Suppose Red River National Bank reports the sources of capital shown below as of
ID: 2658026 • Letter: S
Question
Suppose Red River National Bank reports the sources of capital shown below as of the date of its financial statement.
a) What is the total dollar volume of the tier 1 capital
b) What is the total dollar volume of tier 2 capital?
c) Calculate the tier 1 capital-to-risk weighted assets ratio.
d) Calculate the total capital-to-risk weighted assets ratio.
e) Calculate the leverage ratio.
cash $75,000,000
domestic interbank deposits $130,000,000
US government securities $250,000,000
Residential real estate loans $375,000,000
commercial loans $520,000,000
total assets $1,350,000,000
total liabilities $1,235,000,000
total capital $100,000,000
Off-Balance Sheet Items Standby credit letters that back municipal $87,000,000general obligation bonds
long-term unused cash commitments to private companies $145,000,000,
Common stock (par value) $5,000,000
Surplus $15,000,000
Undivided profits $30,000,000
Allowance for loan losses $25,000,000
Subordinated debt capital $20,000,000
Intermediate term perferred stock
Explanation / Answer
a) What is the total dollar volume of the tier 1 capital Common Stock (Par) $5,000,000.00 Surplus $15,000,000.00 Undivided Profit $30,000,000.00 Total Tier 1 Capital $50,000,000.00 b) What is the total dollar volume of tier 2 capital? Allowance for loan losses $25,000,000.00 Subordinated debt capital $2,000,000.00 Intermediate term perferred stock $5,000,000.00 Total Tier 2 Capital $32,000,000.00 c) Calculate the tier 1 capital-to-risk weighted assets ratio. Total Risk-Weighted Assets Total Assets Weights Cash $75,000,000.00 0 $0.00 Domestic interbank deposits $130,000,000.00 20.00% $26,000,000.00 US government securities $250,000,000.00 0 $0.00 Residential real estate loans $375,000,000.00 50.00% $187,500,000.00 Commercial loans $520,000,000.00 100.00% $520,000,000.00 Standby Credit Letters $87,000,000.00 20.00% $17,400,000.00 Long-Term Corporate Credit Commitments =$145 Million x .50 $72,500,000.00 100.00% $72,500,000.00 Total Risk-Weighted Asse $823,400,000.00 Tier 1 capital-to-risk weighted assets ratio = $50,000,000/$823,400,000 6.07% d) Calculate the total capital-to-risk weighted assets ratio Total capital-to-risk weighted assets ratio = $100,000,000/$823,400,000 12.14% e) Leverage Ratio = Tier 1 Capital/Total Assets = $50 Million/$1350 Million 3.70%
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