1. Introduction

2. Simulation  Stanford Bank Game –Simulated Bank Operation –Management Team Experience

3. Simulation  Concentration on: –Mechanics: Capital, Cost of Funds, Maximizing Fee Income –Management: People Issues, Time Management and Delegation, “Stick- with-it-ness” and what to do when “you really don’t know” and that’s ok!

4. Banking Fundamentals  SPREAD: Investment Return – Cost of Funds Investment Return mainly from Loans and Securities Cost of Funds mainly from Capital and Borrowed Funds

5. Banking Goals  Profitability (Not Size!) –Spread  4% + –ROA  1-1.5% –ROE  12% +  Solvency –Capital to Assets 7-8% (No More, No Less)

6. Balance Sheet Production/Financial Service FirmServices ASSETS CashSmallCashSmall Accts. Rec.MediumInvestmentsMedium InventoryMediumLoansLARGE Fixed AssetsLargePremisesSmall Liabs/OE Accts. Pay.MediumDepositsLarge L/T DebtLargeSavingsLarge Owner's EqLarge Other Borr ’ gs Medium Capital Tiny

7. Income Statement Production/Svc.Financial Services SalesTotal Interest Income - COGS - Total Interest Expense = Gross Margin= Net Interest Income - Optg Exp + Non-Interest Income = EBIT - Non-Interest Expense - Interest Exp - Provision for Loan Losses = EBT = Pre-tax Optg Income - Tax+/- Securities Gains/Losses = Net Income - Income Taxes +/- Extraordinary Items = Net Income

8. Assignment for Next Time  Go to Class Webpage (Syllabus)  Go to Apr 2 nd entry  Click on, print and bring to class Y1Q4Output.pdf