BÀI TẬP CUỐI CHƯƠNG SÁCH PETER ROSE, BANK MANAGEMENT AND FINANCIAL SERVICES 1. The following information is for Blue Sky National Bank: Interest income $2,200 Interest expense $1,400 Total assets Securities losses or gains $45,000 $21 Earning assets $40,000 Total liabilities $38,000 Taxes paid $16 Shares of Common Stock outstanding 5,000 Noninterest income $800 Noninterest expense $900 Provision for loan losses $100 a. Please calculate: ROE -------------- ROA Net interest margin -------------- Earnings per share -------------- Net noninterest margin -------------- b. Suppose interest income, interest expenses, noninterest income, and noninterest expenses each increase by 5 percent, with all other revenue and expense items shown in the preceding table remain unchanged. What will happen to Blue Sky’s ROE, ROA, and earnings per share?. c. Suppose Blue Sky’s interest income and interest expenses as well as its noninterest income and expenses decline by 5 percent, again with all other factors held constant. How would the bank’s ROE, ROA, and per-share earnings change? 2. Watson County National Bank presents us with these figures for the year just concluded. Please determine the net profit margin, equity multiplier, asset utilization ratio, and ROE. Net income = $25; Total operating revenues = $135 Total assets = $1,700; Total equity capital accounts = $160 3. Jasper National Bank has just submitted its Report of Condition to the FDIC. Please fill in the missing items from its statement shown below (all figures in millions of dollars): Report of Condition Total assets Cash and due from Depository Institutions Securities Federal Funds Sold and Reverse Repurch. Gross Loans and Leases Loan Loss Allowance Net Loans and Leases Trading Account Assets Bank Premises and Fixed Assets Other Real Estate Owned $2,500 87 233 45 ? 200 1700 20 ? 15 Goodwill and Other Intangibles 200 All Other Assets 175 Total Liabilities and Capital ? Total Liabilities ? Total Deposits ? Federal Funds Purchased and Repurchase Agreements. 80 Trading Liabilities 10 Other Borrowed Funds 50 Subordinated Debt 480 All Other Liabilities 40 Total Equity Capital ? Perpetual Preferred Stock 2 Common Stock Surplus Undivided Profit 24 144 70 4. If a credit union’s net interest margin, which was 2.50 percent, increases 15 percent and its total assets, which stood originally at $625 million, rise by 20 percent, what change will occur in the bank's net interest income? 5. Suppose a bank reports that its net income for the current year is $51 million, its assets total $1,144 million, and its liabilities amount to $926 million. What is its return on equity capital? Is the ROE you have calculated good or bad? What information do you need to answer this last question? 6. A bank estimates that its total revenues will amount to $155 million and its total expenses (including taxes) will equal $107 million this year. Its liabilities total $4,960 million while its equity capital amounts to $52 million. What is the bank's return on assets? Is this ROA high or low? How could you find out? 7. Suppose a banker tells you that his bank in the year just completed had total interest expenses on all borrowings of $12 million and noninterest expense of $5 million, while interest income from earning assets totaled $16 million and noninterest revenues totaled $2 million. Suppose further that assets amounted to $480 million, of which earning assets represented 85 percent of that total while total interest-bearing liabilities amounted to 75 percent of total assets. See if you can determine this bank's net interest and noninterest margins and its earnings base and earnings spread for the most recent year. 8. Suppose a bank has an ROA of 0.80 percent and an equity multiplier of 12X. What is its ROE? Suppose this bank's ROA falls to 0.60 percent. What size equity multiplier must it have to hold its ROE unchanged? 9. Suppose a bank reports net income of $12, pre-tax net income of $15, operating revenues of $100, assets of $600, and $50 in equity capital. What is the bank's ROE? Tax-management efficiency indicator? Expense control efficiency indicator? Asset management efficiency indicator? Funds management efficiency indicator? 10. Bluebird Savings Association has a ratio of equity capital to total assets of 9 percent. In contrast, Cardinal Savings reports an equity-capital-to- asset ratio of 7 percent. What is the value of the equity multiplier for each of these institutions? Suppose that both institutions have an ROA of 0.85 percent. What must each institution’s return on equity capital be? 11. Washington Group holds total assets of $12 billion and equity capital of $1.2 billion and has just posted an ROA of 1.10 percent. What is the financial firm’s ROE? a. Alternative Scenario a: Suppose Washington Group finds its ROA climbing by 50 percent, with assets and equity capital unchanged. What will happen to its ROE? Why? b. Alternative Scenario b: On the other hand, suppose the bank’s ROA drops by 50 percent. If total assets and equity capital hold their present positions, what change will occur in ROE? c. Alternative Scenario c: If ROA at Washington Group remains fixed at 0.0076 but both total assets and equity double, how does ROE change? Why? d. Alternative Scenario d: How would a decline in total assets and equity by half (with ROA still at 0.0076) affect the bank’s ROE? 12. OK State Bank reports total operating revenues of $150 million, with total operating expenses of $130 million, and owes taxes of $5 million. It has total assets of $1.00 billion and total liabilities of $900 million. What is the bank’s ROE? a. Alternative Scenario a: How will the ROE for OK State Bank change if total operating expenses, taxes and total operating revenues each grow by 10 percent while assets and liabilities stay fixed. b. Alternative Scenario b: Suppose OK State’s total assets and total liabilities increase by 10 percent, but its revenues and expenses (including taxes) are unchanged. How will the bank’s ROE change? c. Alternative Scenario c: Can you determine what will happen to ROE if both operating revenues and expenses (including taxes) decline by 10 percent, with the bank’s total assets and liabilities held constant? d. Alternative Scenario d: What does ROE become if OK State’s assets and liabilities decrease by 10 percent, while it’s operating revenues, taxes and operating expenses do not change? 13. Suppose a stockholder-owned thrift institution is projected to achieve a 1.10 percent ROA during the coming year. What must its ratio of total assets to equity capital be if it is to achieve its target ROE of 12 percent? If ROA unexpectedly falls to 0.80 percent, what assets-to-capital ratio must it then have to reach a 12 percent ROE? 14. Crochett National Bank has experienced the following trends over the past five years (all figures in millions of dollars): Year Net Income Total Operating Total Total Liabilities Assets 1 $2.7 Revenues $26.5 2 3.5 30.1 315 288 3 4.1 39.8 331 301 4 4.8 47.5 347 314 5 5.7 55.9 365 329 $300 $273 Determine the figures for ROE, profit margin, asset utilization, and equity multiplier for this bank.
