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Exam 12: Commercial Banks Financial Statements and Analysis

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Question 1

Multiple Choice

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The AU ratio measures the bank's ability to __________ and the PM ratio measures the bank's ability to __________________.

A) control expenses; generate income from assets
B) generate income from assets; control expenses
C) maximize interest revenue; minimize interest expense
D) control leverage; minimize physical plant
E) None of the options

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Question 2

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Net loans and leases plus ________________ plus _________________ equals gross loans and leases.

A) earned income; provision for loan and lease losses
B) unearned income; the allowance for loan and lease losses
C) net charge-offs; provision for loan and lease losses
D) provision for loan and lease losses; allowance for loan and lease losses
E) none of the options

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Question 3

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The lower the interest expense ratio,the provision for loan loss ratio,the noninterest expense ratio,and the tax ratio the _______________ the _______________.

How has the negotiable feature of wholesale CDs improved banks' ability to manage their liquidity?

Loans to consumers and to individuals are jointly termed C&I loans on a bank's balance sheet.

Core deposits typically include all except which one of the following?

Banks have higher leverage than most manufacturing firms.

The provision for loan loss account is actual loan losses less loan recoveries in a given time period.

At the start of the quarter a bank has $55 million (gross)in its loan portfolio,and has $1 million in its allowance for loan loss account. During the quarter,loan audits indicate that an additional $300,000 of loans will not be paid as promised. These loans have not yet been written off as uncollectible,however. What are the starting and ending gross and net loan amounts and the provision for loan loss account,and what is the effect on the bank's quarterly earnings?

What are the major sources of purchased funds? Can using purchased funds change a bank's profitability? its risk level? Explain.

What are the differences between purchased funds and core deposits?

Purchased funds include all but which one of the following?

In ratio analysis,the profit margin times the asset utilization ratio equals return on assets.

Both retail and wholesale CDs are negotiable instruments despite their different denominations.

What is the difference between net charge-offs (sometimes called write-offs)and the provision for loan loss? What is the purpose of the provision for loan loss account?

Plains National Bank has interest income of $250 million and interest expense of $110 million,noninterest income of $40 million and noninterest expense of $65 million on earning assets of $3,900 million. What is Plains' overhead efficiency ratio?

What is the difference between a loan commitment and a letter of credit?

A municipal bond is paying a 6 percent annual yield. An equivalent risk corporate bond is paying 7 percent. Investors with a tax rate of _______________ or higher would prefer the municipal bond.

A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits? I. Commercial letter of credit II. Loan commitment III. Credit line IV. Repurchase agreement

Core deposits are deposits that are