Question

Chapter 05 Problem 11

Input Area:

Net interest income	800
Net noninterest income	-500
security gains	100
Increases in bank's undivided profits	200
Total interest expense as a % of total interest income	50.00%
Noninterest income as a % of noninterest expense	75.00%
Loan losses as a % of total interest income	3.00%
Tax Rate	30.00%

Output area

Net interest income as a % of total interest income	?
Total interest income	?
Total interest expenses	?
Total noninterest income	?
Total noninterest expenses	?
Provision for loan losses	?
Pre-tax net operating income	?
income taxes	?
Dividends paid to common stockholders	?

Answer 1

Chapter 05 Problem 11
Input Area:
Net interest income	800
Net noninterest income	-500
security gains	100
Increases in bank's undivided profits	200
Total interest expense as a % of total interest income	50.00%
Noninterest income as a % of noninterest expense	75.00%
Loan losses as a % of total interest income	3.00%
Tax Rate	30.00%
Output area
Net interest income as a % of total interest income = NII/TII = 800/1600	50.00%
Total interest income	$  1,600.00
Total interest expenses	$     800.00
Total noninterest income	$  1,500.00
Total noninterest expenses	$  2,000.00
Provision for loan losses = 3% x 1600	$       48.00
Pre-tax net operating income	$     252.00
income taxes	$     105.60
Dividends paid to common stockholders	$       46.40
Total Interest Income (TII) and Total Interest Expense(TIE):
Total interest expense as a % of total interest income	50.00%
TII = 2TIE
Net Interest Income = TII –TIE =	$     800.00
Total interest expenses : 2TIE –TIE = $800  ; TIE = $800/1	$     800.00
Total interest income = TII = 2TIE   ; TII = 2 x 800	$  1,600.00
Total Noninterest Income (TNI) and Total Noninterest Expense(TNE):
TNI = .75TNE
Net Noninterest Income = TNI – TNE =	-500
.75TNE – TNE = -$500
-.25TNE = $500 ; TNE = $500/.25	$  2,000.00
TNI = .75TNE  = .75 x 2000	$  1,500.00
Provision for Loan Losses: PLL = .03 x Total Interest Income =	$       48.00
Taxes = Pre-Tax Net Operating Income = Net Interest Income + Net Noninterest Income –PLL = 800 -500 - 48
Taxes = .3 x  (Pre-Tax Net Operating Income + Security Gains)= .3 x (252+100) =	$     105.60
Dividends:
Net Income = Pre-Tax Net Operating Income + Security Gains- Taxes
Net Income = $252 + 100 - 105.60	$     246.40
Increase in Undivided Profit = Net Income– Dividends
Dividends = Net Income – Increase in Undivided Profit
Dividends = $246.40 - 200	$       46.40