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Bank Management and Financial Services 9th edition Peter Rose, Sylvia Hudgins - Solutions

What factors are often considered in evaluating possible sites for new branch offices?
What changes are occurring in the design of, and the roles played by, branch offices? Please explain why these changes are occurring.
What laws and regulations affect the creation of new bank and thrift branches and the closing of existing branches? What advantages and what problems can the closing of a branch office create?
What new and innovative sites have been selected for new branch offices in recent years? Why have these sites been chosen by some financial firms? Do you have any ideas about other sites that you believe should be considered?
What are POS terminals, and where are they usually located?
What services do ATMs provide? What are the principal limitations of ATMs as a service provider? Should ATM carry fees? Why?
What are self-service terminals and what advantages do they have for financial institutions and their customers?
Why do many experts regard the telephone as a key instrument in the delivery of financial services in the future? What advantages does the telephone have over other service-delivery vehicles?
What financial services are currently available on the Internet? What problems have been encountered in trying to offer Internet-delivered services?
Who charters new banks in the United States?
Why do you think the organizers of a new financial firm are usually expected to put together a detailed business plan, including marketing, management, and financial components?
Where are most new banks chartered in the United States?
How can financial firms better promote Internet service options?
A group of businesspeople from Scott Island are considering filing an application with the state banking commission to charter a new bank. Due to a lack of current banking facilities within a 10-mile radius of the community, the organizing group estimates that the initial banking facility would
Norfolk Savings Bank is considering the establishment of a new branch office at the corner of 49th Street and Hampton Boulevard. The savings association’s economics department projects annual operating revenues of $1.6 million from fee income generated by service sales and annual branch operating
Forever Savings Bank estimates that building a new branch office in the newly developed Washington town ship will yield an annual expected return of 12 percent with an estimated standard deviation of 10 percent. The bank’s marketing department estimates that cash flows from the proposed
The following statistics and estimates were compiled by Big Moon Bank regarding a proposed new branch office and the bank itself:Branch office expected return ............ = 15%Standard deviation of branch return......... = 8%Existing bank’s expected return .......... =
Life Is Good Financial Services has provided Good Things to Eat Groceries a proposal for in-store branches in two of its four Davidson locations. Good Things to Eat counter proposed opening one in-store branch in one of the two proposed locations as a test case. The locations would be identified as
First National Bank of Conway is considering installing two ATMs in its Southside branch. The new machines are expected to cost $37,000 apiece. Installation costs will amount to about $15,000 per machine. Each machine has a projected useful life of 10 years. Due to rapid growth in the Southside
First State Security Bank is planning to set up its own Web page to advertise its location and services on the Internet and to offer customers selected service options, such as paying recurring households bills, verifying account balances, and dispensing deposit account and loan application forms.
Which accounts are most important and which are least important on the asset side of a bank's balance sheet?
What accounts are most important on the liability side of a balance sheet?
What are the essential differences among demand deposits, savings deposits, and time deposits?
What are primary reserves and secondary reserves, and what are they supposed to do?
Suppose that a bank holds cash in its vault of $1.4 million, short-term government securities of $12.4 million, privately issued money market instruments of $5.2 million, deposits at the Federal Reserve banks of $20.1 million, cash items in the process of collection of $0.6 million, and deposits
Why are bank accounting practices under attack right now? In what ways could financial institutions improve their accounting methods?
In rank order, what are the most important revenue and expense items on a Report of Income?
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?
Suppose a bank has an allowance for loan losses of $1.25 million at the beginning of the year, charges current income for a $250,000 provision for loan losses, charges off worthless loans of $150,000, and recovers $50,000 on loans previously charged off. What will be the balance in the allowance
How do the financial statements of major nonbank financial firms resemble or differ from bank financial statements? Why do these differences or similarities exist?
What major trends are changing the content of the financial statements prepared by financial firms?
What are the key features or characteristics of the financial statements of banks and similar financial firms? What are the consequences of these statement features for managers of financial-service providers and for the public?
What are the principal accounts that appear on a bank's balance sheet (Report of Condition)?
What are off-balance-sheet items and why are they important to some financial firms?
What accounts make up the Report of Income (income statement of a bank)?
Who are banking chief competitors in the financial-services marketplace?
