Question

The financial statements for MHM Bank (MHM) are shown below:

Balance Sheet MHM Bank

Assets		Liabilities and Equity
Cash and due from banks	$?1,920	Demand deposits	$10,620
Demand deposits at other FIs	1,100	Small time deposits	10,350
Investments	6,080	Jumbo CDs	7,670
Federal funds sold	2,990	Federal funds purchased	470
Loans (less reserve for loan losses of 2,400)	20,040	Other liabilities	2,000
		Equity	3,290
Premises	2,270
	????	Total	????
Total assets	$34,400	liabilities/equity	$34,400

Income Statement MHM Bank

Interest income	$4,048
Interest expense	2,024
Provision for loan losses	100
Noninterest income	700
Noninterest expense	975
Taxes	235
	a. Calculate the dollar value of MHM's earning assets.
	b. Calculate the dollar value of MHM's interest-bearing liabilities.
	c. Calculate MHM's spread.

Answer 1

Answer to Part a.

Earning Assets = Investments + Securities + Net Loans
MHM’s Earning Assets = $6,080 + $2,990 + $20,040
MHM’s Earning Assets = $29,110

Answer to Part b.

Interest bearing Liabilities = Small Time deposits + Jumbo CDs + Federal Funds purchased
MHM’s Interest bearing Liabilities = $10,350 + $7,670 + $470
MHM’s Interest bearing Liabilities = $18,490

Answer to Part c.

Spread = (Interest Income / Earning Assets) – (Interest Expense / Interest bearing liabilities)
MHM’s Spread = (4,048 / 29,110) – (2,024 / 18,490)
MHM’s Spread = 0.139059 – 0.109465
MHM’s Spread = 0.029594 or 2.96%