Current Events

1
Current Events

• Citicorp announces loss
• 10billion loss
• Slashed dividend
• Foreign investors for cash investment
• 18.1 billion write down in investments
• 4 billion write down in US consumer loans
• Stock down 7
• Cut 4200 jobs in Q4--In addition to 17,000 job
  cuts announced in spring

2
Current Events

• Capital One
• largest independent credit card issuer in US
• cut profit forecasts by 20 due to ballooning
  loan losses
• 1.9B in loan loss provisions in 4Q

3
Current Events

• JPM Chase
• 900 imaged ATMs--bulk check processing (up to 30
  checks at a time)
• Transaction activity increased 50 in test
  markets
• Once installed, the Bank also looks to extend
  their deposit deadline to 11pm ET

4
Current Events

• Wachovia
• Rolled out its Way2Save program, which is
  similar to BofAs Keep the Change.
• Program --5 interest rate and a 5 bonus for the
  1st year, falling to 2 rate/2 bonus the 2nd
  year
• Expect to sign up 900k customers, 50 of which
  will be new

5
Current Events

• Banking Products For Younger Customers
• Recent study--top 10 financial services used by
  18 to 25Y olds
• checking accounts (94) debit cards (89)
• ATM card (81) savings account (80),
• health insurance (79) credit card (69)
• auto insurance (52) student loan (45)
• life insurance (26) investment accts (24).

6
Basics of Sources and Uses
S ( )
U ( - )
A
A
L
L
7
Basics of Sources and Uses

• Key to managing bank profitability
• Evaluate accounts -- profits
• Allocate your time to significant items
• Cant control
• Too small to affect profit

8
Actual vs Forecast

• Actual
• Note actual changes in balance sheet accounts
  from 1 period to the next
• Forecast
• Determining how your decisions will change
  specific balance sheet accounts and how this will
  affect funding and earnings

9
Using S/U Form in The Game

• Use S/U form EACH quarter
• Use net change approach
• Where did the funds come from where did the
  funds go to

10
2 Ways to Change

• Net flow of fundsin or out
• juggling dollars within the bank
  restructuring changing mix

11
Basics of Sources and Uses

• Assets Liabilities Equity
• Increase Use Source Source
• Decrease Source Use Use

12
Basics of Sources and Uses

• Sources Uses
• Increase in demand deposits Increase in total
  loans
• Increase in time deposits
• Increase in CDs
• Increase in fed funds purchased Increase in fed
  funds sold
• Increase in FRB borrowing
• Maturing securities New securities

13
Basics of Sources and Uses

• OR
• Sources Uses
• Decrease in total loans Decrease in demand
  deposits
• Decrease in time deposits
• Decrease in CDs
• Decrease in fed funds sold Decrease in fed funds
  purchased
• Decrease in FRB borrowing

14
Sources and Uses(Historical)
15
Sources and Uses

• Stmts Yr.3 Qtr. 3

16
Basics of Sources and Uses

• Sources Uses
• Sell Securities Buy Securities
• Loans Repaid Make Loans
• Close Branches Build Branches
• Get Deposits Lose Deposits
• Issue Capital Payoff capital

17
Historical Sources and UsesWhat Happened?

• Balance sheet
• This pereiod last period
• Account by account
• Sign Sources (), Uses (-)
• Catalog
• Supply of Funds accounts (Deposits, Security
  Sales and Maturity, Loans by Bank)
• Usage of Funds accounts (Loans, Investments, New
  Buildings)

18
Historical Sources and UsesWhat Happened?

• Catalog
• Supply of Funds accounts
• Deposits
• Security Sales and maturity
• Loans by Bank
• Usage of Funds accounts
• Loans
• Investments
• New Buildings

19
Asset 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
20
Asset 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
21
Liab O/E Differences
3.3 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 purchd 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
22
Liab 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
23
Aggregated SU S () S () S () S () U ( - )
Actual Actual Actual Actual Actual
QTR._3.3_ Results Results Results Results Results
Supply of Funds Usage of Funds Usage of Funds
Net Securities Change Net Securities Change -15.498
Deposits -14.027 -14.027 -14.027 Loans Loans -49.488
Savings 35.246 35.246 35.246 Prov for LL Prov for LL -0.511
Subtotal 21.219 21.219 21.219 Subtotal Subtotal -65.497
FF Purch 39.602 39.602 39.602 FF Sold FF Sold 0.000
Dividend payable 0 0 0 Premises Premises -0.991
Accrued taxes -0.196 -0.196 -0.196 Other Assets Other Assets 0.162
Other liabilities -0.088 -0.088 -0.088 Cash Cash 1.664
Capital Notes -0.620 -0.620 -0.620
Retained Earnings 4.744 4.744 4.744
Total 64.661 64.661 64.661 64.661 Total -64.662

24
Y3Q3 Interpretation(Look for the BIG numbers!)

• Funds came from
• larger Savings increases over Demand Deposit
  losses
• increases in Loans from other Banks (FF Purchd)
  and past Earnings
• Funds went to
• net increases in securities and Loans.

25
Your Assignment(Assignment 1)

• Produce an Aggregated Sources and Uses 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 concerning where funds
  are coming from and going to.

26
Bank Team Assignment

• BANK NAME
• MANAGEMENT AREA ASSIGNMENTS
• List each team member and area of responsibility
• COMMUNICATION PLAN
• BRIEF paragraph how your team is going to
  communicate
• DECISION PROCESS
• BRIEF paragraph how your team will reach
  decisions and complete input forms
• How will I contact your group
• (representing the board of directors and/or
  regulator or input implementer)
• 1 response from each Bank (include bank )
• Due by Monday, January 21, 500pm