Norfolk 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 ConditionTotal assets........................................ $4,000.00Cash and due from depository
If you know the following figures: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
If you know the following figures:Please calculate these items:Total assets _______Net loans _______Undivided profits _______Fed funds sold _______Depreciation _______Totaldeposits _______
The Sea Level Bank has Gross Loans of $800 million with an ALL account of $45 million. Two years ago the bank made a loan for $12 million to finance the Sunset Hotel. Two million dollars in principal was repaid before the borrowers defaulted on the loan. The Loan Committee at Sea Level Bank
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 IncomeTotal interest income................... $200Total interest
Art’s Sporting Goods ordered a shipment of soccer equipment from a manufacturer and distributor in Munich. Payment for the shipment (which is valued at $3.5 million U.S.) must be made in Euros that have changed in value in the last 30 days from 0.6423 euros/$ to 0.6673 euros/$. If this trend is
For each of the following transactions, which items on a bank’s statement of income and expenses (Report of Income) would be affected?a. Office supplies are purchased so the bank will have enough deposit slips and other necessary forms for customer and employee use next week.b. The bank sets
For each of the transactions described here, which of at least two accounts on a bank’s balance sheet (Report of Condition) would be affected by each transaction?
The John Wayne Bank is developing a list of off-balance-sheet items for its call report. Please fill in the missing items from its statement shown below. Using Table 5–5, describe how John Wayne compares with other banks in the same size category regarding its off-balance sheet
See if you can determine the amount of Bluebird State Bank’s current net income after taxes from the figures below (stated in millions of dollars) and the amount of its retained earnings from current income that it will be able to reinvest in the bank. (Be sure to arrange all the figures given in
Which of these account items or entries would normally occur on a bank’s balance sheet (Report of Condition) and which on a bank’s income and expense statement (Report of Income)?Federal funds sold...... Deposits due to banksAddition to undivided profits... . Leases of business equipment to
You were informed that a bank’s latest income and expense statement contained the following figures (in $ millions):Net interest income .......... $800 Net noninterest income......... (500)Pretax net operating income........ 372 Security gains ............. 100Increases in bank’s undivided
Why do the financial statements issued by banks and by nonbank financial-service providers look increasingly similar today? Which nonbank financial firms have balance sheets and income statements that closely resemble those of commercial banks (especially community banks)?
What principal types of assets and funds sources do nonbank thrifts (including savings banks, savings and loans, and credit unions) draw upon? Where does the bulk of their revenue come from, and what are their principal expense items?
How are the balance sheets and income statements of finance companies, insurers, and securities firms similar to those of banks, and in what ways are they different? What might explain the differences you observe?
Why should banks and other corporate financial firms be concerned about their level of profitability and exposure to risk?
What factors influence the stock price of a financial-service corporation?
Suppose that a bank is expected to pay an annual dividend of $4 per share on its stock in the current period and dividends are expected to grow 5 percent a year every year, and the minimum required return-to-equity capital based on the bank's perceived level of risk is 10 percent. Can you estimate
What is return on equity capital, and what aspect of performance is it supposed to measure? Can you see how this performance measure might be useful to the managers of financial firms?
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?
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
Why do the managers of financial firms often pay close attention today to the net interest margin and noninterest margin? To the earnings spread?
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 expenses of $5 million, while interest income from earning assets totaled $16 million and noninterest revenues totaled $2 million.
What are the principal components of ROE, and what does each of these components measure?
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?
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
What are the most important components of ROA, and what aspects of a financial institution’s performance do they reflect?
If a bank has a net interest margin of 2.50%, a noninterest margin of −1.85%, and a ratio of provision for loan losses, taxes, security gains, and extraordinary items of −0.47%, what is itsROA?
To what different kinds of risk are banks and their financial-service competitors subjected today?
What items on a bank's balance sheet and income statement can be used to measure its risk exposure? To what other financial institutions do these risk measures seem to apply?
A bank reports that the total amount of its net loans and leases outstanding is $936 million, its assets total $1,324 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all expressed in book value. The estimated market values of the bank's total assets and
What individuals or groups are likely to be interested in these dimensions of performance for a financial institution?
What is the return on assets (ROA), and why is it important? Might the ROA measure be important to banking’s key competitors?
