1. Jasper National Bank has just submitted its Report of Condition to the FDIC.
Please fill in the missing items from its statement shown below (all figures in millions of
dollars):
Report of Condition
Total assets $2,500
Cash and due from Depository
Institutions 87
Securities 233
Federal Funds Sold and Reverse
Repurch. 45
Gross Loans and Leases ?
Loan Loss Allowance 200
Net Loans and Leases 1700
Trading Account Assets 20
Bank Premises and Fixed Assets ?
Other Real Estate Owned 15
Goodwill and Other Intangibles 200
All Other Assets 175
Total Liabilities and Capital ?
Total Liabilities ?
Total Deposits ?
Federal Funds Purchased and
Repurchase Agreements. 80
Trading Liabilities 10
Other Borrowed Funds 50
Subordinated Debt 480
All Other Liabilities 40
Total Equity Capital ?
Perpetual Preferred Stock 2
Common Stock 24
Surplus 144
Undivided Profit 70
2. Suppose that a bank holds cash in its vault of $1.4 million, short-term government
securities of $12.4 million, privately issued money market instruments of $5.2 million,
deposits at the Federal Reserve banks of $20.1 million, cash items in the process of
collection of $0.6 million, and deposits placed with other banks of $16.4 million. How
much in primary reserves does this bank hold? In secondary reserves?
3. Suppose a bank has an allowance for loan losses of $1.25 million at the beginning
of the year, charges current income for a $250,000 provision for loan losses, charges off
worthless loans of $150,000, and recovers $50,000 on loans previously charged off. What
will be the balance in the allowance for loan losses at year-end?
4. Along with the Report of Condition submitted above, Jasper has also prepared a
Report of Income for the FDIC. Please fill in the missing items from its statement shown
below (all figures in millions of dollars):
Report of Income
Total Interest Income $120
Total Interest Expense ?
Net Interest Income 40
Provision for Loan and Lease Losses ?
Total Noninterest Income 58
Fiduciary Activities 8
Service Charges on Deposit
Accounts 6
Trading Account Gains and Fees ?
Additional Noninterest Income 30
Total Noninterest Expense 77
Salaries and Benefits ?
Premises and Equipment Expense 10
Additional Noninterest Expense 20
Pretax Net Operating Income 17
Securities Gains (Losses) 1
Applicable Income Taxes 5
Income Before Extraordinary Income ?
Extraordinary Gains – Net 2
Net Income ?
5. If you know the following figures:
Total Interest Income $140 Provision for Loan Loss $5
Total Interest Expenses 100 Income Taxes 5
Total Noninterest Income 15 Increases in bank’s undivided profits 6
Total Noninterest Expenses 35
Please calculate these items:
Net Interest Income:
Net Noninterest Income
Pretax net operating income
Net Income After Taxes
Total Operating Revenues
Total Operating Expenses
Dividends paid to Common
Stockholders
6. If you know the following figures:
Gross Loans $275 Trading Account Securities $2
Allowance for Loan Losses 5 Other Real Estate Owned 4
Investment Securities 36 Goodwill and other Intangibles 3
Common Stock 5 Total Liabilities 375
Surplus 19 Preferred Stock 3
Total Equity Capital 39 Non deposit Borrowings 20
Cash and Due from Banks 9 Bank Premises and Equipment, Net 29
Miscellaneous Assets 38
Bank Premises and Equipment, Gross 34
Please calculate these items:
Total Assets
Net Loans
Undivided Profit
Fed funds sold
Depreciation
Total Deposits
7. The Mountain High Bank has Gross Loans of $750 million with an ALL account of
$45 million. Two years ago the bank made a loan for $10 million to finance the Mountain
View Hotel. Two million in principal was repaid before the borrowers defaulted on the
loan. The Loan Committee at Mountain High Bank believes the hotel will sell at auction
for $7 million and they want to charge off the remainder immediately.
a. The dollar figure for Net Loans before the charge-off is ?
b. After the charge-off, what are the dollar figures for Gross Loans, ALL and Net
Loans assuming no other transactions.
c. If the Mountain View Hotel sells at auction for $8 million, how with the affect
the pertinent balance sheet accounts?
