Exam 12: Commercial Banks Financial Statements and Analysis

At the start of the quarter a bank has $55 million (gross)in its loan portfolio,and has $1 million in its allowance for loan loss account. During the quarter,loan audits indicate that an additional $300,000 of loans will not be paid as promised. These loans have not yet been written off as uncollectible,however. What are the starting and ending gross and net loan amounts and the provision for loan loss account,and what is the effect on the bank's quarterly earnings?

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Question 1

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The provision for loan loss (PLL)will be increased by $300,000. This will be a charge against (i.e.,reduce)earnings for the quarter.

Both retail and wholesale CDs are negotiable instruments despite their different denominations.

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(True/False)

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False

How has the negotiable feature of wholesale CDs improved banks' ability to manage their liquidity?

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Question 3

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Time deposits carry a substantial interest penalty for early withdrawals (usually forfeiting all current period interest). This penalty would make them unsuitable investments for corporations that are unsure whether the funds will be needed prior to maturity. The bank can also withhold the funds prior to maturity if the bank cannot immediately provide the funds. The ability to resell the CD to a third party without any interest penalty encourages corporate use of wholesale CDs,giving banks another source of funds that can be tapped via a deposit broker if needed.

The AU ratio measures the bank's ability to and the PM ratio measures the bank's ability to ________.

(Multiple Choice)

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Question 4

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the _ the _.

(Multiple Choice)

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Question 5

Plains National Bank has interest income of $250 million and interest expense of $110 million,noninterest income of $40 million and noninterest expense of $65 million on earning assets of $3,900 million. What is Plains' overhead efficiency ratio?

(Multiple Choice)

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Question 6

What is the difference between a loan commitment and a letter of credit?

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Question 7

The provision for loan loss account is actual loan losses less loan recoveries in a given time period.

(True/False)

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Question 8

A municipal bond is paying a 6 percent annual yield. An equivalent risk corporate bond is paying 7 percent. Investors with a tax rate of _______________ or higher would prefer the municipal bond.

(Multiple Choice)

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Question 9

What is the difference between net charge-offs (sometimes called write-offs)and the provision for loan loss? What is the purpose of the provision for loan loss account?

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Question 10

What are the major sources of purchased funds? Can using purchased funds change a bank's profitability? its risk level? Explain.

(Essay)

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Question 11

Banks have higher leverage than most manufacturing firms.

(True/False)

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Question 12

Purchased funds include all but which one of the following?

(Multiple Choice)

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Question 13

Core deposits are deposits that are

(Multiple Choice)

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Question 14

What are the differences between purchased funds and core deposits?

(Essay)

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Question 15

Net loans and leases plus plus _ equals gross loans and leases.

(Multiple Choice)

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Question 16

A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits? I. Commercial letter of credit II. Loan commitment III. Credit line IV. Repurchase agreement

(Multiple Choice)

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Question 17

Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.

(True/False)

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Question 18

In ratio analysis,the profit margin times the asset utilization ratio equals return on assets.

(True/False)

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Question 19

Core deposits typically include all except which one of the following?

(Multiple Choice)

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Question 20

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Exam 12: Commercial Banks Financial Statements and Analysis

Both retail and wholesale CDs are negotiable instruments despite their different denominations.

How has the negotiable feature of wholesale CDs improved banks' ability to manage their liquidity?

The AU ratio measures the bank's ability to __________ and the PM ratio measures the bank's ability to __________________.

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the _______________ the _______________.

Plains National Bank has interest income of $250 million and interest expense of $110 million,noninterest income of $40 million and noninterest expense of $65 million on earning assets of $3,900 million. What is Plains' overhead efficiency ratio?

What is the difference between a loan commitment and a letter of credit?

The provision for loan loss account is actual loan losses less loan recoveries in a given time period.

A municipal bond is paying a 6 percent annual yield. An equivalent risk corporate bond is paying 7 percent. Investors with a tax rate of _______________ or higher would prefer the municipal bond.

What is the difference between net charge-offs (sometimes called write-offs)and the provision for loan loss? What is the purpose of the provision for loan loss account?

What are the major sources of purchased funds? Can using purchased funds change a bank's profitability? its risk level? Explain.

Banks have higher leverage than most manufacturing firms.

Purchased funds include all but which one of the following?

Core deposits are deposits that are

What are the differences between purchased funds and core deposits?

Net loans and leases plus ________________ plus _________________ equals gross loans and leases.

Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.

In ratio analysis,the profit margin times the asset utilization ratio equals return on assets.

Core deposits typically include all except which one of the following?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

The AU ratio measures the bank's ability to and the PM ratio measures the bank's ability to ________.

The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the _ the _.

Net loans and leases plus plus _ equals gross loans and leases.