Sources and Uses:Sources and Uses:Historical cont’d Historical cont’d

and Planningand Planning

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

Basics of Sources and UsesBasics of Sources and UsesS ( + ) U ( - )

A

L

A

L

Sources and UsesSources and Usesin more detailin more detail

Not just Net Securities, but Securities Not just Net Securities, but Securities maturing, Securities Purchased and maturing, Securities Purchased and Market Value Change.Market Value Change.

Not Just Loans, but each class of loan.Not Just Loans, but each class of loan. Not just Deposits and Savings, but each Not just Deposits and Savings, but each

class of deposit and savings with class of deposit and savings with Brokered Deposits (CDs) separate.Brokered Deposits (CDs) separate.

Disaggregated Disaggregated S&US&U S (+) U ( - )

Actual Actual

QTR.#_2.1_ Results Results

Securities Maturing +275.0 New Securities - 177.9

Securities Sold + 0.0 Loans

Commercial DD's + 8.6 Prime - 4.9

Regular DD's - 24.3 High - 13.8

Other DD's (Public + DTB) - 0.3 Med. - 14.4

Money Market TD's + 14.8 Synd. 10

Public TD's + 18.6 R.E. -28.2

Subtotal + 292.4 Cons. -2.3

New Securities = 10 USTsNew Securities = 10 USTs C.C. -4.5+ 167.896 Forced Purch+ 167.896 Forced Purchto balance pledge, (see to balance pledge, (see Pg. 38 Pledged Securities)Pg. 38 Pledged Securities) Subtotal - 236.0

S (+) U ( - )Disaggregated Disaggregated S&US&U Actual Actual

QTR.#_2.1_ Results Results

Subtotal + 292.4 Subtotal - 236.0Total New CDs 310.4

Less 3 Mo. CDs Mat -104.9

Less 6 Mo. CDs Mat. -180

Less 1 Yr. CDs Mat. -120

Total CD's Net Change - 94.5 Prov fo LL +0.2Fed funds Purchased + 30.5 FF Sold 0.0Dividend payable 0 Premises -0.8Accrued taxes -0.5 Other Assets +0.2Other liabilities -1.2 Cash -0.1Capital Notes -0.6Ret. Earnings + 8.6 MV Chg Secs +1.8TOTAL + 234.7 TOTAL -234.7

Be Clear About What You Be Clear About What You ControlControl

Direct Decision Control: Securities, Direct Decision Control: Securities, Loans, Premises, Deposits, Dividends Loans, Premises, Deposits, Dividends and Capitaland Capital

Indirect Decision Control: Fed FundsIndirect Decision Control: Fed Funds

No Control: Cash, Other Assets, Accrued No Control: Cash, Other Assets, Accrued Taxes, Other LiabilitiesTaxes, Other Liabilities

Initial Decision FrameworkInitial Decision Framework Assume some public deposit levelsAssume some public deposit levels Track securities for pledge Track securities for pledge

requirements, taking account of requirements, taking account of current maturitiescurrent maturities

Track other deposit and loan changesTrack other deposit and loan changes Balance with CDs & Fed FundsBalance with CDs & Fed Funds Prepare decision formPrepare decision form

DecisionsDecisions Loan Rates (Industrial)Loan Rates (Industrial)

You cannot offer less than 1.5% below mkt.You cannot offer less than 1.5% below mkt. Rate over mkt: P, +.2%; H, +.3%; M, +.4%Rate over mkt: P, +.2%; H, +.3%; M, +.4%

(Consumer)(Consumer) You cannot offer less than 2.5% below mkt.You cannot offer less than 2.5% below mkt. Rate over mkt: 3%Rate over mkt: 3%

Credit Card Loans not a decisionCredit Card Loans not a decision

DecisionsDecisions Loan Rates (Real Estate)Loan Rates (Real Estate)

Rate a 20 Yr. Floating Rate DecisionRate a 20 Yr. Floating Rate Decision Ability to sell old loans; Pro-rata last 5 yrs.Ability to sell old loans; Pro-rata last 5 yrs. Ability to sell up to 80% of new originationAbility to sell up to 80% of new origination In all cases, you keep servicingIn all cases, you keep servicing

Credit Policy/Letter of CreditCredit Policy/Letter of Credit More Aggressive; More Loans/Fees,More Aggressive; More Loans/Fees, More More

Loan Losses/Non-accrualsLoan Losses/Non-accruals Less Aggressive; Less of All….Less Aggressive; Less of All….

