Chapter $20-$ Managing in Financial Markets

Managing in Financial Markets

Forecasting Bank Performance As a manager of Hawaii Bank, you anticipate the following:

Loan loss provision at end of year $=1$ percent of assets

Gross interest income over the next year $=9$ percent of assets

Noninterest expenses over the next year $=3$ percent of assets.

Noninterest income over the next year $=1$ percent of assets

Gross interest expenses over the next year $=5$ percent of assets

Tax rate on income $=30$ percent

Capital ratio $($capital$/$assets$)$ at end of year $=5$ percent

a$.$ Forecast Hawaii Bank's net interest margin.

b$.$ Forecast Hawaii Bank's earnings before taxes as a percentage of assets.

c$.$ Forecast Hawaii Bank's earnings after taxes as a percentage of assets.

d$.$ Forecast Hawail Bank's return on equity.

e$.$ Hawaii Bank is considering a shift in its asset structure to reduce its concentration of Treasury bonds and increase its volume of loans to small businesses. Identify each income statement item that would be affected by this strategy, and explain whether the forecast for that item would increase or decrease as a result.