Problem and Project

1. Fill in the missing items from its statement shown below (all figures in millions of dollars): Report of condition Asset Cash and deposit due from other banks Investment Securities Liabilities and Equity Capital Noninterest bearing demand deposits Saving deposit and NOW account Money market deposit account Time deposit Deposit at foreign branches Total deposit Nondeposit borrowings other liabilities Stock holder equity capital

27 $ 87

$ 107 36 49 227 21 440 41 19 50

Trading account securities 6 Federal fund sold 11 Loans, gross 373 Allowance for loan Loss (19) Unearn discount on loans (6) Loans, net 348 Bank premises and equipment Customers liability on acceptances Miscellaneous assets

10 18 43__ $550

Total liabilities and Equity capital

_____ $550

Report of Income Interest and fee on loan Interest on investment Securities Other interest income Total interest income Total interest expense Total interest expense Net interest income Provision for possible loan losses 168 7 5_ $180 $159 $159 21_ 4 Service charges on customer deposits Trust deposit income Other operating income Total noninterest income wage, salaries and employee benefits Net occupancy and equipment expense Other expense Total noninterest expenses Net noninterest income

$11 $ 8 20_ 39 42_ 7 5 54 (15)_

Provision for income tax Net income (or loss) after taxes

2 (0)

Calculation Report of condition Gross loan = 348+19+6 = $373 Cash and deposit due from bank = 550 (87+6+11+348+10+18+43) = $27 Saving deposit and NOW accounts = 440 107-49-227-21 = $36 Stockholders equity capital = 550 500 = $50 Report of income Interest and fee on loan = 180 7 5 = $168 Net interest income = 180 159 = 21 Service charges on customer deposits = 39 8 20 = $11 Wage, salaries and employee benefits = 54 5 7 = $42 Net noninterest income = 39 54 = $(15) Net income after taxes = 21 4 + (15) 2 =$ 0 2. If you know the following figures: Total interest income $271 Total interest expenses 205 Total noninterest income 23 Total noninterest expenses 40 Please calculate these items: Net interest income 66_ Net noninterest income (17)_ Net income before income tax 36_ Net income after tax 31_ Provision for loan losses Income taxes Dividends to common Stockholders Total operating revenues Total operating expense Interest in bank s Undivided profit $13 5 11 23_ 40_ 20_

Calculation Net interest income = 271 205 = $66 Net noninterest income = 23 40 = $(17) Net income before income taxes = 66 13 17 = $36 Net income after taxes = 36 5 = 31 Total operating revenue = Total noninterest income = $23 Total operating expense = Total noninterest expense = $40 Increase in banks undivided profits = 31 11 = $20

3. If you know the following figures: (A) (A) (A) (E) (E) (E) (E) (A) (A) (A) Gross loans Allowance for loan losses Unearned discount on loans Common stock Surplus Capital reserves Total equity capital Cash and due from banks Miscellaneous assets Bank premises and equipment, gross $294 13 5 12 11 8 49 9 38 (A) Trade account securities (A) Federal Fund sold (L) Saving deposits (L) Total Liabilities (E) Preferred stock (L) Nondeposit borrowings (L)Time deposits (L)Money market deposits (A)Bank premises and equipment, net (A)Customers liability on acceptances $2 26 12 380 3 10 160 88 29 7

34

Answer Total asset Net loans Undivided profit $429 $276 $15 Investment securities Depreciation Total deposits $42 $5 $260

Calculation Total Asset= Total Liabilities + Total Equity = 380 + 49 = $429 Net Loan = Gross Loans ( allowance for loans losses + unearned discount on loans ) = 294 (13 + 5) = $276 Undivided profit = Total equity capital ( common stock + surplus + capital reserve + prefer stock) = 49 (12 + 11+ 8+ 3) = 49 + 34 = $15 Investment security = ? Depreciation = Bank premises and equipment gross Bank premises and equipment net = 34 29 = $5 Total deposit = saving deposit + time deposit + money market deposit = 12 + 160 + 88 = $260

6. Which items on a banks statement of income and expenses would be affected? (1) Interest income (2) Interest expense (3) net interest income (4) Noninterest income (5) Noninterest expense (6) Net noninterest income (T) Tax (PPL) Provision for possible loans losses Answer (5) a. Office supplies are purchased so the bank will have enough deposit slip and other necessary forms for customer and employee use next week. (5) b. The bank set aside funds to be contributed through its monthly payroll to the employee pension plan in the name of all its eligible employees. (2) c. The bank post the amount of interest earned on the saving account of one of it customers. (PLL) d. Management expects that among a series of real estate loans recently granted the default rate will probably be close to 3 percent. (4) e. Mr. and Mrs. Harold Jones just purchased a safety deposit box to hold their stock certificate and wills. (1) f. The bank collects $1 million in interest payment from loans it made earlier this year to Intel composition corp. (4) g. Hal Joness checking account is charged $30 for two of Hals checks that were return for insufficient funds. (1) h. The bank earns $5 million in interest on the government securities it has held since the middle of last year. (5) i. The bank has to pay its $5,000 monthly utility bill today to the local electric company. (4) j. A sale of government securities has just netted the bank a $290,000 capital gain (net of taxes).

8. What item is clearly missing from the above accounts that you need to add in so that the banks balance sheet will be fully in balance. Answer Asset Cash $13 Deposit due from other bank 25 U.S Treasury bills 10 Municipal bonds 12 Federal Funds sold Securities purchased under Repurchase agreements 5 Lease of asset to business Customers 3 Credit card loans 22 Auto mobile loans 21 Loan to commercial and Industrial firm 64 Real estate loans 42 Bank building and equipment 7____ Total asssets $224million Liabilities Demand deposit 55 Saving deposit 15 Money market deposit 31 Time deposit 25 Federal fund purchased 34 Mortgage against the banks building 26 Securities sold under repurchase agreements 4 Subordinate loan and debentures 20 Deposit due to other banks 5_____ Total Liabilities 215

OE

9______ $224million

Calculation Asset = Liabilities + OE 224 = 215 + OE OE = 224 215 = $9