DecisionsDecisions Service Charges and FeesService Charges and Fees

Commercial: Per check taken in deposit and Commercial: Per check taken in deposit and cents of svc chg credit per $100 bal keptcents of svc chg credit per $100 bal kept

Retail: Per check written and cents of svc Retail: Per check written and cents of svc chg credit per $100 bal keptchg credit per $100 bal kept

Credit Card Processing FeeCredit Card Processing Fee Percent of $ CC transactionPercent of $ CC transaction Requires a comm’l ckg acct (so affects DDs!)Requires a comm’l ckg acct (so affects DDs!)

DecisionsDecisions CDs CDs $ Amt of 3mo, 6 mo and 1Yr from S/U form$ Amt of 3mo, 6 mo and 1Yr from S/U form Syndicated Loans PurchasedSyndicated Loans Purchased

$ Amt to keep up portfolio$ Amt to keep up portfolio Futures Position Futures Position (See Pg. 70-72)(See Pg. 70-72)

Bought futures: speculative!Bought futures: speculative! Sold futures =Sold futures = (DW (DW

value of Secs * .68) * (3/12)value of Secs * .68) * (3/12) Sell > 110% or Buy > 10% and Sell > 110% or Buy > 10% and

Capital Requirement will changeCapital Requirement will change

DecisionsDecisions Expenses and AllocationsExpenses and Allocations

MM Rate: No more than +/- 1.5% from mkt.MM Rate: No more than +/- 1.5% from mkt. Branches: Close or OpenBranches: Close or Open Bus Dev Budget: Advtg (More effect on Bus Dev Budget: Advtg (More effect on

Retail)Retail) Salary: IndicatorSalary: Indicator

ROE > 20%, they expect COLA + 7.5%ROE > 20%, they expect COLA + 7.5% Loss, they’ll take keeping their jobs…..Loss, they’ll take keeping their jobs…..

Percentage Effort and AllocationsPercentage Effort and Allocations Read Pgs. 74-77 closely and strategize!Read Pgs. 74-77 closely and strategize!

Dividends: Payout 25%!Dividends: Payout 25%!

Decision MechanicsDecision Mechanics#1: Pledge of Securities#1: Pledge of Securities

Assume Public and Trust Deposits Assume Public and Trust Deposits Changes:Changes: Easy Answer 1.4 Easy Answer 1.4 2.1 will be 2.1 2.1 will be 2.1 2.2 2.2 Public DD (196.934 – 195.732) = +1.202Public DD (196.934 – 195.732) = +1.202 Public TD (295.061 – 276.484) = +18.577Public TD (295.061 – 276.484) = +18.577 Trust Reqm’t (240.451 – 229.276) = Trust Reqm’t (240.451 – 229.276) =

+11.175+11.175 Public DD 198.136, TD 313.638Public DD 198.136, TD 313.638 Trust Reqm’t 251.626Trust Reqm’t 251.626

Projected PledgeProjected Pledge(Pg. 56 & 57)(Pg. 56 & 57)

Muni’sMuni’s[.25 * 1.10 * (198.136+313.638)]+ [.25 * 1.10 * (198.136+313.638)]+

251.626251.626 = 392.364= 392.364Munis are 418.131 – 5.667 = 412.464 Munis are 418.131 – 5.667 = 412.464 GoodGood FuturesFutures

(DW Value of Secs * .68 ) * 3/12(DW Value of Secs * .68 ) * 3/12 (918.31 * .68) * 3/12 = 156.112…so 60 more(918.31 * .68) * 3/12 = 156.112…so 60 more But we will not take a position for this But we will not take a position for this

decision, so 0 contractsdecision, so 0 contracts

Projected PledgeProjected Pledge USTsUSTs[.75 * 1.10 * (198.136+313.638)]+ .15*(0*10)[.75 * 1.10 * (198.136+313.638)]+ .15*(0*10) = 422.214= 422.214

Still HeldStill HeldT-Bills T-Bills 00 168 maturing168 maturingUST 1yrUST 1yr 9090 28 maturing 28 maturingUST 5yrUST 5yr 258258 6 maturing 6 maturing

348 202 maturingWe are currently about 74 under the pledge!

