Use the information provided to forecast the earnings and expenses associated with the Sources and Uses of the bank funds for each category in the order listed and then answer the questions asked.See worksheet provided on separate sheet. Current Treasury Bill rate is 1.5%. Be sure to consider that bad debt would not be expected to earn interest.

DATA: Dollar Amount

Source of Funds(in millions)Rate

Demand Deposits$5,0000%

Time Deposits$2,0002%

1-year NCD$3,000T-bill + 1.5%

5-year NCD$2,5001-year NCD + 1%

Money Market$2,500T-bill - 1%

Total Liabilities$15,000

Use of FundsLoan Loss

Cash$1,800

Small Bus. Loans$4,000T-bill + 3%1.5%

Lg Bus. Loans$3,000T-bill + 1.5%1.0%

Consumer Loans$3,000T-bill + 4%2.5%

Treasury Bills$1,000T-bill rate0%

Treasury Bonds$1,500T-bill rate + 2%0%

Corporate Bonds$1,000T-bond rate + 2%0%

Fixed Assets$700

Total Assets$16,000

Non-Interest Revenue$300

Non-Interest Expense$400

Tax rate34%

Difference between Assets and Liabilities must be Equity (Capital).

Current T-bill Rate 1.5%

Source of Funds

Dollar Amount

(in millions)

Relevant Interest Rate

Expected Expenses

Demand deposits

$5,000

Time deposits

$2,000

1-year NCDs

$3,000

5-year NCDs

$2,500

Money Market Borrowings

$2,500

Total Liabilities

$15,000

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

Large business loans

$3,000

Consumer loans

$3,000

Treasury bills

$1,000

Treasury bonds

$1,500

Corporate bonds

$1,000

Total investments

$15,300

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

Entry #2

Interest Expenses

Entry #3

Non Interest Revenues

Entry #4

Non Interest Expenses

Entry #5

Loan Loss Provision

Entry #6

Income Before Tax

Entry #7

Income tax liability (34%)

Entry #8

Net Income

Entry #9

Cash Dividends (60% DPR)

Entry #10

Retained Earnings (40% RR)

Part 4: interpretive statements related to bank performance as indicated with forecasted balance sheet and income statement. .

1. 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.)
2. Calculate the Primary Liquidity Ratio Position to contrast with an industry average of 10% (Primary is the Vault Cash plus Reserves at the Fed).
3. 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.})
4. 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.