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Sources and Uses: Historical cont’d and Planning

Sources and Uses: Historical cont’d and Planning. Sources and Uses. Stmts End Yr. 2 Qtr. 1. Basics of Sources and Uses. U ( - ). S ( + ). A. A. L. L. Sources and Uses in more detail. Not just Net Securities, but Securities maturing, Securities Purchased and Market Value Change.

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Sources and Uses: Historical cont’d and Planning

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  1. Sources and Uses:Historical cont’d and Planning

  2. Sources and Uses • Stmts End Yr. 2 Qtr. 1

  3. Basics of Sources and Uses U ( - ) S ( + ) A A L L

  4. Sources and Usesin more detail • Not just Net Securities, but Securities maturing, Securities Purchased and Market Value Change. • Not Just Loans, but each class of loan. • Not just Deposits and Savings, but each class of deposit and savings with Brokered Deposits (CDs) separate.

  5. Be Clear About What You Control • Direct Decision Control: Securities, Loans, Premises, Deposits, Dividends and Capital • Indirect Decision Control: Fed Funds • No Control: Cash, Other Assets, Accrued Taxes, Other Liabilities

  6. Initial Decision Framework • Assume some public deposit levels • Track securities for pledge requirements, taking account of current maturities • Track other deposit and loan changes • Balance with CDs & Fed Funds • Prepare decision form

  7. Decisions • Loan Rates (Industrial) • You cannot offer less than 1.5% below mkt. • Rate over mkt: P, +.2%; H, +.3%; M, +.4% • (Consumer) • You cannot offer less than 2.5% below mkt. • Rate over mkt: 3% • Credit Card Loans not a decision

  8. Decisions • Loan Rates (Real Estate) • Rate a 20 Yr. Floating Rate Decision • Ability to sell old loans; Pro-rata last 5 yrs. • Ability to sell up to 80% of new origination • In all cases, you keep servicing • Credit Policy/Letter of Credit • More Aggressive; More Loans/Fees, More Loan Losses/Non-accruals • Less Aggressive; Less of All….

  9. Decisions • Service Charges and Fees • Commercial: Per check taken in deposit and cents of svc chg credit per $100 bal kept • Retail: Per check written and cents of svc chg credit per $100 bal kept • Credit Card Processing Fee • Percent of $ CC transaction • Requires a comm’l ckg acct (so affects DDs!)

  10. Decisions • CDs $ Amt of 3mo, 6 mo and 1Yr from S/U form • Syndicated Loans Purchased • $ Amt to keep up portfolio • Futures Position (See Pg. 70-72) • Bought futures: speculative! • Sold futures = (DW value of Secs * .68) * (3/12) • Sell > 110% or Buy > 10% and Capital Requirement will change

  11. Decisions • Expenses and Allocations • MM Rate: No more than +/- 1.5% from mkt. • Branches: Close or Open • Bus Dev Budget: Advtg (More effect on Retail) • Salary: Indicator • ROE > 20%, they expect COLA + 7.5% • Loss, they’ll take keeping their jobs….. • Percentage Effort and Allocations • Read Pgs. 74-77 closely and strategize! • Dividends: Payout 25%!

  12. Decision Mechanics#1: Pledge of Securities • Assume Public and Trust Deposits Changes: • Easy Answer 1.4  2.1 will be 2.1  2.2 • Public DD (196.934 – 195.732) = +1.202 • Public TD (295.061 – 276.484) = +18.577 • Trust Reqm’t (240.451 – 229.276) = +11.175 • Public DD 198.136, TD 313.638 • Trust Reqm’t 251.626

  13. Projected Pledge(Pg. 56 & 57) • Muni’s [.25 * 1.10 * (198.136+313.638)]+ 251.626 = 392.364 Munis are 418.131 – 5.667 = 412.464 Good • Futures • (DW Value of Secs * .68 ) * 3/12 • (918.31 * .68) * 3/12 = 156.112…so 60 more • But we will not take a position for this decision, so 0 contracts

  14. Projected Pledge • USTs [.75 * 1.10 * (198.136+313.638)]+ .15*(0*10) = 422.214 Still Held T-Bills 0 168 maturing UST 1yr 90 28 maturing UST 5yr 258 6 maturing 348 202 maturing We are currently about 74 under the pledge!

  15. #2: Deposit/Loan Production • Assume all deposits change by 1.4  2.1 • From text: Prime +15.3, High +21.4, Medium +27 due to rates and commitm’t usage. • Synd, refill; RE, Cons and CC same change (although RE seems a bit high……)

  16. #3: Balancing Assets and Liabilities through CDs & Fed Funds • Maturing CDs: 505 + 85.42 FF 3mo 185 6mo 200 1 Yr 120 • Balance from Right-side = 180.9 • Balance from Left-side = 225.0 • Don’t Need 44.1 fin’g to balance • Total = Mat’g + Bal = 590.42 – 44.1 = 546.32 or 546 • If we want FF of 48m, then 450 in CDs and let Sim cast about 48m in FF and an addt’l 48 in 3 mo CDs.

  17. Decision Form • Rates: P 10.31%; H 11.24%; M, -15BP, 12.20%; Cons 12.85%; R/E 10.65%, Sell No Old or New Loans Maintain Loan and Letter of Credit Policies • Leave CC Fee, Comm’l and Reg Ckg Acct Chgs and Credits • 3 mo CDs $200m; 6 mo CDs $150m; 1 Yr. CDs $100m; Extra $48m added w/ FF Pur of $48m • MM Svgs 7.9%; Maintain Bus Dev Budget at $3.2m • Don’t change branches and give Salary Policy of Zero (ROE < 20%) • Don’t change Off’r Effort or Time Allocations • Buy Synd Loans to Refill, $114.713m ($115m) • No Fut Contracts • Pay Dividend $1.10/sh. • USTs 74; T-Bills 74, 1yr 0, 5yr 0 • and 5 each of 3 & 10 Yr. Munis to refill • No Maximum Limits; No Securities Sales

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