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Current T-bill Rate 1.5% Source of Funds Dollar Amount (in millions) Relevant Interest Rate Expected Expenses Demand deposits $5,000 0% 0 Time deposits $2,000 2%

Current T-bill Rate 1.5%

Source of Funds

Dollar Amount

(in millions)

Relevant Interest Rate

Expected Expenses

Demand deposits

$5,000

0%

0

Time deposits

$2,000

2%

2000*2%=$40

1-year NCDs

$3,000

1.5+1.5=3%

$90

5-year NCDs

$2,500

4%

$100

Money Market Borrowings

$2,500

1.50-1=0.50%

$1250

Total Liabilities

$15,000

$242.50

Use of Funds

LL%

Loan Loss

$ Amt

Funds

Earning Interest

Relevant Interest Rate

Expected Earnings (corrected for LL)

Cash

$1,800

Small business loans

$4,000

1.50%

$60

4.50%

4.50%

$120

Large business loans

$3,000

1

30

3

3

60

Consumer loans

$3,000

2.50

75

5.50

5.50

90

Treasury bills

$1,000

0

0

1.50

1.50

15

Treasury bonds

$1,500

0

0

3.50

3.50

52.50

Corporate bonds

$1,000

0

0

3.50

3.50

35

Total investments

$15,300

372.50

Income Statement

*DPR: dividend payout ratio (portion of earnings available to common stockholders paid out as dividends), thus 1-DPR = Retention Ratio.

Entry #1

Interest Revenues

37250

Entry #2

Interest Expenses

24250

Entry #3

Non Interest Revenues

300

Entry #4

Non Interest Expenses

400

Entry #5

Loan Loss Provision

165

Entry #6

Income Before Tax

30

Entry #7

Income tax liability (34%)

10.20

Entry #8

Net Income

19.80

Entry #9

Cash Dividends (60% DPR)

11.88

Entry #10

Retained Earnings (40% RR)

7.92

Part 4: interpretive statements related to bank performance as indicated with forecasted balance sheet and income statement. [30 points total]

These four questions are worth 3 points each.

Calculate the Expected ROA and ROE for the bank. [Capital (or Equity) is implied in the data provided.] (worksheet provided to add in creating balance sheet and income statement so as to determine ROE and ROA.)

Calculate the Primary Liquidity Ratio Position to contrast with an industry average of 10% (Primary is the Vault Cash plus Reserves at the Fed).

Calculate the total Liquidity Position to contrast with an industry average of 15%. (Total Liquidity Position is the cash position plus the holding of short term US Treasuries. {T-bonds are held as collateral when the bank is designated by the FED as a Tax & Loan Facility for the Treasury, and are not held for liquidity.})

Calculate the Current Capital Ratio Position (Capital Ratio is the Equity or Capital divided by Total Assets) to contrast with a Basil Expectation of 8% for a risk-ranked institution similar to this one.

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