The financial statements for MHM Bank (MHM) are shown below: a. Calculate MHM’s
ID: 2652905 • Letter: T
Question
The financial statements for MHM Bank (MHM) are shown below:
a. Calculate MHM’s total operating income (3 points).
b. Calculate MHM’s asset utilization ratio (3 points).
c. Calculate MHM’s ROA (3 points).
d. Calculate the dollar value of MHM’s earning assets (3 points).
e. Calculate the dollar value of MHM’s interest-bearing liabilities (3 points).
f. Calculate MHM’s spread (3 points).
g. Calculate MHM’s net interest margin (3 points).
h. Calculate MHM’s interest expense ratio (3 points).
Please show all work adn explantions, thank you
Balance Sheet MHM Bank
Assets
Liabilities and Equity
Cash and due from banks
$
8,200
Demand deposits
$
35,600
Demand deposits at other FIs
9,100
Small time deposits
32,900
Investments
9,600
Jumbo CDs
12,000
Federal funds sold
9,400
Federal funds purchased
3,300
Loans (less reserve for loan losses of 10,400)
74,800
Other liabilities
16,200
Premises
8,900
Equity
20,000
Total assets
$
120,000
Total liabilities/equity
$
120,000
Income Items for MHM Bank
Interest income
$ 9,380
Interest expense
3,856
Provision for loan losses
7,800
Noninterest income
6,044
Noninterest expense
4,300
Taxes (credit)
- 132
Balance Sheet MHM Bank
Assets
Liabilities and Equity
Cash and due from banks
$
8,200
Demand deposits
$
35,600
Demand deposits at other FIs
9,100
Small time deposits
32,900
Investments
9,600
Jumbo CDs
12,000
Federal funds sold
9,400
Federal funds purchased
3,300
Loans (less reserve for loan losses of 10,400)
74,800
Other liabilities
16,200
Premises
8,900
Equity
20,000
Total assets
$
120,000
Total liabilities/equity
$
120,000
Explanation / Answer
(a) Income cannot be calculated from Balance Sheet only. Income statement is needed.
(b) Asset Utilization Ratio = Revenues / Total Assets = revenue / $120,000
Income statement is required to find out revenue for the period.
(c) ROA = Net Income / Average Total Assets = Net Income / $120,000
Income statement is required to find out Net Income for the period.
(d) Dollar Value of earning assets = Value of assets that earn interest
= Demand deposits at other FIs + Invstments (assuming investments are interest-paying) + Loans
=$(9,100 + 9,600 + 74,800) = $93,500
(e) Dollar Value of interest bearing liabilities = Demand deposits + small time deposits + CDs
= $(35,600 + 32,900 + 12,000) = $80,500
(f) Spread cannot be calculated unless interest rates on each interest-bearing & interest-paying asset & liabilities are given.
(g) Net interest margin cannot be calculated unless interest rates on each interest-bearing & interest-paying asset & liabilities are given.
(h) Interest Expense ratio = Earning Before Interest & taxes (EBIT) / Interest Paid
EBIT can be calculated only from Income Statement & Interest paid cannot be calculated unless (a) interest rates on each interest-bearing liabilities OR (b) Income Statement ("Interest Expense") data are given.
NOTE: This question is severely short of data & the question is incomplete. All the questions that could be answered using given data have been answered.
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