solution

Clear Creek Bank’s balance
sheet is as follows:

Assets:
Ave.
Duration

Securities
4% rate
$ 100
million
1 year

Long-term
Loans 8%
rate $
500
million
8 years

Total Assets
$
600 million

Liabilities & Equity

Short-term
Deposits 1% rate $ 440
million
1 year

Certificates
of Deposit 4% rate 100
million
3 years

Total
Liabilities
$540 million

Equity
60 million

Total
Liab.&
Equity
$600 million

1. What is the bank’s expected net interest income $ (NII)
   and expected net interest margin (NIM)? [Hint: NII =
   Sum (Each asset x its rate) – Sum (Each liability x its rate)]

and NIM = NII
/ Earning Total Assets (excludes cash)

NII ($’s)
____________ NIM %
______________

1. If the bank has the NIM % that you calculated above, a
   PLL% of 1.00%, and a Burden % of 3.00%, what is the bank’s
   operating ROA before taxes (NIM – Burden% – PLL%)?
   Operating ROA (OROA) _______________

c. What is the equity
multiplier (EM) for the bank? (hint EM = total
assets/equity)

EM
______________