Current EventsCurrent Events Citicorp announces lossCiticorp announces loss

$10billion loss$10billion loss Slashed dividendSlashed dividend Foreign investors for cash investmentForeign investors for cash investment $18.1 billion write down in investments$18.1 billion write down in investments $4 billion write down in US consumer loans$4 billion write down in US consumer loans Stock down 7%Stock down 7% Cut 4200 jobs in Q4--In addition to 17,000 job Cut 4200 jobs in Q4--In addition to 17,000 job

cuts announced in springcuts announced in spring

Current EventsCurrent Events

Capital OneCapital One largest independent credit card issuer in largest independent credit card issuer in

USUS cut profit forecasts by 20% due to cut profit forecasts by 20% due to

ballooning loan lossesballooning loan losses $1.9B in loan loss provisions in 4Q$1.9B in loan loss provisions in 4Q

Current EventsCurrent Events

JPM ChaseJPM Chase 900 imaged ATMs--bulk check 900 imaged ATMs--bulk check

processing (up to 30 checks at a time)processing (up to 30 checks at a time) Transaction activity increased 50% in Transaction activity increased 50% in

test marketstest markets Once installed, the Bank also looks to Once installed, the Bank also looks to

extend their deposit deadline to 11pm extend their deposit deadline to 11pm ETET

Current EventsCurrent Events

WachoviaWachovia Rolled out its “Way2Save” program, Rolled out its “Way2Save” program,

which is similar to BofA’s “Keep the which is similar to BofA’s “Keep the Change.”Change.”

Program --5% interest rate and a 5% Program --5% interest rate and a 5% bonus for the 1st year, falling to 2% bonus for the 1st year, falling to 2% rate/2% bonus the 2nd yearrate/2% bonus the 2nd year

Expect to sign up 900k customers, 50% Expect to sign up 900k customers, 50% of which will be newof which will be new

Current EventsCurrent EventsBanking Products For Younger Banking Products For Younger

CustomersCustomers

Recent study--top 10 financial services Recent study--top 10 financial services used by 18 to 25Y olds:used by 18 to 25Y olds:checking accounts (94%)checking accounts (94%) debit cards (89%)debit cards (89%)

ATM card (81%)ATM card (81%) savings account savings account (80%),(80%),

health insurance (79%)health insurance (79%) credit card (69%)credit card (69%)

auto insurance (52%)auto insurance (52%) student loan (45%)student loan (45%)

life insurance (26%)life insurance (26%) investment investment accts (24%).accts (24%).

Basics of Sources and UsesBasics of Sources and Uses

S ( + ) U ( - )

A

L

A

L

Basics of Sources and UsesBasics of Sources and Uses

Key to managing bank profitabilityKey to managing bank profitability Evaluate accounts -- profitsEvaluate accounts -- profits Allocate your time to significant Allocate your time to significant

itemsitems Can’t controlCan’t control Too small to affect profitToo small to affect profit

Actual vs ForecastActual vs Forecast

ActualActual NNote actual changes in balance sheet ote actual changes in balance sheet

accounts from 1 period to the nextaccounts from 1 period to the next ForecastForecast

Determining how your decisions will Determining how your decisions will change specific balance sheet accounts change specific balance sheet accounts and how this will affect funding and and how this will affect funding and earningsearnings

Using S/U Form in The Using S/U Form in The GameGame

Use S/U form EACH quarterUse S/U form EACH quarter Use net change approachUse net change approach Where did the funds come from; Where did the funds come from;

where did the funds go towhere did the funds go to

2 Ways to Change2 Ways to Change

Net flow of funds—in or outNet flow of funds—in or out ““juggling” dollars within the bank; juggling” dollars within the bank;

restructuring; changing mixrestructuring; changing mix

Basics of Sources and UsesBasics of Sources and Uses

AssetsAssets LiabilitiesLiabilitiesEquityEquity

IncreaseIncrease UseUse SourceSource SourceSource

DecreaseDecrease SourceSource UseUse UseUse

Basics of Sources and UsesBasics of Sources and Uses

SourcesSources UsesUsesIncrease in demand depositsIncrease in demand deposits Increase in total Increase in total

loansloans

Increase in time depositsIncrease in time deposits

Increase in CD’sIncrease in CD’s

Increase in fed funds purchasedIncrease in fed funds purchased Increase in fed Increase in fed funds soldfunds sold

Increase in FRB borrowingIncrease in FRB borrowing

Maturing securitiesMaturing securities New securitiesNew securities

Basics of Sources and UsesBasics of Sources and Uses

OROR

SourcesSources UsesUsesDecrease in total loansDecrease in total loans Decrease in demand depositsDecrease in demand deposits

Decrease in time depositsDecrease in time deposits

Decrease in CD’sDecrease in CD’s

Decrease in fed funds soldDecrease in fed funds sold Decrease in fed funds Decrease in fed funds purchasedpurchased

Decrease in FRB borrowingDecrease in FRB borrowing

Sources and Uses:Sources and Uses:(Historical)(Historical)

Sources and UsesSources and Uses

Stmts Yr.3 Qtr. 3

Basics of Sources and UsesBasics of Sources and Uses

SourcesSources UsesUsesSell SecuritiesSell Securities Buy Securities Buy Securities

Loans RepaidLoans Repaid Make Loans Make Loans

Close BranchesClose Branches Build Branches Build Branches

Get DepositsGet Deposits Lose Deposits Lose Deposits

Issue CapitalIssue Capital Payoff capital Payoff capital

Historical Sources and Uses:Historical Sources and Uses:What Happened?What Happened?

