Part TWO: The following is based upon the Integrative Problem discussed in class The information provided the forecast of the earnings and expenses associated with this institution (worksheet provided). Current Treasury Bill rate is 0.75%. DATA Source of Funds Demand Deposits Time Deposits 1-year NCD 5-year NCI Money Market Total Liabilities Use of Funds Dollar Amount (in millions) 5,000 $2,000 $3,000 $2,500 $2,500 $15,000 Dollar Amount $1,800 $4,000 S3,000 S3,000 Expense Interest Rate 0% T-bill + 1.5% 1-year NCD + 1% T-bill-0.5% Earnings Rate Loan Loss % Small Bus. Loans Lg Bus. Loans Consumer Loans Treasury Bills Treasury Bonds Corporate Bonds Fixed Assets Total Assets T-bill + 3% T-bill + 1.5% T-bill + 4% T-bill rate T-bill rate + 2% T-bond rate + 2% 1.5% 2.5% - 0% $1,500 $1,000 S 700 S16,000 Non-Interest Revenue Non-Interest Expense Tax rate S 300 400 Difference between Assets and Liabilities must be Equity (Capital) Part 2 a: Worksheet: answers are to be provided in space provided for expenses & earnings on the the top sheet #1 to 14 AND on the income staternent #15 to 25: one point each, 25 points Current T-bill Rate 0.75% lalI SSS in millions! Source of Funds Dollar Amount in millions) Relevant Interest Rate | Expected |# Expenses Demand deposits5.000 Time deposits 1-year NCDs S-year NCDs Money Market Borrowings Total Liabilities Use of Funds $2,000 $3,000 $2,500 $2,500 2% 2.25% 3.25% 25% 5 I s15,000 I TOTAL = LL%| Loan | Funds | Relevant Loss Earning Interest S AmImterest Rate Expected Earnings (corrected for Cash Small business loans | Large business loans l Consumer loans Treasury bills Treasury bonds $1,800 0 $3,000 53,000 $4,000 1,000 0 S1,500 0 0 1800 | 3970 1 1.0% 1 $30 10.5%|$15 | 2.0% 80 0 3.75% 2.25% 4.75% 75% 2.75% | 2985 | 3920 1000 500 Corporate bonds | $1,000-10-000 14.75% 12 13 Total investments $15,300 0 |$125 TOTAL- Income Statement Interest Revenues 15 Interest Expenses Non Interest Revenues Non Interest Expenses Loan Loss Provision Income Before Tax 16 18 20 Income tax liability (34%) Net Income Cash Dividends (60%DPR) 21 Retained Earnings (40% RR) 24 Equity 25 ted States Part 2b: Complete these questions using the data from the data above. Each answer is worth 2 points. Compare with "above, below, onear target". Each entry worth 2 points each, 13 answers: 26 points 1. RETURN a. Calculate the ROEA (Return on Earming Assets) Calculate b. Calculate & compare the expected ROA (Return on Assets -Net Income/ Total Assets) for the bank. Norm is ROA of 1%. calculate compare c. Calculate the expected ROE (Return on Equity Net Income/Total Equity) for the bank. Norm is ROE of 12% calculate compare 2 LIQUIDITY Does the institution meet its 10% reserve requirement? Calculate percentage. a YES or NO Contrast the bank's Primary Liquidity with an industry average of 12%; Primary is CASH: Vault Cash plus Reserves at FED calculate: b. Calculate Calculate the total Liquidity Position (Total Liquidity is the cash position plus the holding of short term US Treasuries. T-bonds are held as collateral if a bank is a Tax & Loan Facility for the Treasury, and are not held for liquidity.) Compare the bank's total liquidity with an industry average of 15%. compare c. Percentage: mpare 3. CAPITAL a. Calculate the Capital Ratio position of the institution (Capital Ratio is the Equity or Capital divided by Total Assets) a risk-ranked institution similar to this one, b. Compare the bank's current Capital Ratio with a Basil Expectation of 8% for ANALYSIS: Circle TRUE or FALSE to these next statements, using the data provided above. Assume all else stays the same for each statement. a. TRUE or FALSE: If 65% of the institution's invested assets are considered 4, Interest Sensitive Assets, while 45% of liabilities are considered to be Interest Sensitive Liabilities, then when market interest rates rise next year GAP will rise causing ROA &ROE to risc b. TRUE or FALSE: If Required Reserves were to add an additional 5 c. TRUE or FALSE: ReplacingSI billion in five-year NCDs with $1 billion of d. TRUE or FALSE: The bulk of the liquid position of any bank is held in e. TRUE or FALSE: Shifting $1 billion from T-bills to make small business % to cash holdings causing a movement of funds from other asset accounts, then the GAP, the ROA&ROE would all rise. 1-year NCDs will increase ROA& ROE in the current year Vault Cash, which improves flexibility and reduces cost thus improving ROA. loans would be expected to raise ROA but would decrease the institution's secondary liquidity position. Part