Chapter 1 The Financial Statements of Banks

Tutorial 1

1.
What are the principal accounts that appear on a bank's balance sheet (Report of
Condition)?
2.
Which accounts are most important and which are least important on the asset side of a
bank's balance sheet?
The principal bank asset items from most important to least important are:
3.

What accounts are most important on the liability side of a balance sheet?

4.
What are the essential differences among demand deposits, savings deposits, and time
deposits?
5.

What are primary reserves and secondary reserves, and what are they supposed to do?

6.
Suppose that a bank holds cash in its vault of MYR1.4 million, short-term government
securities of MYR12.4 million, privately issued money market instruments of MYR5.2 million,
deposits at the Federal Reserve banks of MYR20.1 million, cash items in the process of
collection of MYR0.6 million, and deposits placed with other banks of MYR16.4 million. How
much in primary reserves does this bank hold? In secondary reserves?
The bank holds primary reserves of:
The bank has secondary reserves of:
7.

What are off-balance-sheet items and why are they important to some financial firms?

8.

What accounts make up the Report of Income (income statement of a bank)?

.
9.
In rank order, what are the most important revenue and expense items on a Report of
Income?
10.
What is the relationship between the provision for loan losses on a bank's Report of
Income and the allowance for loan losses on its Report of Condition?

5-1

Chapter 1 The Financial Statements of Banks

11.
Suppose a bank has an allowance for loan losses of MYR1.25 million at the beginning of
the year, charges current income for a MYR250,000 provision for loan losses, charges off
worthless loans of MYR150,000, and recovers MYR50,000 on loans previously charged off.
What will be the balance in the allowance for loan losses at year-end?
The balance in the allowance for loan loss (ALL) account at year end will be:
Problems
5-1. Bank ABC has just submitted its Balance Sheet to Bank Negara. 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 repurchase agreements
Gross loans and leases
Loan loss allowance
Net loans and leases
Trading account assets
Bank premises and fixed assets
Other real estate owned
Goodwill and other intangibles
All other assets
Total liabilities and capital
Total liabilities
Total deposits
Federal funds purchased and repurchase agreements.
Trading liabilities
Other borrowed funds
Subordinated debt
All other liabilities
Total equity capital
Perpetual preferred stock
Common stock
Surplus
Undivided profits
Report of Condition
Total assets
Cash and due from depository institutions
Securities

MYR4,000.00
90.00
535.00
45.00
200.00
2,700.00
20.00
15.00
200.00
175.00

80.00
10.00
50.00
480.00
40.00
5.00
25.00
320.00
70.00

MYR4,000.00
90.00
535.00
5-2

Chapter 1 The Financial Statements of Banks

Federal funds sold and reverse repurchase agreements

Gross loans and leases
Loan loss allowance
Net loans and leases
Trading account assets
Bank premises and fixed assets
Other real estate owned
Goodwill and other intangibles
All other assets
Total liabilities and capital
Total liabilities
Total deposits
Federal funds purchased and repurchase agreements.
Trading liabilities
Other borrowed funds
Subordinated debt
All other liabilities
Total equity capital
Perpetual preferred stock
Common stock
Surplus
Undivided profits
a.
b.
c.
d.
e.
f.

Gross loans and leases

5-3

45.00
a

200.00
2,700.00
20.00
b

15.00
200.00
175.00
c
d
e

80.00
10.00
50.00
480.00
40.00
f

5.00
25.00
320.00
70.00

Chapter 1 The Financial Statements of Banks

5-2. Along with the Report of Condition submitted above, Norfolk has also prepared a Report
of Income for the FDIC. Please fill in the missing items from its statement shown below (all
figures in millions of dollars):
Report of Income
Total interest income
Total interest expense
Net interest income
Provision for loan and lease losses
Total noninterest income
Fiduciary activities
Service charges on deposit accounts
Trading account gains and fees
Additional noninterest income
Total noninterest expense
Salaries and employee benefits
Premises and equipment expense
Additional noninterest expense
Pretax net operating income
Securities gains (losses)
Applicable income taxes
Income before extraordinary items
Extraordinary gainsnet
Net income

MYR200
60
100
20
25
30
125
10
20
15
5
3
2

Report of Income
Total interest income
Total interest expense
Net interest income
Provision for loan and lease losses
Total noninterest income
Fiduciary activities
Service charges on deposit accounts
Trading account gains and fees
Additional noninterest income
Total noninterest expense
Salaries and employee benefits
Premises and equipment expense
Additional noninterest expense
Pretax net operating income
Securities gains (losses)

MYR200
a

60
b

100
20
25
c

30
125
d

10
20
15
5

5-4

Chapter 1 The Financial Statements of Banks

Applicable income taxes

Income before extraordinary items
Extraordinary gainsnet
Net income
a.
?
b.
?
c.
?
d.
?
e.
?
f.
?
5-3.

3
e

2
f

If you know the following figures:

Total interest income

Total interest expenses
Total noninterest income
Total noninterest expenses

MYR140 Provision for loan losses

100 Income taxes
75 Increases in banks undivided profits
90

MYR5
4
6

Please calculate these items:

Net interest income
Net noninterest income
Pretax net operating income
Net income after taxes
Total operating revenues
Total operating expenses
Dividends paid to common stockholders
5-4.

If you know the following figures:

Gross loans
Allowance for loan losses
Investment securities
Common stock
Surplus
Total equity capital
Cash and due from banks
Miscellaneous assets
Bank premises and equipment, gross

MYR300
15
36
5
15
30
10
25
25

Please calculate these items:

Total assets
5-5

Trading-account securities
Other real estate owned
Goodwill and other intangibles
Total liabilities
Preferred stock
Nondeposit borrowings
Bank premises and equipment, net

MYR
2
4
3
375
3
40
20

Chapter 1 The Financial Statements of Banks

Net loans
Undivided profits
Fed funds sold
Depreciation
Total deposits

5-6