Balance sheetBalance sheet This pereiod – last periodThis pereiod – last period Account by accountAccount by account

Sign Sources (+), Uses (-)Sign Sources (+), Uses (-) Catalog:Catalog:

Supply of Funds accounts (Deposits, Supply of Funds accounts (Deposits, Security Sales and Maturity, Loans by Security Sales and Maturity, Loans by Bank…)Bank…)

Usage of Funds accounts (Loans, Usage of Funds accounts (Loans, Investments, New Buildings)Investments, New Buildings)

Historical Sources and Uses:Historical Sources and Uses:What Happened?What Happened?

Catalog:Catalog: Supply of Funds accountsSupply of Funds accounts

DepositsDeposits Security Sales and maturitySecurity Sales and maturity Loans by Bank…Loans by Bank…

Usage of Funds accountsUsage of Funds accounts LoansLoans InvestmentsInvestments New BuildingsNew Buildings

Asset DifferencesAsset Differences

3.3 3.2 Change S/U

Cash 291.774 293.438 -1.664 +1.664

FF Sold .000 .000 0 0

T-Bills 77.652 31.361 46.291 -46.291

T-Notes 408.021 437.395 -29.374 +29.374

Muni's 449.970 451.389 -1.419 +1.419

Total securities 935.643 920.145 15.498 -15.498

Asset DifferencesAsset Differences

3.3 3.2 Change S/U

Loans 3776.098 3726.610 49.488 -49.488

Prov for LL 27.084 27.595 -0.511 -0.511***

Premises - Dep 33.050 32.059 0.991 -0.991

Other assets 8.603 8.765 -0.162 +0.162

Total resources 5018.083 4953.422 64.661 -64.661

Liab & O/E DifferencesLiab & O/E Differences3.3 3.2 Change S/U

Demand deposits 1336.740 1350.767 -14.027 -14.027

Time deposits 3210.205 3174.959 35.246 35.246

Total deposits 4546.945 4525.726 21.219 21.219

Federal funds purch’d 61.345 21.743 39.602 39.602

Funds from FRB .000 .000 0 0

Dividend payable 3.600 3.600 0 0

Accrued taxes 7.277 7.473 -0.196 -0.196

Other liabilities 42.563 42.651 -0.088 -0.088

Total liabilities 4661.729 4601.192 60.537 60.537

Liab & O/E DifferencesLiab & O/E Differences

3.3 3.2 Change S/U

Capital notes 34.115 34.735 -0.620 -0.620

Common stock 30.000 30.000 0 0

Surplus 48.519 48.519 0 0

Retained Earnings 243.719 238.975 4.744 4.744

Total equity * 322.238 317.494 4.744 4.744

Total Liab & Cap 5018.083 4953.422 64.661 64.661

Aggregated S&UAggregated S&U S (+) U ( - )

Actual Actual

QTR.#_3.3_ Results Results

Supply of Funds Usage of FundsNet Securities

Change -15.498

Deposits -14.027 Loans -49.488

Savings +35.246 Prov for LL -0.511

Subtotal +21.219 Subtotal -65.497

FF Purch +39.602 FF Sold +0.000

Dividend payable 0 Premises -0.991

Accrued taxes -0.196 Other Assets +0.162

Other liabilities -0.088 Cash +1.664

Capital Notes -0.620

Retained Earnings +4.744 Total +64.661 Total -64.662

Y3Q3 InterpretationY3Q3 Interpretation(Look for the BIG numbers!)(Look for the BIG numbers!)

Funds came fromFunds came from larger Savings increases over Demand larger Savings increases over Demand

Deposit lossesDeposit losses increases in Loans from other Banks (FF increases in Loans from other Banks (FF

Purch’d) and past EarningsPurch’d) and past Earnings Funds went toFunds went to

net increases in securities and Loans.net increases in securities and Loans.

Your AssignmentYour Assignment(Assignment #1)(Assignment #1)

Produce an Aggregated Sources and Produce an Aggregated Sources and Uses for Y3Q4Uses for Y3Q4 Bank1Y3Q4.pdf Bank1Y1Q3-Y3Q4.xls

(I/S, B/S Data 1.3-3.4 in Excel Spreadsheet!!!) Class Webpage; January 16th Entry

Write a short commentary Write a short commentary concerning where funds are coming concerning where funds are coming from and going to.from and going to.

Bank Team AssignmentBank Team Assignment BANK NAMEBANK NAME MANAGEMENT AREA ASSIGNMENTSMANAGEMENT AREA ASSIGNMENTS

List each team member and area of responsibilityList each team member and area of responsibility

COMMUNICATION PLANCOMMUNICATION PLAN BRIEF paragraph how your team is going to communicateBRIEF paragraph how your team is going to communicate

DECISION PROCESSDECISION PROCESS BRIEF paragraph how your team will reach decisions and BRIEF paragraph how your team will reach decisions and

complete input formscomplete input forms How will I contact your groupHow will I contact your group

(representing the board of directors and/or regulator; or input (representing the board of directors and/or regulator; or input implementer)implementer)

1 response from each Bank (include bank #)1 response from each Bank (include bank #) Due by Monday, January 21, 5:00pmDue by Monday, January 21, 5:00pm