5-1. 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 Condition
Total assets $4,000.00
Cash and due from depository institutions 90.00
Securities 535.00
Federal funds sold and reverse repurchase agreements 45.00
Gross loans and leases
Loan loss allowance 200.00
Net loans and leases 2,700.00
Trading account assets 20.00
Bank premises and fixed assets
Other real estate owned 15.00
Goodwill and other intangibles 200.00
All other assets 175.00
Total liabilities and capital
Total liabilities
Total deposits
Federal funds purchased and repurchase agreements. 80.00
Trading liabilities 10.00
Other borrowed funds 50.00
Subordinated debt 480.00
All other liabilities 40.00
Total equity capital
Perpetual preferred stock 5.00
Common stock 25.00
Surplus 320.00
Undivided profits 70.00
Report of Condition
Total assets $4,000.00
Cash and due from depository institutions 90.00
Securities 535.00
Federal funds sold and reverse repurchase agreements 45.00
Gross loans and leases $2,900.00a
Loan loss allowance 200.00
Net loans and leases 2,700.00
Trading account assets 20.00
Bank premises and fixed assets 220.00b
Other real estate owned 15.00
Goodwill and other intangibles 200.00
All other assets 175.00
Total liabilities and capital 4,000.00c
Total liabilities 3,580.00d
Total deposits 2,920.00e
Federal funds purchased and repurchase agreements. 80.00
Trading liabilities 10.00
Other borrowed funds 50.00
Subordinated debt 480.00
All other liabilities 40.00
Total equity capital 420.00f
Perpetual preferred stock 5.00
Common stock 25.00
Surplus 320.00
Undivided profits 70.00

a. Gross loans and leases = Net loans and leases + Loan loss allowance
($200.00 + $2,700.00)
b. This is the only asset missing and so it is total assets less all of the rest of the assets listed
above. ($4,000.00 − $90.00 − $535.00 − $45.00 − $2,700.00 − $20.00 − $15.00 −
$200.00 − $175.00)
c. Total liabilities and capital = Total assets ($4,000.00)
f. Total equity capital = Perpetual preferred stock + Common stock + Surplus + Undivided
profit ($5.00 + $25.00 + $320.00 + $70.00)
d. Total liabilities = Total liabilities and capital − Total equity capital ($4,000.00 − $420.00)
e. Total deposits = Total liabilities − All of the other liabilities ($3,580.00 − $80.00 −
$10.00 − $50.00 − $480.00 − $40.00)
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 $200
Total interest expense
Net interest income 60
Provision for loan and lease losses
Total noninterest income 100
Fiduciary activities 20
Service charges on deposit accounts 25
Trading account gains and fees
Additional noninterest income 30
Total noninterest expense 125
Salaries and employee benefits
Premises and equipment expense 10
Additional noninterest expense 20
Pretax net operating income 15
Securities gains (losses) 5
Applicable income taxes 3
Income before extraordinary items
Extraordinary gains—net 2
Net income
Report of Income
Total interest income $200
Total interest expense 140a
Net interest income 60
Provision for loan and lease losses 20b
Total noninterest income 100
Fiduciary activities 20
Service charges on deposit accounts 25
Trading account gains and fees 25c
Additional noninterest income 30
Total noninterest expense 125
Salaries and employee benefits 95d
Premises and equipment expense 10
Additional noninterest expense 20
Pretax net operating income 15
Securities gains (losses) 5
Applicable income taxes 3
Income before extraordinary items 17e
Extraordinary gains—net 2
Net income 19f
a. Total interest expense = Total interest income − Net interest income ($200 − $60)
b. Provision for loan and lease losses = Net interest income + Total noninterest income −
Total noninterest expense − Pretax net operating income (60 + $100 – $125 – $15)
c. There are four areas of Total noninterest income and only one is missing and the total is
given. ($100 − $20 − $25 − $30)
d. There are three areas of Total noninterest expense and only one is missing and the total is
given ($125 – $10 – $20)
e. Income before extraordinary items = Pretax income + Security gains – Taxes ($15 + $5 –
$3)
f. Net income = Income before extraordinary items + Extraordinary gains—net ($17 + $2)
5-3. If you know the following figures:

Total interest income $140 Provision for loan losses $5

Total interest expenses 100 Income taxes 4
Total noninterest income 75 Increases in bank’s undivided profits 6
Total noninterest expenses 90

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
Net interest income $40a
Net noninterest income −15b
Pretax net operating income 20c
Net income after taxes 16d
Total operating revenues 215e
Total operating expenses 195f
Dividends paid to common stockholders 10g

a. Total interest income − Total interest expense ($140 − $100)

b. Total noninterest income − Total noninterest expense ($75 − $90)
c. Net interest income + Net noninterest income − PLL ($40 – $15 − $5)
d. Pretax net operating income − Taxes ($20 − $4)
e. Interest income + Noninterest income ($140 + $75)
f. Interest expenses + noninterest expenses + Provision for loan losses ($100 + $90 + $5)
g. Net income after taxes − increases in bank’s undivided profits ($16 − $6)
5-9. 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 correct sequence to derive the bank’s Report of Income.)

Effective tax rate 28%

Interest on loans $90
Employee wages, salaries, and benefits 13
Interest earned on government bonds and notes 9
Provision for loan losses 5
Overhead expenses 3
Service charges paid by depositors 3
Security gains/losses –7
Interest paid on federal funds purchased 5
Payment of dividends of $4 per share on 1
million outstanding shares to be made to
common stockholders
Interest paid to customers holding time and 40
savings deposits
Trust department fees 3

Bluebird State Bank

 Report of Income (in millions of dollars)

Total interest income

Interest on loans $90
Int earned on government bonds and
notes $9
Total $99

Total interest expense

Interest paid on federal funds purchased $5
Interest paid to customers time and
Savings deposits $40
Total $45

Net interest income $54

Provision for loan loss $5

Total noninterest income

Service charges paid by depositors $3
Trust department fees $3
Total $6

Total noninterest expenses

Employee wages, salaries and benefits $13
Overhead expenses $3
Total $16

Net noninterest income ($10)

Pretax income $39

Taxes paid (28%) $11
Securities gains/(losses) ($7)

Net income $21

Less dividends $4
Retained earnings from current income $17
5-11 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 100

Suppose you also were told that the bank’s total interest income is twice as large as its total
interest expense and its noninterest income is three-fourths of its noninterest expense. Imagine
that its provision for loan losses equals 3 percent of its total interest income, while its taxes
generally amount to 30 percent of its net income before income taxes. Calculate the following
items for this bank’s income and expense statement:

Total interest income (TII) and Total interest expense (TIE):

TII = 2 TIE and Net interest income = TII –TIE = $800 so:
2 TIE – TIE = $800
Hence, TIE = $800 and TII = 2 ($800) = $1,600

Total noninterest income (TNI) and Total noninterest expense (TNE):

TNI = 0.75TNE and Net noninterest income = TNI – TNE = – $500 so:
0.75TNE – TNE = – $500 – 0.25 (TNE) = $500.
Hence, TNE = $2,000 and TNI = 0.75 × ($2,000) = $1,500

Provision for loan losses (PLL):

PLL = 0.03×Total interest income = 0.03 × ($1,600) = $48

Income taxes:

Net income before taxes = Net interest income + Net noninterest income – PLL
Net income before taxes = $800 – $500 – $48 = $252
Taxes = 0.3 × Net income before taxes = 0.3 × 252 = $75.60
5-12. 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 for loan losses at year-end?
The balance in the allowance for loan loss (ALL) account at year end will be:

Beginning ALL = $1.25 million

Plus: Annual Provision
for Loan Losses = +0.25 million
Recoveries on
Loans Previously = +0.05 million
Charged Off
Minus: Charge
Offs of Worthless = −0.15 million
Loans

Ending ALL = $1.40 million