B 1 Balance Sheet Year: 2005 Year: 2006 (In million $) 2 Assets 3 Cash 36,999 36,429 4 Short term securities with interest purchas 149,785 135,478 5 Investment securities with interests 245,315 192,846 6 Loans 573,791 706,490 7 Allowance for loans and lease losses 8,045 9,016 8 Net loans 565,746 697,474 9 Premises and Equipment 7,786 9,255 10 Trading account securities 11 Time deposits placed 12 Intangible assets 13 other assets 14 Total Assets 15 16 17 Liabilities 18 Non-interest deposits 131,707 153,052 12,800 13,952 51,354 75,084 90,311 146,167 1,291,803 1,459,737 186,736 184,808 19 Interest bearing deposits 447,934 508,689 20 Short term debt 116,269 141,300 21 Other liabilities without interest 97,828 126,141 22 Short term securities with interest sold 240,655 217,527 23 Long term debt 100,848 146,000 24 Total Liabilities 1,190,270 1,324,465 25 26 27 Total Equity 101,533 135,272 28 29 30 Income Statement 31 Total interest income 32 Total interest expense 33 Total non-interest income 34 Total non-interest expense Year: 2005 Year: 2006 58,626 78,585 27,889 43,994 26,438 37,989 28,269 34,792 35 Provision for loan losses 4,014 5,010 36 Income Taxes 8,015 10,840 37 Special items (412) (805) 38 39 Net income from continuing operations 16,465 21,133 40 Net income from total operations 16,465 21,133 41 Net Income 16,465 21,133 2. (20 points) Download the excel file "financial statement of BOA" from elearning. The excel file contains the balance sheet and income statement for Bank of America (Year 2005 and 2006). (1) Calculate the following ratios for each year: Interest expense ratio, Provision for loan loss ratio, Non-interest expense ratio, Net interest margin, and Bank spread. (Hint: "Other liabilities" do not bear interest) (2) Give a possible reason for the decrease of "provision for loan loss ratio" in 2006. In general, what is the relationship between "provision for loan loss ratio" and the risk of outstanding loans? Definitions: Interest expense ratio-Total interest expense/ Total income Non-interest expense ratio-Total non-interest expense/ Total income Provision for loan loss ratio-Provision for loan losses/ Total income Net interest margin-Net interest income/Total amount of interest-earning assets Bank spread Interest rate of all interest-earning assets-Interest rate of all interest-paying liabilities