Question

Smallville Bank has the following balance sheet, rates earned on its assets, and rates paid on its liabilities.

Balance Sheet (in thousands)
Assets					Rate Earned (%)
Cash and due from banks	$	6,000				0
Investment securities		22,000				8
Repurchase agreements		12,000				6
Loans less allowance for losses		80,000				10
Fixed assets		10,000				0
Other earning assets		4,000				9
Total assets	$	134,000
Liabilities and Equity					Rate Paid (%)
Demand deposits	$	9,000				0
NOW accounts		69,000				5
Retail CDs		18,000				7
Subordinated debentures		14,000				8
Total liabilities		110,000
Common stock		10,000
Paid-in capital surplus		3,000
Retained earnings		11,000
Total liabilities and equity	$	134,000

If the bank earns $120,000 in noninterest income, incurs $80,000 in noninterest expenses, and pays $2,500,000 in taxes, what is its net income? (Enter your answer in dollars, not thousands of dollars.)
  

Answer 1

Find out first:

Interest income = Interest on investment securities + Interest on repurchase agreements + Interest on loans + Interest on other earning assets

Interest income= (22,000,000 x 8 %) + (12,000,000 x 6%) + (80,000,000 x 10%) + (4,000,000 x 9 %)

= 1,760,000 + 720 ,000 + 8,000,000 + 360,000

= $10,840,000

Interest expenses find out:

Interest expenses = Interest on NOW accounts + Interest on retail CD's + Interest on subordinated debentures

= (69,000,000 x 5%) + (18,000,000 x 7%) + (14,000,000 x 8%)

= 3,450,000 + 1,260 ,000 + 1,120,000

= $5 ,830,000

Income statement

Interest income	10,840,000
Non-interest income	120,000
Total income	10,960,000
Less: Interest expenses	- 5,830,000
Non interest expenses	- 80,000
Income before taxes	5,050, 000
Less: Taxes	- 2,500,000
Income after taxes	$2,550,000