FIN $435$: Commercial Banking

Fall $2023$

Rosenfeld

In$-$Class November Exam Prep

Practice Problems

Work individually, but in consultation with your Banking Group individual responses to Gradescope.

If you were absent today in class, make sure to give proper credit to the people who you ended up working with or consulting.

Questions:

$1.$ Complete the following table that walks you through calculating the QUARTERLY Operating Cost percentage. Show your work.

Federal Funds Sold Fixed$-$rate Corporate Loans Floating$-$rate Corporate Loans Consumer Loans Negotiable CDs

Operating Cost Frequency every quarter every quarter every quarter every quarter at setup

Quarterly $ Operating Cost

Line Item $ Balance

Quarterly $\%$ Operating Cost

$2.$ Fill in the Quarterly Operating Costs, All$-$In Cost of Individual Funds, and Net Return on Assets. SHOW YOUR WORK.

Negotiable CDs Retail CDs Long$-$term Time Deposits Discount Window

$1-$Qtr $2-$Qtr $4-$Qtr $2-$Qtr $8-$Qtr $1-$Qtr

Nominal or Contract Rate $5\mathrm{.}23\%4\mathrm{.}79\%4\mathrm{.}70\%6\mathrm{.}35\%6\mathrm{.}50\%8\mathrm{.}59\%$

Operating Cost frequency at setup at setup at setup every quarter every quarter never

Quarterly Operating Costs $0\mathrm{.}11\%0\mathrm{.}11\%0\mathrm{.}11\%0\mathrm{.}12\%0\mathrm{.}07\%0\mathrm{.}00\%$

Operating Costs $($Annualized$)\mathrm{.}44\%\mathrm{.}22\%\mathrm{.}11\%\mathrm{.}48\%\mathrm{.}28\%0\%$

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Fee Income

FDIC Premium

Sub$-$Total

Reserve Requirement $(\%)$

All$-$In Cost of Individual Funds $5\mathrm{.}67\%5\mathrm{.}01\%4\mathrm{.}81\%6\mathrm{.}83\%6\mathrm{.}78\%8\mathrm{.}59\%$

$\%$ of Total Liabilities $2\mathrm{.}77\%2\mathrm{.}77\%2\mathrm{.}77\%11\mathrm{.}11\%16\mathrm{.}65\%0\mathrm{.}00\%$

$$

Federal Funds Sold Fixed$-$rate Corporate Loans Floating$-$rate Corporate Loans Consumer Loans Mortgage Loans Government Bonds

$1-$quarter $1-$quarter $2-$quarter $4-$quarter $8-$quarter $8-$quarter

Nominal or Contract Rate $3\mathrm{.}59\%9\mathrm{.}50\%8\mathrm{.}30\%11\mathrm{.}00\%9\mathrm{.}50\%5\mathrm{.}57\%$

Operating Cost frequency every quarter every quarter every quarter every quarter every quarter at setup

Quarterly Operating Costs $0\mathrm{.}11\%0\mathrm{.}25\%0\mathrm{.}25\%0\mathrm{.}36\%0\mathrm{.}30\%0\mathrm{.}20\%$

Operating Costs $($Annualized$)$

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Expected Default Rate

Net Return on Ind. Assets

$\%$ of Total Assets $5\mathrm{.}23\%11\mathrm{.}52\%26\mathrm{.}03\%24\mathrm{.}83\%19\mathrm{.}37\%10\mathrm{.}08\%$

$$

$3.$ Refer to the tables below. Consider a bank with annual net income of $$1,650,000$ and $400,000$ shares outstanding. Common Equity Tier $1($CET$1)$ ratio is $6\mathrm{.}0\%.$ Tier $1$ ratio is $7\mathrm{.}5\%.$ Tier $1+2$ ratio is $9\mathrm{.}0\%.$ This bank normally pays out a dividend of $30\%$ of earnings.

a$.$ Is this bank allowed to pay out a $30\%$ dividend? Explain.

Yes, because will give us a maximum payout of $40\%$ allowing us to pay out $30\%$ dividends.

We chose $30\%$ because it was the minimum.

b$.$ What is the maximum dividend per share amount this bank may pay?

$1,650,000/400,000=4\mathrm{.}125$

$4\mathrm{.}125*40\%=$ $$1\mathrm{.}65$