Peoples’ National Bank Balance Sheet As of December 31, 20XX Assets Liabilities

Question

Peoples’ National Bank Balance Sheet As of December 31, 20XX Assets Liabilities & Equity Cash 600 Demand deposits 5,590 Demand Deposits from other FIs 1,890 Small time deposits 9,867 Investment 3,680 Jumbo CDs 3,198 Federal funds sold 1,988 Federal funds purchased 2,500 Loans 16,145 Equity 3,728 Reserve for loan losses (1,040) Premises 1,620 Total Assets 24,883 Total Liabilities and Equity 24,883 Peoples’ National Bank Income Statement For the Year Ended December 31, 20XX Interest on fees and loan 1,200 Interest on investment securities 700 Interest on repurchase agreement 780 Interest on deposits in banks 265 Total Interest Income 2,945 Interest on deposits 945 Interest on debentures 689 Total Interest Expense 1,634 Provision for loan losses 140 Noninterest income 185 Noninterest expense 281 Total 236 Income before taxes 1,075 Taxes 215 Net Income 860 1. Analyze the following eight ratios for PNB’s financial statements: Earning Assets, Return on Assets, Total Operating Income, Asset Utilization, Net Interest Margin, Spread, Overhead Efficiency, and Tax Ratios. 2. Compare the results of PNB’s ratios to the banking industry average. Then, interpret the results of the comparison. PLEASE ONLY ANSWER QUESTION NUMBER 2. THANK YOU.

Explanation / Answer

Answer:

Ratio’s

Earning asset are:

Fees and loan = $1200

investment securities = $700

deposits in other bank = $265

repurchase agreement = $780

Total interest income = $2945

And total assets = $24883

Therefore Earning asset ratio = 2945/24883 = 0.1184

Return on asset = Net income/Total assets

Here net income = 860

And total assets = 24883

Therefore return on assets = 860/24883 = 0.03456

Total operating income = $1075

Asset utilization ratio = revenue/total assets

Here revenue = $2945

Therefore asset utilization ratio = 2945/24883 = 0.1184

Answer-2

Industry ratios are:

Earning asset ratio = 89.25%

Return on asset ratio = 5% approx

Asset utilization ratio = 0.0388

On comparing the few ratios of this bank with the industry averages it is interpreted that bank is lagging behind its proper utilization of its income assets. Thus bank should give more focus towards its income generating assets.

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