TWO: The following is based upon the Integrative Problem discussed in class The information provided the forecast of the earnings and expenses associated with this institution (worksheet provided). Current Treasury Bill rate is 0.75%. DATA Source of Funds Demand Deposits Time Deposits 1-year NCD 5-year NCI Money Market Total Liabilities Use of Funds Dollar Amount (in millions) 5,000 $2,000 $3,000 $2,500 $2,500 $15,000 Dollar Amount $1,800 $4,000 S3,000 S3,000 Expense Interest Rate 0% T-bill + 1.5% 1-year NCD + 1% T-bill-0.5% Earnings Rate Loan Loss % Small Bus. Loans Lg Bus. Loans Consumer Loans Treasury Bills Treasury Bonds Corporate Bonds Fixed Assets Total Assets T-bill + 3% T-bill + 1.5% T-bill + 4% T-bill rate T-bill rate + 2% T-bond rate + 2% 1.5% 2.5% - 0% $1,500 $1,000 S 700 S16,000 Non-Interest Revenue Non-Interest Expense Tax rate S 300 400 Difference between Assets and Liabilities must be Equity (Capital) Part 2 a: Worksheet: answers are to be provided in space provided for expenses & earnings on the the top sheet #1 to 14 AND on the income staternent #15 to 25: one point each, 25 points Current T-bill Rate 0.75% lalI SSS in millions! Source of Funds Dollar Amount in millions) Relevant Interest Rate | Expected |# Expenses Demand deposits5.000 Time deposits 1-year NCDs S-year NCDs Money Market Borrowings Total Liabilities Use of Funds $2,000 $3,000 $2,500 $2,500 2% 2.25% 3.25% 25% 5 I s15,000 I TOTAL = LL%| Loan | Funds | Relevant Loss Earning Interest S AmImterest Rate Expected Earnings (corrected for Cash Small business loans | Large business loans l Consumer loans Treasury bills Treasury bonds $1,800 0 $3,000 53,000 $4,000 1,000 0 S1,500 0 0 1800 | 3970 1 1.0% 1 $30 10.5%|$15 | 2.0% 80 0 3.75% 2.25% 4.75% 75% 2.75% | 2985 | 3920 1000 500 Corporate bonds | $1,000-10-000 14.75% 12 13 Total investments $15,300 0 |$125 TOTAL- Income Statement Interest Revenues 15 Interest Expenses Non Interest Revenues Non Interest Expenses Loan Loss Provision Income Before Tax 16 18 20 Income tax liability (34%) Net Income Cash Dividends (60%DPR) 21 Retained Earnings (40% RR) 24 Equity 25 ted States Part 2b: Complete these questions using the data from the data above. Each answer is worth 2 points. Compare with "above, below, onear target". Each entry worth 2 points each, 13 answers: 26 points 1. RETURN a. Calculate the ROEA (Return on Earming Assets) Calculate b. Calculate & compare the expected ROA (Return on Assets -Net Income/ Total Assets) for the bank. Norm is ROA of 1%. calculate compare c. Calculate the expected ROE (Return on Equity Net Income/Total Equity) for the bank. Norm is ROE of 12% calculate compare 2 LIQUIDITY Does the institution meet its 10% reserve requirement? Calculate percentage. a YES or NO Contrast the bank's Primary Liquidity with an industry average of 12%; Primary is CASH: Vault Cash plus Reserves at FED calculate: b. Calculate Calculate the total Liquidity Position (Total Liquidity is the cash position plus the holding of short term US Treasuries. T-bonds are held as collateral if a bank is a Tax & Loan Facility for the Treasury, and are not held for liquidity.) Compare the bank's total liquidity with an industry average of 15%. compare c. Percentage: mpare 3. CAPITAL a. Calculate the Capital Ratio position of the institution (Capital Ratio is the Equity or Capital divided by Total Assets) a risk-ranked institution similar to this one, b. Compare the bank's current Capital Ratio with a Basil Expectation of 8% for ANALYSIS: Circle TRUE or FALSE to these next statements, using the data provided above. Assume all else stays the same for each statement. a. TRUE or FALSE: If 65% of the institution's invested assets are considered 4, Interest Sensitive Assets, while 45% of liabilities are considered to be Interest Sensitive Liabilities, then when market interest rates rise next year GAP will rise causing ROA &ROE to risc b. TRUE or FALSE: If Required Reserves were to add an additional 5 c. TRUE or FALSE: ReplacingSI billion in five-year NCDs with $1 billion of d. TRUE or FALSE: The bulk of the liquid position of any bank is held in e. TRUE or FALSE: Shifting $1 billion from T-bills to make small business % to cash holdings causing a movement of funds from other asset accounts, then the GAP, the ROA&ROE would all rise. 1-year NCDs will increase ROA& ROE in the current year Vault Cash, which improves flexibility and reduces cost thus improving ROA. loans would be expected to raise ROA but would decrease the institution's secondary liquidity position