Valley Savings reported these figures (in millions) on its income statement for the past five years. Calculate this institution’s ROA in each year. Are there any adverse trends? Any favorable trends? What seems to be happening to this institution?

Question

Accepted Answer

	Current Year	One Year Ago	Two Years Ago	Three Years Ago	Four Years Ago
Gross interest income	$40	$41	$38	$35	$33
Interest expenses	24	23	20	18	15
Net interest income	16	18	18	17	18
Provision for loan losses	2	1	1	0	0
Net interest income after	14	17	17	17	18
Loan loss provision
Noninterest income	4	4	3	2	1
Noninterest expense	8	7	7	6	5
Net noninterest income	(4)	(3)	(4)	(4)	(4)
Income before taxes	10	14	13	13	14
Income taxes owed	1	1	0	1	0
Net income after taxes	9	13	13	12	14
but before gains (losses)
Net securities gains (losses)	(2)	(1)	0	1	2
Net income	7	12	13	13	16
Total assets	385	360	331	319	293
ROA	1.82%	3.33%	3.93%	4.08%	5.46%

Valley's ROA has gone from an exceptional level, at almost 5.5%, progressively down to a reasonably good level, at 1.82%, over the last four years.

Growth in interest and noninterest income has been outstripped by the growth in interest and noninterest expense, as well as the increase in the allowance for loan losses, resulting in a significant decline in net income from operations. Needless to say, the shift from gains in securities trading to losses has not been helpful either.

Question 6.P.13: Valley Savings reported these figures (in millions) on its i...

Related Answered Questions