Question 1
a) Income and Expense Statement of Happy Merchants National Bank Income and Expense Statement (Report of Income) | Interest and fees on loans | $44 | Interest and dividends on securities | 6 | Total interest income | 50 | Interest paid on deposits | 32 | Interest on non-deposit borrowings | 6 | Total interest expense | 38 | Net interest income | 12 | Provision for loan losses | 1 | Noninterest income and fees | 16 | Noninterest expenses: | | Salaries and employee benefits | 10 | Overhead expenses | 5 | Other noninterest expenses | 2 | Total noninterest expenses | 17 | Net noninterest income | 1 | Pretax operating income | 10 | Securities gains (or losses) | 2 | Pretax net operating income | 12 | Taxes | 2 | Net operating income | 10 | Net extraordinary income | -1 | Net income | 9 |
b) Ratio Analysis and c) Strengths and weaknesses i. Return on equity
ROE=Net IncomeTotal Equity=980=11.25%
Return on equity ratio for Happy Merchants National bank indicates that for every dollar invested by stockholders the bank earns 11,25%.
Strength
Due to such return the bank is able to strongly position itself among peers. Investors will be reassured that the bank is going in right direction toward wealth maximization. ii. Return on assets
ROA=Net IncomeTotal Assets=9980=0.91%
For every dollar invested in assets the return makes up 0, 91 or 0, 0091$ amount.
Weakness
The bank was less successful in earning more money on less investment. If the ratio was higher, the earnings would exceed the money invested. It is necessary to improve the figure for this ratio. iii. Asset utilization
AU=Interest income+Noninterest Income+Security Gains Total Assets=50+16+2980=6.9%

The figure of 6, 93% shows the bank’s ability of employing its assets in order to generate the average interest and