposits from other FIs		660			Small time deposits		4,860
Investments		1,860			Jumbo CDs		1,485
Federal funds sold		960			Federal funds purchased		1,060
Loans		6,960			Equity		895
Reserve for loan losses		(700	)
Premises		810
Total assets	$	10,810			Total liabilities/equity	$	10,810

Income Statement THE Bank
Interest income	$	2,470
Interest expense		1,690
Provision for loan losses		110
Noninterest income		300
Noninterest expense		470
Taxes		40

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
	$1,860 + $960 + $6,960 - $700
	$9,080
Ans. B	ROA = Net return - Total assets * 100
	$460 / $10,810 * 100
	4.255%
	*Calculation of Net return:
	Particulars	Amount
	Interest income	$2,470
	Add: Non interest income	$300
	Total income (a)	$2,770
	Less: Expenses
	Interest expenses	$1,690
	Provision for loan losses	$110
	Non interest expenses	$470
	Tax	$40
	Total expenses (b)	$2,310
	Net revenue (a-b)	$460
Ans. C	Total operating income = Interest income + Non interest income
	$2,470 + $300
	$2,770
Ans. d	Calculations of Interest bearing liabilities :
	Small time deposits	$4,860
	Jumbo CDs	$1,485
	Federal funds purchased	$1,060
	Total	$7,405
	Spread = (Interest income / Earnings assets) - (Interest expenses / Interest bearing liabilities)
	($2,470 / $9,080) - ($1,690 / $7,405)
	0.2720 - 0.2282
	0.0438
	or   4.380%