Reference no: EM132919291

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

Loan loss provisionat 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 (both federal and state) = 30 percent

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

Required -

a. What the Forecast Hawaii Bank's net interest margin.

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

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

d. What the Forecast Hawaii Bank's return on equity.

e. What the 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.