#2: Deposit/Loan #2: Deposit/Loan ProductionProduction

Assume all deposits change by 1.4 Assume all deposits change by 1.4 2.12.1

From text: Prime +15.3, High +21.4, From text: Prime +15.3, High +21.4, Medium +27 due to rates and Medium +27 due to rates and commitm’t usage.commitm’t usage.

Synd, refill; RE, Cons and CC same Synd, refill; RE, Cons and CC same change (although RE seems a bit change (although RE seems a bit high……)high……)

S (+) U ( - )

Prop’d Prop’d

QTR.#_2.2_ Goals GoalsSecurities Maturing +207.6 New Securities - 74.0

Securities Sold + 0.0 Loans (Spread)Commercial DD's + 8.6 Prime ( 0 ) - 15.3

Regular DD's - 24.3 High ( 0 ) - 21.4

Other DD's (Public + DTB) - 0.3 Med. ( -.15 ) - 27.0

Money Market TD's + 14.8 Synd. 0

Public TD's + 18.6 R.E. -35.0

Subtotal + 225.0 Cons. -3.0

C.C. -5.2

Total Other - 43.2

Subtotal - 180.9

#3: Balancing Assets and #3: Balancing Assets and Liabilities through CDs & Fed Liabilities through CDs & Fed

FundsFunds Maturing CDs:Maturing CDs: 505 + 85.42 FF505 + 85.42 FF3mo3mo 1851856mo6mo 2002001 Yr1 Yr 120120 Balance from Right-side = 180.9Balance from Right-side = 180.9 Balance from Left-side = 225.0Balance from Left-side = 225.0 Don’t Need 44.1 fin’g to balanceDon’t Need 44.1 fin’g to balance Total = Mat’g + Bal = 590.42 – 44.1 = 546.32 or Total = Mat’g + Bal = 590.42 – 44.1 = 546.32 or

546546 If we want FF of 48m, then 450 in CDs and let Sim cast about 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.48m in FF and an addt’l 48 in 3 mo CDs.

S (+) U ( - )

Prop’d Prop’d

QTR.#_2.2_ Goals GoalsSubtotal + 225.0 Subtotal - 180.9CD'sTotal New 498

Less 3 Mo. Mat -185

Less 6 Mo. Mat. -200

Less 1 Yr. Mat. -120

Total CD's Net Change - 7.0Fed funds Purchased Fed funds Sold

(Total 48 - 85.4 )- 37.4 (Total )

FRB Borrowings

(Total )

Ret. Earnings & Other CashTOTAL +180.6 TOTAL - 180.9

Decision FormDecision Form Rates: P 10.31%; H 11.24%; M, -15BP, 12.20%;Rates: P 10.31%; H 11.24%; M, -15BP, 12.20%;

Cons 12.85%; R/E 10.65%, Sell No Old or New Cons 12.85%; R/E 10.65%, Sell No Old or New LoansLoans Maintain Loan and Letter of Credit Policies Maintain Loan and Letter of Credit Policies

Leave CC Fee, Comm’l and Reg Ckg Acct Chgs and Leave CC Fee, Comm’l and Reg Ckg Acct Chgs and CreditsCredits

3 mo CDs $200m; 6 mo CDs $150m; 1 Yr. CDs $100m; 3 mo CDs $200m; 6 mo CDs $150m; 1 Yr. CDs $100m; Extra $48m added w/ FF Pur of $48m Extra $48m added w/ FF Pur of $48m

MM Svgs 7.9%; Maintain Bus Dev Budget at $3.2mMM Svgs 7.9%; Maintain Bus Dev Budget at $3.2m Don’t change branches and Don’t change branches and

give Salary Policy of Zero (ROE < 20%) give Salary Policy of Zero (ROE < 20%) Don’t change Off’r Effort or Time AllocationsDon’t change Off’r Effort or Time Allocations Buy Synd Loans to Refill, $114.713m ($115m)Buy Synd Loans to Refill, $114.713m ($115m) No Fut ContractsNo Fut Contracts Pay Dividend $1.10/sh.Pay Dividend $1.10/sh. USTs 74; T-Bills 74, 1yr 0, 5yr 0USTs 74; T-Bills 74, 1yr 0, 5yr 0 and 5 each of 3 & 10 Yr. Munis to refilland 5 each of 3 & 10 Yr. Munis to refill No Maximum Limits; No Securities SalesNo Maximum Limits; No Securities Sales