Question

The latest report of condition and income and expense statement for Happy Merchants National Bank are...

The latest report of condition and income and expense statement for Happy Merchants National Bank are as shown in the following tables:

Income and Expense Statement (Report of Income)

    Interest and fees on loans  

$44  

    Interest and dividends on securities  

6  

Total interest income

50  

    Interest paid on deposits  

32  

    Interest on nondeposit borrowings  

6  

Total interest expenses  

38  

Net interest income  

12  

Provision for loan losses  

1  

Noninterest income and fees  

16  

Noninterest expenses:  

    Salaries and employee benefits  

10  

    Overhead expenses  

5  

    Other noninterest expenses  

2  

Total noninterest expenses  

17  

Net noninterest income  

-1  

Pretax operating income  

10  

Securities gains (or losses)  

2  

Pretax net operating income  

12  

Taxes  

2  

Net operating income  

10  

Net extraordinary income  

-1  

Net income  

9  

Report of Condition  

Assets  

Liabilities  

Cash & deposits due from banks

$100  

Demand deposits  

$190  

Investment securities  

150  

Savings deposits  

180  

Federal funds sold  

10  

Time deposits  

470  

Net loans  

670  

Federal funds purchased  

60  

(Allowance for loan losses = 25)

Total liabilities  

900  

(Unearned income on loans = 5)

Equity capital  

Plant and equipment  

50  

Common stock  

20  

Total assets  

980  

Surplus  

25  

Retained earnings  

35  

Total equity capital  

80  

Total Earnings Assets  

830  

Interest-bearing deposits  

650  

Using these statements, calculate the following performance measures:

Net profit margin=

Asset utilization=

Equity multiplier=

Homework Answers

Answer #1

Answer of Part a:

Total Operating Revenue = Total Interest Income + Noninterest Income an fees
Total Operating Revenue = $50 + $16
Total Operating Revenue = $66

Net Profit Margin = Net Income / Total Operating Revenue
Net Profit Margin = $9 / $66
Net Profit Margin = 0.1364 or 13.64%

Answer of Part b:

Asset Utilization = Total Operating Revenue / Total Assets
Asset Utilization = $66 / $980
Asset Utilization = 0.0673 or 6.73%

Answer of Part c:

Equity Multiplier = Total Assets / Total Equity Capital
Equity Multiplier = $980 / $80
Equity Multiplier = 12.25

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