Question

What must net noninterest income (net of noninterest expense) be in order for fnb to have a 12% roe? based on your answer, must fnb be performing better or worse than the industry average in this area? explain?

Answer 1

Answer: NI/Equity = 0.12 ; NI/$125 = 0.12 so required NI = $15.00 Interest Revenue = ($475*0.045) + ($725 * 0.075) = $75.75 Interest Expense = $1,175 * 0.03 = $35.25 NI = {Interest Revenue – Interest Expense + Net noninterest income – PLL} (1 – Tax rate) $15.00 = {$75.75 - $35.25 + Net noninterest income – $3}* (1 - .34) Net noninterest income must be = -$14.77 (millions) Noninterest Expense = $30, so Noninterest income must be $30 + - $14.77 = $15.23 FNB Overhead Efficiency Ratio = $15.23 / $30 = 0.5076, industry average = 0.85. Thus, FNB must be doing a poorer job of generating noninterest income while controlling noninterest expense than the industry average.