Question 1

The largest source of income at a typical bank is

Accepted Answer

The largest source of income at a typical bank is interest income on loans and leases. This is because banks lend out money to customers and charge a higher interest rate than what they pay to depositors, thereby earning a net interest margin. Interest income on securities held for sale or investment is also an important source of income, but it typically contributes less to the overall revenue of a bank compared to interest income on loans and leases. Noninterest income and dividends/stock are not typically the largest source of income at a bank.

Question 2

The bank's ROE is

Accepted Answer

The answer of

The bank's ROE is
...

Question 3

Fernando Bank has interest expense of $150 million,earning assets of $1,400 million and a NIM of 5.00 percent. The bank also has interest-bearing liabilities of $1,100 million. Fernando Bank's spread is

Accepted Answer

NIM = (Interest income - Interest expense) / Earning assets5.00% = (Interest income - $150 million) / $1,400 millionInterest income = $200 millionSpread = (Interest income - Interest expense) / Interest-bearing liabilitiesSpread = ($200 million - $150 million) / $1,100 millionSpread = 1.94%

Question 4

Cash in the process of collection is

Accepted Answer

Cash in the process of collection represents checks that the bank is owed but has not yet collected. These checks are still being processed and have not been cleared by the bank, therefore they are not considered as deposit or equity capital. They also do not involve Fed funds transactions or checks the bank owes to other institutions.

Question 5

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.

Accepted Answer

Investors would prefer the municipal bond if the after-tax yield of the corporate bond is less than the municipal bond yield. The after-tax yield of the corporate bond is 7% * (1 - tax rate). Setting this equal to the municipal bond yield of 6% gives 7% * (1 - tax rate) = 6%. Solving for the tax rate gives a tax rate of 14.28% or higher.

Question 6

If the average net interest margin for this type of bank is 4.65 percent,then,ceteris paribus,this particular bank is performing

Accepted Answer

The answer of

If the average net interest margin for...

Question 7

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?

Accepted Answer

The overhead efficiency ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. Net interest income is interest income minus interest expense. So, net interest income = $250 million - $110 million = $140 million. The sum of net interest income and noninterest income = $140 million + $40 million = $180 million. The overhead efficiency ratio = noninterest expense / (net interest income + noninterest income) = $65 million / $180 million = 0.3611 or 36.11%. However, given the options provided, it seems there might have been a misunderstanding in the calculation or the options provided. Re-evaluating for the correct approach: Overhead efficiency ratio = (Noninterest Expense / (Interest Income - Interest Expense + Noninterest Income)) * 100 = ($65 million / ($250 million - $110 million + $40 million)) * 100 = ($65 million / $180 million) * 100 = 36.11%. None of the provided options match this calculation, suggesting a possible error in the question or in the interpretation of the options. Given the discrepancy, the correct approach to calculate the overhead efficiency ratio was demonstrated, but the options do not align with the calculated result.

Question 8

The bank's asset utilization ratio is

Accepted Answer

The answer of

The bank's asset utilization ratio is
...

Question 9

The bank's ROA is

Accepted Answer

ROA = Net Income / Total Assets

To calculate the net income, we need to subtract the interest expense from the operating income. From the two given options, we can see that the only difference is in their interest expenses, which are 87,000 and 122,000, respectively.

Let's calculate the net income for both options:

Net income for option 1:

Operating income = 820,000

Interest expense = 87,000

Net income = 820,000 - 87,000 = 733,000

Net income for option 2:

Operating income = 900,000

Interest expense = 122,000

Net income = 900,000 - 122,000 = 778,000

Now, let's calculate the ROA for both options:

ROA for option 1:

Total assets = 55,600,000

ROA = 733,000 / 55,600,000 = 0.0131 or 1.31%

ROA for option 2:

Total assets = 62,000,000

ROA = 778,000 / 62,000,000 = 0.0126 or 1.26%

Therefore, the bank's ROA is 1.26 percent (option C).

Question 10

The bank's profit margin is

Accepted Answer

The answer of

The bank's profit margin is
...

Question 11

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

Accepted Answer

Eurodollar deposits are not typically considered core deposits because they are foreign currency deposits held outside of the United States. The other options listed (demand deposits, NOW accounts, MMDAs, and passbook savings accounts) are all examples of core deposits.

Question 12

Oceanside Bank converts a dollar of equity into 10 cents of net income and has $9.50 in assets per dollar of equity capital. Oceanside also has a profit margin of 15 percent. What is Oceanside's AU ratio?

Accepted Answer

AU ratio = (Net Income/Total Assets) * (Total Assets/Equity)

Given: 
- Net income = 10% of equity
- Total assets per dollar of equity = $9.50
- Profit margin = 15% = 0.15

Substituting the given values in the AU ratio formula, we get:

AU ratio = (0.10/9.50) * (1/0.15) = 0.00702 = 0.702%

Therefore, the answer is E) 7.02 percent.

Question 13

If the typical bank of this type has an overhead efficiency ratio of 0.65,then this particular bank ________ than the typical bank,ceteris paribus.

Accepted Answer

The overhead efficiency ratio measures how well a bank manages its noninterest expenses relative to its revenue. A lower ratio indicates better efficiency. As this particular bank has a lower code in the ID, it suggests that it is performing better than the typical bank. Therefore, option B is the best choice as the bank must be doing a better job in managing its noninterest income and expenses. The other choices are not necessarily linked to the efficiency ratio.

