ch 5 CB

T/F: Loans and leases are financial outputs on a financial institution's balance sheet or Report of Condition

TRUE

T/F: Net loans on a bank's balance sheet are derived by deducting the allowance for loan losses and unearned discounts from gross loans.

TRUE

T/F: Nondeposit borrowings are a financial input on a bank's balance sheet or Report of Condition

TRUE

T/F: Off-balance-sheet items for a bank are fee generating transactions which are not recorded on their balance sheet

TRUE

T/F: On a bank's income statement (Report of Income) deposit costs are financial inputs

TRUE

T/F: The cost of nondeposit borrowings is a financial input on a bank's income statement or Report of Income.

TRUE

T/F: The expensing of a worthless loan usually must occur in the year that troubled loans are judged to be worthless

TRUE

T/F: The number one source of revenue for a bank based on dollar volume is loan income

TRUE

T/F: U.S. banks (especially those with $500 million or more in total assets) are required to file financial statements, audited by an independent public accountant, with their principal federal regulatory agency and with the FDIC

TRUE

T/F: When a loan is classified as nonperforming, any accrued interest recorded on the books, but not actually received, must be deducted from the bank's loan revenues

TRUE

Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?

The Report of Income

A bank's Report of Condition shows gross loans and leases or $1,500 million. The loan loss allowance for the year is accumulated to $50 million and the bank reports an unearned income amounting to $2 million. The net loans and leases accounted by the banks would be:

$1,448 million

A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:

$1.68 million.

A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net interest income?

$32

The beginning balance in the allowance for loan loss account for Synopsis Bank is $500 million. The banking firm charges $2 million for provision for loan losses. Synopsis Bank will report:

$502 million as adjusted allowance for loan losses.

A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net income?

$7

A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net noninterest income?

-$20

Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:

90 days.

When a loan is considered uncollectible, the bank's accounting department will write (charge) it off the books by reducing the ______ and the ______ accounts. Which choice below correctly fills in the blanks in the preceding sentence?

ALL, gross loans

Which of the following most accurately describes the principal type(s) of bank noninterest income?

All of the options are correct.

Which of the following accounts is also called the bank's primary reserves?

Cash and deposits due from banks

Which of the following asset items may include deposits placed with correspondent deposits?

Cash and due from depository institutions

A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected?

Common stock outstanding and surplus accounts

T/F: "Painting the tape" refers to the practice whereby banks understate their nonperforming loans.

FALSE

T/F: After the Tax Reform Act of 1986, large banks (>$500 million in assets) were required to use the reserve method of accounting for future loan loss reserves

FALSE

T/F: Most banks report securities gains as a component of their total noninterest income

FALSE

T/F: Off-balance-sheet items for banks have declined in recent years

FALSE

T/F: Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account on a bank's income statement

FALSE

T/F: Securities income is a financial output listed on a financial institution's Report of Condition

FALSE

T/F: The Pension Fund industry is now larger than the Mutual Fund industry.

FALSE

T/F: The experience method of accounting for future loan loss reserves allows a bank to deduct from their income statement up to 0.6 percent of their eligible loans.

FALSE

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?

Loan and lease loss allowance and unearned income is subtracted from gross loans.

Which of the following assets is the largest asset item on the bank's balance sheet?

Loans and leases

What financial-service industry category is second to the banking industry in total financial assets held?

Mutual funds

___________ is calculated by deducting noninterest expense and provision for loan losses from noninterest income.

Net noninterest income

The available-for-sale securities are shown on the:

Report of Condition at fair market value.

Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense?

Specific charge-off method

T/F: A bank displaying trading-account securities on its balance sheet is serving as a security dealer and plans to sell those securities before they reach maturity.

TRUE

T/F: Bad loans normally do not affect a bank's current income.

TRUE

T/F: Except for commercial banks, savings & loans and savings banks hold the most deposits.

TRUE

T/F: Financial statements issued by banks and by nonbank financial-service firms look increasingly similar today.

TRUE

T/F: In U.S. banking, securities gains are treated as an ordinary income.

TRUE

T/F: In looking at comparative balance sheets, it can be seen that large banks rely more heavily on nondeposit borrowings while small banks rely more heavily on deposits.

TRUE

T/F: Loan-loss reserves set aside to cover a particular loan or loans expected to be a problem or loans that represent above-average risk are known as specific reserves.

TRUE

When a bank serves as a security dealer for certain kinds of securities (mainly federal, state, and local government obligations) the value of these securities is usually recorded in what account on a bank's Report of Condition?

Trading account assets

A financial institution's bad-debt reserve, as reported on its balance sheet, is called:

allowance for possible loan losses.

The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition is:

allowance for possible loan losses.

Each of the following falls into the category of bank assets except:

demand deposits.

A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as:

fed funds sold.

Noninterest revenue sources for a bank are called:

fee income.

Fee income arising from fiduciary transactions include all of the following except:

fees for checking account maintenance.

Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of:

financial leverage.

The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as:

gains trading.

If writing off a large loan reduces the balance in the allowance for loan losses account too much, the principal regulatory agency:

increases the provision for loan loss deduction.

FASB Rule 115 focuses primarily on:

investments in marketable securities.

An example of a contra-asset account is:

loan and lease loss allowance.

Banks generate their largest portion of income from:

loans

Each of the following typically falls into the category of loans except:

municipal

One-time-only transactions that often involve sale of financial assets or real property pledged as collateral behind a loan and upon which the bank has foreclosed, affect a bank's account known as:

nonrecurring sales of assets

The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as:

operating leverage.

The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called:

provision for possible loan losses.

Securities purchased to provide short-term profits from short-term price movements are reported as:

trading account assets.