Final answer:
a. The balance sheet for LSU Community Bank has assets of $215 million, liabilities of $200 million, and equity of $10 million.
b. The reserve-deposit ratio is 18.75% and
c. the asset to equity ratio is 21.5.
Step-by-step explanation:
a. The question involves creating a balance sheet for LSU Community Bank and calculating various financial ratios. Based on the given information, the balance sheet for LSU Community Bank would be presented with assets totaling $215 million, which includes loans of $90 million, mortgage-backed securities of $95 million and reserves of $30 million. The liabilities would include deposits of $160 million and debt of $40 million.
The equity, which is also known as net worth or shareholders' equity, would be the initial investment of $10 million by the founders.
b. To calculate the reserve-deposit ratio, we divide the reserves by the deposits, resulting in a ratio of 18.75% ($30 million reserves − $160 million deposits).
c. The asset to equity ratio is found by dividing the total assets by the total equity, which results in an asset to equity ratio of 21.5 ($215 million total assets − $10 million total equity).
It is important to note that the reserves at the Philadelphia Federal Reserve District Bank are part of the bank's assets, and the money borrowed from the venture debt lender contributes to the liabilities. In the banking industry, maintaining a certain reserve ratio is a requirement, which ensures the bank has enough liquidity to meet its immediate obligations.