Question

Following data pertains to Castle State Bank. Balance Sheet: Cash 95.068 (80% of cash assets earn interest), Securities 619.293, Net loans 1194.955, Net premises 292.677; Deposits 1093.196 (60% of deposits are interest-bearing), Non-deposit borrowings 798.932, Common stock $10.655, Surplus $125.167; Income Statement: Interest Income 401.407, Interest expense 189.34, Noninterest income 48.77, Noninterest expense 96.14, Provision for loan losses 59.823, Securities gains (losses if negative) -4.67, Taxes 42.459. What is Castle State Bank's earnings spread? Decimalize your answer, round to four decimals. E.g., if your answer is 6.445%, record it as 0.0645. Note: Undivided profits is the only item missing above; it is the item that would balance the balance sheet.

Answer 1

Earning Spread is the difference between "interest earnings rate on earning asset" and "interest rates paid on borrowed funds". Earning spread measures the effectiveness of a financial institution in using the borrowed money by lending the money efficiently.

Earning Spread is calculated with the following formula: