Question 1

a(n. __________________ is a contra asset account.

Accepted Answer

The allowance for loan and lease losses is a contra asset account that reflects the estimated losses that a bank anticipates from potential loan defaults. It represents a reduction in the value of the bank's loans and leases, and is typically established through the bank's credit analysis and risk management processes. Option A is not a contra asset account, but rather a commitment to make a loan. Option B is a provision for loan and lease losses, but not a contra asset account. Option D is a net charge-off, which refers to the actual amount of a loan that has been written off as uncollectible.

Question 2

If the net noninterest income were to increase to -$16, what would the average loan rate (ALR) have to be to generate a 12% ROE? Compared to the industry, does this ALR appear feasible? If not, what options does FNB have?

Accepted Answer

The answer of If the net noninterest income were to...

Question 3

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?

Accepted Answer

The answer of What is the difference between net charge-offs...

Question 4

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

Accepted Answer

The answer of How has the negotiable feature of wholesale...

Question 5

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

Accepted Answer

The answer of What are the major sources of purchased...

Question 6

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

Accepted Answer

According to generally accepted accounting principles (GAAP), gross loans and leases are calculated by adding the unearned income and the allowance for loan and lease losses to net loans and leases. Option A is incorrect because earned income is not added to calculate gross loans and leases. Option C is incorrect because net charge-offs are subtracted from gross loans and leases to arrive at net loans and leases. Option D is incorrect because allowance for loan and lease losses is already included in option B. Therefore, option B is the correct choice.

Question 7

The largest market available for purchased funds is the ___________________.

Accepted Answer

The fed funds market is the largest market available for purchased funds.

Question 8

What must net noninterest income (net of noninterest expense) be in order for FNB to have a 12% ROE? Based on your answer, must FNB be performing better or worse than the industry average in this area? Explain.

Accepted Answer

The answer of What must net noninterest income (net of...

Question 9

All but which one of the following is an example of noninterest income or noninterest expense?

Accepted Answer

Earnings on securities held for investment are considered interest income, not noninterest income or expense, as they are directly related to the interest earned from holding these securities. The other options (A, B, C, E) are examples of noninterest income or expenses, which are sources of income or expenses not directly related to the interest earned on loans or paid on deposits.

Question 10

What is the bank's NIM? Is the bank performing better or worse than average? In what area is the bank performing better or worse than average? How could the bank improve if necessary?

Accepted Answer

The answer of What is the bank's NIM? Is the...

Question 11

Investment securities plus ____________________ is equal to a bank's earning assets.

Accepted Answer

The bank's earning assets consist of all the sources from which the bank earns interest income, including investments in securities and net loans and leases (which refers to the loans and leases in which the bank has a financial interest after deducting any allowances for credit losses). Property, plant, and equipment are not earning assets, as they are used for the bank's operations rather than generating income. Securities held for trading may be part of the investment portfolio, but they alone do not constitute earning assets. Purchased accounts are not a traditional source of earning assets for banks.

Question 12

What are the differences between purchased funds and core deposits?

Accepted Answer

The answer of What are the differences between purchased funds...

Question 13

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

Accepted Answer

The answer of What is the difference between a loan...

Question 14

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, the provision for loan loss account, and what is the effect on the bank's quarterly earnings?

Accepted Answer

The answer of At the start of the quarter a...

Quiz 12: Commercial Banks Financial Statements and Analysis