An investor holds the stock of Last-But-Not-Least Financials and expects to receive a dividend of $4.75 per share at the end of the year. Stock analysts recently predicted that the bank’s dividends will grow at approximately 3 percent a year indefinitely into the future. If this is true, and if
Suppose that stockbrokers have projected that Jamestown Savings will pay a dividend of $2.50 per share on its common stock at the end of the year; a dividend of $3.25 per share is expected for the next year, and $4.00 per share in the following two years. The risk-adjusted cost of capital for
Oriole 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 0.67
The latest report of condition and income and expense statement for Smiling Merchants National Bank are as shown in the following tables: Input Area:Income and Expense Statement ItemsInterest and Fees on Loans50Salaries and Employee Benefits10Interest Dividends on Securities6Overhead
The following information is for Rainbow National Bank:Input Area:OriginalInterest income2,250Interest Expense1,500Total assets45,000Security losses or gains21Earnings assets40,000Total liabilities38,000Taxes paid16Common shares outstanding5,000Noninterest income800Noninterest
Zebra Group holds total assets of $25 billion and equity capital of $2 billion and has just posted an ROA of 0.95 percent. What is the financial firm’s ROE? Input Area:OriginalAssets25.00OriginalEquity2.00OriginalROA0.95%Alternative 1% chg in ROA25.00%Alternative 2% chg in
OK State Bank reports total operating revenues of $150 million, with total operating expenses of $125 million, and owes taxes of $5 million. It has total assets of $1.00 billion and total liabilities of $850 million. What is the bank’s ROE? Input
Suppose a stockholder-owned thrift institution is projected to achieve a 0.90 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
Conway 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........... $ 30.00Total operating revenues..... 135.00Total assets........... 1,750.00Total equity capital
Runnals National Bank has experienced the following trends over the past five years (all figures in millions of dollars): Input Area:12345Net Income (after tax)2.652.753.253.654.00Total Operating Revenues26.5030.1039.8047.5055.90Total Assets300.00315.00331.00347.00365.00Total
Paintbrush Valley State Bank has just submitted its Report of Condition and Report of Income to its principal supervisory agency. The bank reported net income before taxes and securities transactions of $37 million and taxes of $8 million. If its total operating revenues were $950 million, its
Using this information for Eagle Bank and Trust Company (all figures in millions), calculate the bank's net interest margin, noninterest margin, and ROA.Interest income........... $ 75Interest expense........... 61Provision for loan losses....... 6Security gains (or losses) ......
Mountain Savings reported these figures (in millions) on its income statement for the past five years. Calculate the institution€™s ROA in each year. Are there any adverse trends? Any favorable trends? What seems to be happening to thisinstitution?
An analysis of the BHCPR reports on BB&T is presented in this chapter’s appendix. We examined a wide variety of profitability measures for that bank, including ROA, ROE, net profit margin, net interest and operating margins, and asset utilization. However, the various measures of earnings risk,
What do the following terms mean: Asset management? Liability management? Funds management?
What factors have motivated financial institutions to develop funds management techniques in recent years?
What forces cause interest rates to change? What kinds of risk do financial firms face when interest rates change?
What makes it so difficult to correctly forecast interest rate changes?
What is the yield curve, and why is it important to know about its shape or slope?
First National Bank of Bannerville has posted interest revenues of $63 million and interest costs from all of its borrowings of $42 million. If this bank possesses $700 million in total earning assets, what is First National’s net interest margin? Suppose the bank’s interest revenues and
Can you explain the concept of gap management?
Commerce National Bank reports interest-sensitive assets of $870 million and interest-sensitive liabilities of $625 million during the coming month. Is the bank asset sensitive or liability sensitive? What is likely to happen to the bank’s net interest margin if interest rates rise? If they fall?
Peoples’ Savings Bank has a cumulative gap for the coming year of + $135 million, and interest rates are expected to fall by two and a half percentage points. Can you calculate the expected change in net interest income that this thrift institution might experience? What change will occur in net
How do you measure the dollar interest-sensitive gap? The relative interest-sensitive gap? What is the interest sensitivity ratio?
Suppose Carroll Bank and Trust reports interest-sensitive assets of $570 million and interest-sensitive liabilities of $685 million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio?
Explain the concept of weighted interest-sensitive gap. How can this concept aid management in measuring a financial institution’s real interest-sensitive gap risk exposure?
What are the advantages of using duration as an asset-liability management tool as opposed to interest-sensitive gap analysis?
What are the principal limitations of duration gap analysis? Can you think of some way of reducing the impact of these limitations?
Suppose that a savings institution has an average asset duration of 2.5 years and an average liability duration of 3.0 years. If the savings institution holds total assets of $560 million and total liabilities of $467 million, does it have a significant leverage-adjusted duration gap? If interest
Stilwater Bank and Trust Company has an average asset duration of 3.25 years and an average liability duration of 1.75 years. Its liabilities amount to $485 million, while its assets total $512 million. Suppose that interest rates were 7 percent and then rise to 8 percent. What will happen to the
What is it that a lending institution wishes to protect from adverse movements in interest rates?

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