2 interest on deposits in banks 60 total interest

2

Interest on deposits in banks 60
Total interest income $8,623
Interest on deposits 3,018
Interest on debentures 1,140
Total interest expense $4,158
Net interest income
$4,465
Provision for loan losses 200
Noninterest income 950
Noninterest expenses 1,720
Income before taxes $3,495
Taxes 1,220
Net income $2,275
For Dudley Bank, calculate:
a. Return on equity
b. Return on assets
c. Asset utilization
d. Equity multiplier
e. Profit margin
3

f. Interest expense ratio
g. Provision for loan loss
ratio
h. Noninterest expense
ratio
i. Tax ratio
j. Overhead efficiency
4. Suppose that stockbrokers have projected that Murfreesboro Savings Bank will
pay a dividend of $2.50 per share on its common stock at the end of the year; a
dividend of $3.25 per share is expected for the next year, and $4.00 per share in
the following two years. The risk-adjusted cost of capital for banks in
Murfreesboro Saving’s risk class is 15 percent. If an investor holding
Murfreesboro Saving’s stock plans to hold that stock for only four years and
expects to sell it at a price of $50 per share, what should the value of the bank’s
stock be in today’s market?
5. XYZ Bank has a ratio of equity capital to total assets of 9 percent. In contrast,
ABC Bank reports an equity-capital-to-asset ratio of 7 percent.
a. What is the value of the equity multiplier for each of these institutions?
Suppose that both institutions have an ROA of 0.67 percent.
b. What must each institution’s return on equity capital be?
c. What do your calculations tell you about the benefits of having as little
equity capital as regulations or the marketplace will allow?
6. Classify the following ratios as liquidity ratios, earning asset ratios, financial
structure ratios, operating ratios, profitability ratios, or spread ratios.