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 $ 6,200 0 Investment securities 24,000 8 Repurchase agreements 14,000 6 Loans less allowance for losses 82,000 10 Fixed assets 12,000 0 Other earning assets 4,000 9 Total assets $ 142,200 Liabilities and Equity Rate Paid (%) Demand deposits $ 11,000 0 NOW accounts 71,000 5 Retail CDs 20,000 7 Subordinated debentures 16,000 8 Total liabilities 118,000 Common stock 12,000 Paid-in capital surplus 3,200 Retained earnings 9,000 Total liabilities and equity $ 142,200 If the bank earns $122,000 in noninterest income, incurs $82,000 in noninterest expenses, and pays $2,520,000 in taxes, what is its net income?

Answer 1

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

= (24,000,000 x 8%) + (14,000,000 x 6%) + (82,000,000 x 10%) + (4,000,000 x 9%)

= 1,920,000 + 840,000 + 8,200,000 + 360,000

= $11,320,000

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

= (71,000,000 x 5%) + (20,000,000 x 7%) + (16,000,000 x 8%)

= 3,550,000 + 1,400,000 + 1,280,000

= $6,230,000

Income statement

Interest income	11,320,000
Non-interest income	122,000
Total income	11,442,000
Less: Interest expenses	- 6,230,000
Non interest expenses	- 82,000
Income before taxes	5,130,000
Less: Taxes	- 2,520,000
Income after taxes	$2,610,000

Hence, net income = $2,610,000