1. 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?
2. What is the relationship between the provision for loan losses on a bank's Report of
Income and the allowance for loan losses on its Report of Condition?
3. 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
$2,50
Total assets 0
Cash and due from Depository
Institutions 87
Securities 233
Federal Funds Sold and Reverse
Repurch. 45
Gross Loans and Leases ? 1,900
Loan Loss Allowance 200
Net Loans and Leases 1700
Trading Account Assets 20
Bank Premises and Fixed Assets ? 25
Other Real Estate Owned 15
Goodwill and Other Intangibles 200
All Other Assets 175
Total Liabilities and Capital ? 2,500

Total Liabilities ? 2,260

Total Deposits ? 1,600
Federal Funds Purchased and
Repurchase Agreements. 80
Trading Liabilities 10
Other Borrowed Funds 50
Subordinated Debt 480
All Other Liabilities 40
Total Equity Capital ? 240

Perpetual Preferred Stock 2

Common Stock 24
Surplus 144
Undivided Profit 70
 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
Increases in bank’s
Total Noninterest Income 15 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 Nondeposit 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, the bank recovers full
principal on the loan.

8. For each of the transactions described here, which of at least two accounts on a bank’s
balance sheet (Report of Condition) would be affected by each transaction?

a. Sally Mayfield has just opened a time deposit in the amount of $6,000 and
these funds are immediately loaned to Robert Jones to purchase a used car.

b. Arthur Blode deposits his payroll check for $1000 in the bank and the bank
invests the funds in a government security.

c. The bank sells a new issue of common stock for $100,000 to investors living in
its community, and the proceeds of that sale are spent on the installation of new
ATMs,

d. Jane Gavel withdraws her checking account balance of $2,500 from the bank
and moves her deposit to a credit union; the bank employs the funds received
from Mr. Alan James, who just paid off his home equity loan, to provide Ms. Gavel
with the funds she withdrew.

e. The bank purchases a bulldozer from Ace Manufacturing Company for $750,000
and leases it to Cespan Construction Company.

f. Signet National Bank makes a loan of reserves in the amount of $5 million to

Quesan State Bank and the funds are returned the next day.

On the day the funds are loaned the accounts are affected in the following
manner:
and when the finds are returned the next day, the process is reversed.

g. The bank declares its outstanding loan of $1 million from the Deprina Corp. to
be uncollectible.
8. The Nitty Gritty Bank is developing a list of off-balance-sheet items for its call report. Please fill in the missing
items from its statement shown below. Using Table 5-5, describe how Nitty Gritty compares with other banks
in the same size category regarding its off-balance sheet activities.

Off-balance-sheet items for Nitty Gritty Bank (in millions of $)

Total unused commitments $7,000

Standby letters of credit and foreign office

guarantees $1,350

(Amount conveyed to others) ($50)

Commercial Letters of Credit $48

Securities Lent $2,200

Derivatives (total) $97,000

Notional Amount of Credit Derivatives $22,000

Interest Rate Contracts 54000

Foreign Exchange Rate Contracts ?

Contracts on other commodities and equities $1,200

All other off - balance -sheet liabilities $49

Total off-balance-sheet Items ?

Total Assets (on-balance sheet) $10,500

Off-balance-sheet assets ÷ on-balance-sheet

assets ?

This looks very similar to other banks of the same size.

9. See if you can determine the amount of Cardinal State Bank’s current net income after taxes from the figures
below (stated in millions of dollars) and the amount of its retained earnings from current income that it will be
able to reinvest in the bank. (Be sure to arrange all the figures given in correct sequence to derive the bank’s
Report of Income.)

Total Interest Income

Interest on Loans $86
Int earned on Govt. Bonds and Notes $9
Total $95

Total Interest Expense

Interest Paid on Fed Funds Purchased $5
Interest Paid to Customers Time and
Savings Deposits $34
Total $39

Net Interest Income $56

Provision for Loan Loss $2

Total Noninterest Income

Service Charges Paid by Depositors $3
Trust Department Fees $3
Total $6

Total Noninterest Expenses

Employee Wages, Salaries and Benefits $13
Overhead Expenses $3
Total $16

Net Noninterest Income ($10)

Pretax Income $44

Taxes Paid (28%) $12
Securities Gains/(Losses) $(7)

Net Income $25

Less Dividends $4
Retained Earnings from Current Income $21
10. Which of these account items or entries would normally occur on a bank’s balance
sheet (Report of Condition) and which on a bank’s income and expense statement
(Report of Income)?

The items which would normally appear on a bank's balance sheet are:

Federal funds sold Deposits due to Bank

Credit card loans Leases of Business
Equipment To
Customers
Vault cash Savings Deposit
Allowance for loan Undivided profits
losses
Commercial and Mortgage Owed on the
Industrial Loans Bank’s Buildings
Repayment of Credit Other Real Estate
Card Loan Owned
Common Stock Additions to Undivided
profits
Federal funds
purchased

The items which would normally appear on a bank’s income statement are:

Interest Received on
Credit Card Loans

Depreciation on Plant and

Equipment

Interest Paid on Money Provision for Loan

Market Deposits Losses

Security Gains or Losses Service Charges on

Deposits

Utility Expense
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
[Link] 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):

TII = 2TIE and Net Interest Income = TII –TIE = $700 so:
2TIE –TIE = $700 TIE = $700 and TII = 2($700) = $1,400

Total Noninterest Income (TNI) and Total Noninterest Expense(TNE):

TNI = .75TNE and Net Noninterest Income = TNI – TNE = -$300 so:
.75TNE – TNE = -$300 -.25TNE = $300 TNE = $1200 and TNI = .75($1200) =
$900

Provision for Loan Losses

PLL = .02*Total Interest Income = .02*($1,400) = $28

Taxes

Pre-Tax Net Operating Income = Net Interest Income + Net Noninterest Income –
PLL
Pre-Tax Net Operating Income = $700 + -$300 - $28 = $372
Taxes = .3* (Pre-Tax Net Operating Income + Security Gains)= .3*(372+10) =
$114.60

Dividends

Net Income = Pre-Tax Net Operating Income + Security Gains- Taxes

Net Income = $372 +$10- $114.60 = $267.4
Increase in Undivided Profit = Net Income– Dividends
Dividends = Net Income – Increase in Undivided Profit
Dividends= $267.4 - $200 = $67.4