8 You were informed that a bank’s latest income and expense statement contained
the following figures (in $ millions):
Net Interest Income $700
Net Noninterest Income ($300)
Pretax net operating income $372
Security gains $10
Increases in bank’s Undivided Profit $200
Suppose you also were told that the bank’s total interest income is twice as large as its
total interest expense and its noninterest income is three-fourths of its noninterest
expense. Imagine that its provision for loan losses equals 2 percent of its total interest
income, while its taxes generally amount to 30 percent of its net income before income
taxes. Calculate the following items for this bank’s income and expense statement:
Total Interest Income (TII) and Total Interest Expense(TIE):
Total Noninterest Income (TNI) and Total Noninterest Expense(TNE):
Provision for Loan Losses? Taxes? Dividends?
CHAPTER 12
1. A bank determines from an analysis of its cost-accounting figures that for each
$500 minimum-balance checking account it sells account processing and other operating
costs will average $4.87 per month and overhead expenses will run an average of $1.21
per month. The bank hopes to achieve a profit margin over these particular costs of 10
percent of total monthly costs. What monthly fee should it charge a customer who opens
one of these checking accounts?
2. Use the APY formula required by the Truth in Savings Act for the following
calculation. Suppose that a customer holds a savings deposit in a savings bank for a year.
The balance in the account stood at $2,000 for 180 days and $100 for the remaining days
in the year. If the Savings bank paid this depositor $8.50 in interest earnings for the year,
what APY did this customer receive?
3. Gold Mine Pit Savings Association finds that it can attract the following amounts
of deposits if it offers new depositors and those rolling over their maturing CDs
the interest rates indicated below:
Expected Volume Rate of Interest
of New Deposits Offered Depositors
$10 million 3.00%
15 million 3.25
20 million 3.50
26 million 3.75
28 million 4.00
Management anticipates being able to invest any new deposits raised in loans yielding
6.25 percent. How far should this thrift institution go in raising its deposit interest rate in
order to maximize total profits (excluding interest costs)?
4. Red Brick Bank plans to launch a new deposit campaign next week in hopes of
bringing in from $100 million to $600 million in new deposit money, which it expects to
invest at a 5.5 percent yield. Management believes that an offer rate on new deposits of
2.75 percent would attract $100 million in new deposits and rollover funds. To attract
$200 million, the bank would probably be forced to offer 3.25 percent. Red Brick’s
forecast suggests that $300 million might be available at 3.75 percent, $400 million at
4.00 percent, $500 million at 4.25 percent, and $600 million at 4.5 percent. What volume
of deposits should the institution try to attract to ensure that marginal cost does not
exceed marginal revenue?
5. Richman Savings Bank finds that its basic transaction account, which requires a $400
minimum balance, costs this savings bank an average of $2.65 per month in servicing
costs (including labor and computer time) and $1.18 per month in overhead expenses.
The savings bank also tries to build in a $0.50 per month profit margin on these accounts.
What monthly fee should the bank charge each customer?
6. Monica Lane maintains a savings deposit with Monarch Credit Union. This past year
Monica received $10.75 in interest earnings from her savings account. Her savings
deposit had the following average balance each month:
January $400 July $350
February 250 August 425
March 300 September 550
April 150 October 600
May 225 November 625
June 300 December 300
What was the annual percentage yield (APY) earned on Monica’s savings account?
7. The National Bank of Mayville quotes an APY of 3.5 percent on a one-year money
market CD sold to one of the small businesses in town. The firm posted a balance of
$2,500 for the first 90 days of the year, $3,000 over the next 180 days, and $4,500 for the
remainder of the year. How much in total interest earnings did this small business
customer receive for the year?