Question 14

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

Accepted Answer

The lower these ratios are, the higher the Profit Margin (PM) because it indicates that the bank is operating more efficiently, with lower costs relative to its income.

Question 15

Purchased funds include all but which one of the following?

Accepted Answer

Demand deposits are not considered purchased funds. Purchased funds generally refer to funds obtained by a financial institution from other sources, such as borrowing or obtaining short-term funding on the open market, such as brokered deposits, wholesale CDs, Fed funds purchased, and repurchase agreements.

Question 16

The First Bank of the Ozarks generates $0.0155 dollars of net income per dollar of assets and it has a profit margin of 12.25 percent. How much operating income per dollar of total assets does First Bank generate?

Accepted Answer

The answer of The First Bank of the Ozarks generates...

Question 17

If a bank has more purchased funds than the average bank,you would not be surprised to see a higher than average ________ ratio.

Accepted Answer

Purchased funds refer to funds that a bank acquires through borrowing from external sources such as other banks, customers or the money market. These funds usually come at a higher cost than deposits, which are funds that the bank receives from its customers. Therefore, if a bank has more purchased funds than the average bank, it is likely to have a higher interest expense ratio since it is paying more for these funds.

Question 18

Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________.

Accepted Answer

MMDAs are referred to as "money market deposit accounts" and are designed to compete with money market mutual fund investments. They typically offer higher interest rates than traditional savings accounts but have limited check-writing capabilities. NOWs are similar accounts but do not necessarily have the same restrictions on check-writing as MMDAs. Retail CDs and negotiable CDs are also types of deposit accounts but do not necessarily have the same features or limitations as MMDAs or NOWs. Special savings deposits are not a commonly used term in banking and do not refer to a specific type of account.

Question 19

Blue Ridge Bank has a PM of 12 percent,an interest income to total assets ratio of 6.00 percent,and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is

Accepted Answer

Blue Ridge Bank's ROE can be calculated using the following formula:

ROE = PM x EM

Where PM is the profit margin (net income divided by total revenue), and EM is the equity multiplier (total assets divided by equity capital).

First, we need to calculate Blue Ridge's net interest margin (NIM), which is the difference between interest income and interest expenses divided by total assets:

NIM = (Interest income - Interest expenses) / Total assets

Since we know Blue Ridge's interest income to total assets ratio is 6.00%, but we don't know their interest expenses, we can assume that their NIM is also 6.00% (since interest expenses are likely to be a smaller percentage of total assets than interest income).

Next, we can calculate Blue Ridge's return on assets (ROA), which is the sum of NIM and the noninterest income to assets ratio:

ROA = NIM + Noninterest income / Total assets
ROA = 6.00% + 1.50%
ROA = 7.50%

Finally, we can calculate Blue Ridge's ROE using the equity multiplier:

EM = Total assets / Equity capital
EM = 9

ROE = ROA x EM
ROE = 7.50% x 9
ROE = 67.50%

However, we need to adjust our ROE calculation to take into account Blue Ridge's PM of 12%. This means that 12% of their revenue is turned into net income. Therefore, we need to multiply their ROE by 0.12 to get their actual return on equity:

ROE = 67.50% x 0.12
ROE = 8.10%

Therefore, the correct answer is choice (C), 8.10%.

Question 20

A bank has interest income to total assets ratio of 5.45 percent and has noninterest income of $45 million and total assets of $700 million. What is the bank's asset utilization ratio?

Accepted Answer

Asset utilization ratio = (Interest income / Total assets) + (Noninterest income / Total assets)

= (5.45% + (45 million / 700 million)) * 100%
= 11.88%

Quiz 12: Commercial Banks Financial Statements and Analysis

The largest source of income at a typical bank is

The bank's ROE is

Fernando Bank has interest expense of $150 million,earning assets of $1,400 million and a NIM of 5.00 percent. The bank also has interest-bearing liabilities of $1,100 million. Fernando Bank's spread is

Cash in the process of collection is

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.

If the average net interest margin for this type of bank is 4.65 percent,then,ceteris paribus,this particular bank is performing

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?

The bank's asset utilization ratio is

The bank's ROA is

The bank's profit margin is

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

Oceanside Bank converts a dollar of equity into 10 cents of net income and has $9.50 in assets per dollar of equity capital. Oceanside also has a profit margin of 15 percent. What is Oceanside's AU ratio?

If the typical bank of this type has an overhead efficiency ratio of 0.65,then this particular bank ________ than the typical bank,ceteris paribus.

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

Purchased funds include all but which one of the following?

The First Bank of the Ozarks generates $0.0155 dollars of net income per dollar of assets and it has a profit margin of 12.25 percent. How much operating income per dollar of total assets does First Bank generate?

If a bank has more purchased funds than the average bank,you would not be surprised to see a higher than average ________ ratio.

Interest-bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________.

Blue Ridge Bank has a PM of 12 percent,an interest income to total assets ratio of 6.00 percent,and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is

A bank has interest income to total assets ratio of 5.45 percent and has noninterest income of $45 million and total assets of $700 million. What is the bank's asset utilization ratio?