1. Bank Cost of Funds

2. Cost of Funds G & K Chp. 13 G & K Chp. 13 Structure of Liabilities Structure of Liabilities Cost of Components Cost of Components

3. Structure of Liabilities Demand Deposits (Non-Int & MMDA) Demand Deposits (Non-Int & MMDA) Savings (Regular, Money Mkt Svgs) Savings (Regular, Money Mkt Svgs) Small Time Deposits (CDs) Small Time Deposits (CDs) Large Time Deposits (Jumbo CDs) Large Time Deposits (Jumbo CDs) Fed Funds & Repos Fed Funds & Repos

4. Pricing Policy Explicit Explicit Rates on MMDA, MM Svgs, Small CDs Rates on MMDA, MM Svgs, Small CDs Implicit Implicit Amounts of Jumbo CDs and Fed Funds used Amounts of Jumbo CDs and Fed Funds used Fees on Reg Ckg Accts Fees on Reg Ckg Accts Fees on Comm’l Accts and CC Processing Fees on Comm’l Accts and CC Processing

5. Pricing in Simulation Comm’l Deposits Comm’l Deposits Chg/Item, Credit per $100, CC Fee, % New Bus and Off Time Alloc. Chg/Item, Credit per $100, CC Fee, % New Bus and Off Time Alloc. Has an effect on Balance, S/C Income, Loan Commitmts & CC Income Has an effect on Balance, S/C Income, Loan Commitmts & CC Income Regular Deposits Regular Deposits Chg/Item, Credit per $100, % New Bus and Off Time Alloc., Dev Budget, Premises Chg/Item, Credit per $100, % New Bus and Off Time Alloc., Dev Budget, Premises Has an effect on Balance, S/C Income, Trust Income Has an effect on Balance, S/C Income, Trust Income

6. Pricing in Simulation Money Market Savings Money Market Savings Rate, % New Bus and Off Time Alloc., Dev Budget, Premises Rate, % New Bus and Off Time Alloc., Dev Budget, Premises Has an effect on Balance, Trust Income Has an effect on Balance, Trust Income

7. Cost of Funds Calc Avg Cost of Funds and compare with Prime Rate on Pg. 7 Calc Avg Cost of Funds and compare with Prime Rate on Pg. 7 Lower Cost of Funds means able to offer lower loan rates  Attract more business Lower Cost of Funds means able to offer lower loan rates  Attract more business Cost of Funds differs from WACC as specific acct. by acct. tally of funds costs. WACC is a composite of equity and debt expectations for return (see Pg. 23 for WACC calculation) Cost of Funds differs from WACC as specific acct. by acct. tally of funds costs. WACC is a composite of equity and debt expectations for return (see Pg. 23 for WACC calculation)

8. Cost of Funds (Handout) Base is Net Deposits Base is Net Deposits Total Dep+FFPurch+FRB-Cash&DueFrom Total Dep+FFPurch+FRB-Cash&DueFrom Costs are Int and Non-Int Expenses Costs are Int and Non-Int Expenses Total Int Paid (excluding Cap Note Int) Total Int Paid (excluding Cap Note Int) Non-Int Expenses from each account times its related expense multiplier (take as given) Non-Int Expenses from each account times its related expense multiplier (take as given) Less Net Service Charge Income Less Net Service Charge Income Cost of Funds = Costs * 4 / Base Cost of Funds = Costs * 4 / Base