Question

The financial statements for THE Bank are shown below: Balance Sheet THE Bank Assets Liabilities and...

The financial statements for THE Bank are shown below:

Balance Sheet THE Bank
Assets Liabilities and Equity
Cash $ 220 Demand deposits $ 2,470
Demand deposits from other FIs 620 Small time deposits 4,820
Investments 1,820 Jumbo CDs 1,445
Federal funds sold 920 Federal funds purchased 1,020
Loans 6,920 Equity 815
Reserve for loan losses (700 )
Premises 770
Total assets $ 10,570 Total liabilities/equity $ 10,570
Income Statement THE Bank
Interest income $ 2,470
Interest expense 1,650
Provision for loan losses 100
Noninterest income 260
Noninterest expense 430
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))

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Answer #1

1. Earning Assets=DD's from FI + Investments + Fed Fund Sold + Loans

= 620+1820+920+6920

= 10280

2. ROA= Net Income/Total Assets

Net Income = (Interest income + non interest income) - (Interest expense + non interest expense) - provision for losses -Tax

   = 470

Hence, ROA = 470/10570 = 4.446%

3. Operating Income = (Interest income + non interest income) - (Interest expense + non interest expense)

   = 470

4. Spread = How much it receives- how much it pays out

= Interest Income - interest expense

   = 2470 - 1650

= 820

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