1. Current Events Citicorp announces loss 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 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 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 Wachovia  Rolled out its “Way2Save” program, which is similar to BofA’s “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 L A L

7. Basics of Sources and Uses Key to managing bank profitability Key to managing bank profitability Evaluate accounts -- profits Evaluate accounts -- profits Allocate your time to significant items Allocate your time to significant items  Can’t control  Too small to affect profit

8. Actual vs Forecast Actual Actual Note actual changes in balance sheet accounts from 1 period to the next Note actual changes in balance sheet accounts from 1 period to the next Forecast Forecast Determining how your decisions will change specific balance sheet accounts and how this will affect funding and earnings 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 S/U form EACH quarter Use net change approach Use net change approach Where did the funds come from; where did the funds go to Where did the funds come from; where did the funds go to

10. 2 Ways to Change Net flow of funds—in or out Net flow of funds—in or out “juggling” dollars within the bank; restructuring; changing mix “juggling” dollars within the bank; restructuring; changing mix

11. Basics of Sources and Uses AssetsLiabilitiesEquity IncreaseUseSourceSource DecreaseSourceUseUse

12. Basics of Sources and Uses SourcesUses SourcesUses Increase in demand depositsIncrease in total loans Increase in time deposits Increase in CD’s Increase in fed funds purchasedIncrease in fed funds sold Increase in FRB borrowing Maturing securitiesNew securities

13. Basics of Sources and Uses OR SourcesUses Decrease in total loansDecrease in demand deposits Decrease in time deposits Decrease in CD’s Decrease in fed funds soldDecrease 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 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 Uses: What Happened? Balance sheet Balance sheet  This pereiod – last period  Account by account Sign Sources (+), Uses (-) Sign Sources (+), Uses (-) Catalog: Catalog: Supply of Funds accounts (Deposits, Security Sales and Maturity, Loans by Bank…) Supply of Funds accounts (Deposits, Security Sales and Maturity, Loans by Bank…) Usage of Funds accounts (Loans, Investments, New Buildings) Usage of Funds accounts (Loans, Investments, New Buildings)

18. Historical Sources and Uses: What Happened? Catalog: Catalog:  Supply of Funds accounts  Deposits  Security Sales and maturity  Loans by Bank…  Usage of Funds accounts  Loans  Investments  New Buildings

19. Asset Differences 3.33.2ChangeS/U Cash291.774293.438-1.664+1.664 FF Sold.000 00 T-Bills77.65231.36146.291-46.291 T-Notes408.021437.395-29.374+29.374 Muni's449.970451.389-1.419+1.419 Total securities935.643920.14515.498-15.498

20. Asset Differences 3.33.2ChangeS/U Loans3776.0983726.61049.488-49.488 Prov for LL27.08427.595-0.511-0.511*** Premises - Dep33.05032.0590.991-0.991 Other assets8.6038.765-0.162+0.162 Total resources5018.0834953.42264.661-64.661

21. Liab & O/E Differences 3.33.2 ChangeS/U Demand deposits 1336.7401350.767 -14.027 Time deposits 3210.2053174.959 35.246 Total deposits 4546.9454525.726 21.219 Federal funds purch’d 61.34521.743 39.602 Funds from FRB.000 00 Dividend payable 3.600 00 Accrued taxes 7.2777.473 -0.196 Other liabilities 42.56342.651 -0.088 Total liabilities 4661.7294601.192 60.537

22. Liab & O/E Differences 3.33.2 ChangeS/U Capital notes 34.11534.735 -0.620 Common stock 30.000 00 Surplus 48.519 00 Retained Earnings 243.719238.975 4.744 Total equity * 322.238317.494 4.744 Total Liab & Cap 5018.0834953.422 64.661

23. Aggregated S&U S (+)U ( - ) Actual QTR.#_3.3_Results Supply of FundsUsage of Funds Net Securities Change-15.498 Deposits -14.027Loans-49.488 Savings +35.246Prov for LL -0.511 Subtotal +21.219Subtotal-65.497 FF Purch+39.602FF Sold+0.000 Dividend payable0Premises-0.991 Accrued taxes-0.196Other Assets+0.162 Other liabilities-0.088Cash+1.664 Capital Notes-0.620 Retained Earnings+4.744 Total +64.661 Total -64.662

24. Y3Q3 Interpretation (Look for the BIG numbers!) Funds came from Funds came from  larger Savings increases over Demand Deposit losses  increases in Loans from other Banks (FF Purch’d) and past Earnings Funds went to Funds went to  net increases in securities and Loans.

25. Your Assignment (Assignment #1) Produce an Aggregated Sources and Uses for Y3Q4 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. Write a short commentary concerning where funds are coming from and going to.

26. Bank Team Assignment BANK NAME BANK NAME MANAGEMENT AREA ASSIGNMENTS MANAGEMENT AREA ASSIGNMENTS  List each team member and area of responsibility COMMUNICATION PLAN COMMUNICATION PLAN  BRIEF paragraph how your team is going to communicate DECISION PROCESS 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 #) 1 response from each Bank (include bank #) Due by Monday, January 21, 5:00pm Due by Monday, January 21, 5:00pm