《商业银行管理》课后习题答案Problems4.doc

Problems4-1.The missing items from the Report of Condition and Report of Income of Evergreen National Bank are given below:Report of Condition Items from Banks $ 27(550-43-18-10-348-11-6-87 = 27)Gross Loans373 (348+6+19 = 373)Savings Deposits and NOW Accounts 36(440-21-227-49-107 = 36)StockholdersEquity Capital50(550-440-41-19 = 50)Report of Income ItemsInterest and Fees on Loans$168(180-5-7 = 168)Service Charges on Customer Deposits11(39-20-8 = 11)Wages, Salaries, and Employee Benefits42(54-5-7 = 42)Net Interest Income21(180-159 = 21)Net Noninterest Income-15(39-54 = -15)Net Income After Taxes0(180+39-159-54-4-2=-120)Alternative Scenario 1:Given:Total revenues increase to $225, total interest expense increases to $185, total noninterestincome increases to $51, and total noninterest expenses increase to $72.Solution: Net Income after taxes = $225-185-72-4-2 = -$38Alternative Scenario 2:Given:All revenue items increase by 100% and all expense items increase by 92%.Solution: Net Income after taxes = ($180+39) X 2-($159+54+4+2) X 1.921= $219 X 2 -$339 X 1.92 = $438- $421 = $174-2.The items requiring calculation and their dollar amounts are:Net Interest Income = Total Interest Income - Total Interest Expense = $271 -$205 = $66Net Noninterest Income = Total Noninterest Income - Total Noninterest Expense = $23- $40 = -$17Total Operating Revenues = Total Interest Income + Total Noninterest Income= $271 + $23 = $294Total Operating Expense = Total Interest Expenses + Total Noninterest Expenses + Provision for Loan Loss = $205 + $40 + $13 = $258Net Income Before Taxes = Total Operating Revenues - Total Operating Expenses= $294 - $258 = $36Net Income After Taxes = Net Income Before Taxes - Income Taxes = $36 - $5 = $31Increase in Banks Undivided Profits = Net Income After Taxes - Common Dividends = $31 -$11 = $20Alternative Scenario 1:Given:Gap between Total Interest Income and Total Interest Expenses decreases by 10 percent.Solution: Net Income After Taxes= ($271 - $205) X 0.9 + $23 - $40 - $13 - $5= $59.4 + $23- $40- $13- $5 = $24.4This is a decrease of $6.6 ($31 - $24.4) or a 21.3% decrease as a result of a percent decrease in the interest revenue-expense gap.Alternative Scenario 2:Given:Provision for Loan Loss triples (from $13 to $39).Solution: Net Income After Taxes = $271 - $205 + $23 - $40 - $39 - $5 = $5This is a decrease of $26 ($31 - $5) or an 83.9% decrease.4-3.The items requiring calculation and the dollar figures required are:Total Assets = Total Liabilities + Stockholders Equity = $380 + $49 = $429.Net Loans = Gross Loans - Allowance for Loan Losses - Unearned Discount on Loans = $294 -$13- $5 = $276Undivided Profits = Total Equity Capital - Capital Reserves - Surplus - Common Stock Preferred Stock = $49 -$8- $11 -$12- $3 = $15Investment Securities = Total Assets- Miscellaneous Assets- Net Bank Premises -Customers Liability on Acceptances - Net Loans - Trading Account Securities - Federal Funds Sold -Cash and Due from Banks = $429 - $38 - $29 - $7 - $276 - $2 - $26 - $9 = $42Depreciation = Gross Bank Premises - Net Bank Premises = $34 - $29 = $5Total Deposits = Total Liabilities - Nondeposit Borrowings - Acceptances Outstanding = $380 - $10.- 7 = $363.The reader should note that the asset item, Customer Liability on Acceptances, should have an equal liability item, Acceptances Outstanding.Alternative Scenario 1:Given:All Assets and all Liabilities double.Solution:Total Equity Capital = Total Assets - Total Liabilities = ($429 X 2) ($380 X 2) = $858 - $760 = $98Therefore, Total Equity, as expected, would also double.Undivided Profits = Total Equity Capital - Capital Reserves - Surplus - Common Stock Preferred Stock = $98- $8- $11 - $12 -$3 = $64This represents an increase of $49 ($64 - $15), or over a 300% increase, and results from the doubling of total equity without concurrent increases in Common or Preferred Stock Issues, which would also cause changes in Capital Reserves and Surplus.4-8.The balance sheet for Rivers Edge National Bank should appear as follows:Balance Sheet (Report of Condition)AssetsLiabilitiesCash$ 13Demand deposits55Deposits due fromTime deposits40 other banks25Money market deposits31U.S. Treasury bills10Deposits due to other banks5Municipal bonds12Federal funds purchased34Federal funds sold andSecurities sold under repurchase security RPs5 agreements4Loans to commercialMortgages against the banks and industrial firms64 building26Automobile loans21Subordinated notes and20Credit card loans22 debenturesReal estate loans42EquityLeases of assets toEquity capital9 business customers3Total liabilities and equity capital$224Bank building and equipment7Total assets$224Clearly, equity capital of $9 million must be added to bring the banks balance sheet fully into balance.4-9.The income statement for Rosebush State Bank should be arranged as follows:Interest and Fees on Loans$62Interest and Dividends Earned on Government Bonds and Notes$9 Total Interest Income71Interest paid to customers holding time and savings deposits32Interest paid on federal funds purchased 6 Total Interest Expense38Net interest income33Service charges paid by depositors4Trust department fees 1 Total noninterest income5Employee wages, salaries, and benefits13Overhead expenses3Provision for loan losses2Depreciation on the banks plant and equipment 8 Total noninterest expenses26Net income before taxes12Taxes paid3Dividends paid to common stockholders 2Retained earnings74-10.The items which would normally appear on a banks balance sheet are:Federal funds soldSavings depositsCredit card loansCommon stockVault cashMortgage owed on the banks buildingAllowance for loan lossesUndivided profitsDeposits due to banksCustomer liability on acceptancesLeases of businessRetained earnings equipment to customersThe items normally showing up on a banks income statement are:Depreciation of bankSecurities gains or losses Plant and equipm