1. Kalewood Savings Bank has experienced recent changes in the composition of its deposits (see the following table; all figures in millions of dollars). What changes have recently occurred in Kalewood's deposit mix? Do these changes suggest possible problems for management in trying to increase profitability and stabilize earnings?
Types of Deposits Held This year one year ago Two year ago Three years ago
Regular and special checking accounts $235 $294 $337 $378
Interest-bearing checking accounts $392 $358 $329 $287
Regular (passbook) savings deposits $501 $596 $646 $709
Money market deposit accounts $863 $812 $749 $725
Retirement deposits $650 $603 $542 $498
CDs under $100,000 $327 $298 $281 $244
CDs $100,000 and over $606 $587 $522 $495

2. Lucy Lane maintains a savings deposit with Monarch Credit Union. This past year Lucy received $10.75 in interest earnings from her savings account. Her savings deposit had the following average balance each month:
January $450 July $450
February $350 August $425
March $300 September $550
April $550 October $600
May $225 November $625
June $400 December $500

What was the annual percentage yield (APY) earned on Lucy's savings account?

3. Robertson State Bank decides to loan a portion of its reserves in the amount of $70 million held at the Federal Reserve Bank to Tenison National Security Bank for 24 hours. For its part, Tenison plans to make a 24-hour loan to a security dealer before it must return the funds to Robertson State Bank. Please show the proper accounting entries for these transactions.

4. Deep Valley Bank borrows $125 million overnight through a repurchase agreement (RP) collateralized by Treasury bills. The current RP rate is 2.50 percent. How much will the bank pay in interest cost due to this borrowing?

5. Blue Skies Bank of Florida issues a three-month (90-day) negotiable CD in the amount of $20 million to ABC Insurance Company at a negotiated annual interest rate of 2.75 percent (360-day basis). Calculate the value of this CD account on the day it matures and the amount of interest income ABC will earn. What interest return will ABC Insurance earn in a 365-day year?

6. Based on what you learned from reading this chapter and from studies you uncovered on the web, which of the financial firms listed below are most likely to benefit from economies of scale or scope and which will probably not benefit significantly from these economies based on the information given?
a. A new bank offering traditional banking services (principally deposits and loans) was chartered earlier this year, gaining $50 million in assets within the first six months.

b. A community bank with about $250 million in assets provides traditional banking services but also operates a small trust department for the convenience of families and small businesses.

c. A financial holding company (FHC) with about $2 billion in assets offers a full range of banking and investment services, giving customers access to a family of mutual funds.

d. A bank holding company with just over $10 billion in assets also operates a security brokerage subsidiary, trading in stocks and bonds for its customers.

e. A financial holding company (FHC) with $750 billion in assets controls a commercial bank, investment banking house, chain of insurance agency offices, and finance company and supplies commercial and consumer trust services through its recently expanded trust department.

7. please calculate Red River National Bank's total risk-weighted assets, based on the following items that the bank reported on its latest balance sheet. Does the bank appear to have a capital deficiency?
Cash $ 75 million
Domestic interbank deposit 130 million
U.S. government securities 250 million
Residential real estate loans 375 million
Commercial loans 520 million
Total assets $1,350 million
Total liabilities $1,250 million
Total capital $100 million
Off-balance-sheet items include
Standby credit letters that back municipal general $87 million
Obligation bonds.
Long-term unused loan commitments to private companies $145 million

8. Suppose Red River National Bank, whose balance sheet is given in problem 5, reports the forms of capital shown in the following table as of the date of its latest financial statement. What is the total dollar volume of Tier 1 capital? Tier 2 capital? Calculate the Tier 1 capital-to-risk-weighted-assets ratio, total capital-to-risk-weighted-asset ratio, and the leverage ratio. According to the data given in problems 5 and 6, does Red River have a capital deficiency? What is its PCA capital adequacy category?
Common stock (par value) $5 million
Surplus $15 million
Undivided profits $30 million
Allowance for loan losses $25 million
Subordinated debt capital $20 million
Intermediated-term preferred stock $5 million