Ag Bank Sim the Bank Management Game
Ag Bank Sim Setting Rural Oklahoma county 3 banks in the county Name your bank 2-4 bank management team members per bank 1 bank manager Dynamic environment Competition between county banks Changing economic conditions Uncertain future
Objectives Provide a learning experience in making bank decisions Increase understanding of the interactions among decisions Generate discussion regarding impact of decisions
Local Economy Ag is a principal industry, particularly Cow-calf Stocker cattle Wheat
Goal of Each Bank Profit maximization Maintain market share Serve the community Increase the capital base
Currently All banks have identical financial statements as of Dec. 31, 2010 (2010.5) Banks are within regulatory compliance Each period of play covers 6 months so your decisions for 2011.0 apply to January – June 2011.
Decisions Each Period Interest rates on 5 types of loans Ag production Ag real estate Real estate Commercial Consumer Interest on 4 types of deposits Demand deposits (non-interest bearing) NOW MMDA Savings CDs
Decisions Each Period Number of loan officers & salaries Salaries of employees Advertising expenses Service fee Volume of new loans and investments Investments to sell, if any Government: 6 month, 1 year, 3 year Municipal bonds: 2 year, 5 year
Table 1. Financial Condition Assets Cash & due from is calculated by the program Securities that the bank has purchased Excess cash is automatically invested in Federal Funds (up to 100% of equity capital). Loans that the bank has made in previous periods Bank premises & equipment is a constant
Table 1, continued Liabilities & Stockholders’ Equity Deposits Federal Funds Purchase If needed to meet reserve requirements last period. If amount needed exceeds total investment securities, the charge is 1.5 time the fed funds rate. Capital and Surplus Retained Earnings Capital to asset ratio must stay above 5%.
2010.5
Table 2. Income Statement Paid semi-annually from all loans and securities Service charge income is on DDA, NOW, & MMDA Expenses Deposit expense is interest paid to depositors Fed Funds expense is cost of borrowing fed funds Advertising Salaries: officer and employees Other: postage, supplies, utilities, … Loan losses – random within a range Taxes
2010.5
Table 3. Management Decisions Shows last period (2010.5) Interest rates: both loans and deposits Salaries, advertising, service charge New loans made (maximums and actuals) New investments made (always what you specify) Maturing assets in near-term All that you own, by year of acquisition 2010.5 column matured as of Dec. 31, 2010.
2010.5 2007.5 2008.0 2008.5 2009.0 2009.5 2010.0 2010.5 2011.0
Table 4. Economic and Statistical Information Average rates at local banks (you and 2 competitors) Next period it will show meaningful information Market share, by category, for local banks Allows you to see how you are competing by category Actual rates for next six months Fed Funds; 3 Government securities; 2 Munis
Table 4, continued Actual for the local economy Income Retail sales Land values Housing cost index Farm price index Futures price of wheat Outlook for the local economy (next page) Income Retail sales Land values Housing cost index Farm price index Futures price of wheat
2010.5
Table 5. Outstanding Loans & Securities Column heading indicates loan or investment type Detailed by period in which each was acquired Interest rate for each amount is also shown All rates are fixed rates.
2010.5 2001.02001.5 2002.0 2002.5 2003.0 2003.5 2004.0 2004.5 2005.0 2005.5 2006.0 2006.5 2007.0 2007.5 2008.0 2008.5 2009.0 2009.5 2010.0 2010.5 2009.0 2009.5 2010.0 2010.5
Table 6. Estimation of Funds Shows the $ amount you need to put to productive use!!! Let’s complete Period 1
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
2010.5
Estimation of Funds Available for New Loans and Investments
Management Decision 2010.5 2011.0 2011.5 2012.0 2012.5 1 Year with 1 Annual Payment 10 Year with 10 Annual Payments 2 Year with 2 Annual Payments 2 Year with 4 Semi-Annual Pmts 2010.5 2011.0 2011.5 2012.0 2012.5
2010.5
Management Decision Maximum of .5% change / period 2010.5 2011.0 2011.5 2012.0 2012.5 1 Year with 1 Annual Payment 10 Year with 10 Annual Payments 2 Year with 2 Annual Payments 2 Year with 4 Semi-Annual Pmts 2010.5 2011.0 2011.5 2012.0 2012.5 Maximum of .5% change / period
Decisions 2010.5 2011.0 2011.5 2012.0 2012.5 Remember these are maximums or caps, you are not guaranteed to make this level of loan. 1st Half of year 6-8 Mil. 2010.5 2011.0 2011.5 2012.0 2012.5
2010.5
Decisions 2010.5 2011.0 2011.5 2012.0 2012.5 Remember these are maximums or caps, you are not guaranteed to make this level of loan. 1st Half of year 6-8 Mil. 2010.5 2011.0 2011.5 2012.0 2012.5 You will buy this amount of each investment. Tax Equivalent Yield = Tax Free Rate (1 – Tax Rate) 6.52% 7.05%
2010.5
Decisions 2010.5 2011.0 2011.5 2012.0 2012.5 0.25% min. 2010.5 2011.0 2011.5 2012.0 2012.5 2010.5 2011.0 2011.5 2012.0 2012.5 2010.5 2011.0 2011.5 2012.0 2012.5
2010.5
2010.5
Generally Speaking Common sense, along with supply & demand are good things to keep in mind. Also, things like diminishing marginal product Ag Bank Sim is based upon real bank data, so take into consideration the way a real community and community bank will operate.
Timeline for Ag Bank Sim Date Tasks Students create an account on www.agbanksim.org and sign up to play Orientation to game Teams make first decisions Review Period 2 results Make decisions for Period 3 Review Period 3 results Make decisions for Period 4 Game results and awards Summary and conclusions