Bank Management,

Management 5th edition.

Timothy W. Koch and S. Scott MacDonald
Copyright © 2003 by South-Western, a division of Thomson Learning

ANALYZING BANK
PERFORMANCE:
USING THE UBPR

Chapter 3
Balance Sheet
 Assets = Liabilities + Equity.
 Balance sheet figures are calculated at
a particular point in time and thus
represent stock values.
Bank Assets
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 Cash and due from banks
 vault cash, deposits held at the Fed and other financial
institutions, and cash items in the process of
collection.
 Investment Securities
 assets held to earn interest and help meet liquidity
needs.
 Loans
 the major asset, generate the greatest amount of
income, exhibit the highest default risk and are
relatively illiquid.
 Other assets
 bank premises and equipment, interest receivable,
prepaid expenses, other real estate owned, and
customers' liability to the bank
Balance Sheet (assets):
PNC and Community National Bank
PNC BANK NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
—— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL——
12/31/00 % of 12/31/01 % of 12/31/00 % of 12/31/01 % of
BALANCE SHEET % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total

ASSETS
Loans:
Real estate loans -5.5% 23,403,724 37.0% -26.8% 17,136,390 27.4% 16.6% 50,801 37.0% 27.1% 64,569 41.3%
Commercial loans -5.4% 18,180,941 28.8% -19.6% 14,616,251 23.3% 12.0% 26,621 19.4% 34.7% 35,849 22.9%
Individual loans -10.6% 3,529,627 5.6% -7.6% 3,261,827 5.2% 9.4% 5,933 4.3% -48.8% 3,037 1.9%
Agricultural loans -58.9% 1,717 0.0% -36.2% 1,096 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Other LN&LS in domestic off. -3.0% 4,588,422 7.3% 2.7% 4,710,235 7.5% 66.8% 6,458 4.7% -99.6% 29 0.0%
LN&LS in foreign off. 273.9% 347,421 0.5% 123.8% 777,443 1.2% 0.0% 0 0.0% 0.0% 0 0.0%
Gross Loans & Leases -5.1% 50,051,852 79.2% -19.1% 40,503,242 64.7% 17.2% 89,813 65.4% 15.2% 103,484 66.2%
Less: Unearned Income 7.5% 96,913 0.2% -47.1% 51,223 0.1% -100.0% 0 0.0% 0.0% 0 0.0%
Loan & Lease loss Allowance 0.8% 648,833 1.0% -7.1% 602,790 1.0% -7.3% 706 0.5% 20.3% 849 0.5%
Net Loans & Leases -5.2% 49,306,106 78.0% -19.2% 39,849,229 63.6% 17.5% 89,107 64.9% 15.2% 102,635 65.7%
Investments:
U.S. Treasury & Agency securities-43.3% 1,887,310 3.0% 82.9% 3,451,036 5.5% 8.7% 22,369 16.3% 34.3% 30,044 19.2%
Municipal securities 37.4% 45,237 0.1% -58.7% 18,679 0.0% #N/A 721 0.5% -0.3% 719 0.5%
Foreign debt securities 0.8% 27,401 0.0% -5.7% 25,835 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
All other securities -6.0% 2,971,309 4.7% 196.4% 8,805,746 14.1% 0.0% 255 0.2% -100.0% 0 0.0%
Interest bearing bank balances 69.4% 167,916 0.3% -6.1% 157,670 0.3% 0.0% 0 0.0% #N/A 500 0.3%
Fed funds sold & resales -63.6% 217,241 0.3% 39.0% 301,986 0.5% 0.9% 11,790 8.6% -39.1% 7,175 4.6%
Trading account assets -35.8% 168,345 0.3% 189.4% 487,251 0.8% 0.0% 0 0.0% 0.0% 0 0.0%
Total Investments -26.9% 5,484,759 8.7% 141.5% 13,248,203 21.2% 8.0% 35,135 25.6% 9.4% 38,438 24.6%
Total Earning Assets -8.0% 54,790,865 86.7% -3.1% 53,097,432 84.8% 14.6% 124,242 90.5% 13.5% 141,073 90.3%
Nonint Cash & Due from banks 26.2% 3,565,214 5.6% 16.6% 4,156,160 6.6% 13.9% 7,813 5.7% 8.0% 8,440 5.4%
Acceptances 2.5% 52,401 0.1% -11.4% 46,417 0.1% 0.0% 0 0.0% 0.0% 0 0.0%
Premises fixed assets & capital leases6.3% 800,722 1.3% 0.0% 800,451 1.3% 5.8% 3,546 2.6% 17.6% 4,171 2.7%
Other real estate owned -26.6% 15,047 0.0% -38.0% 9,325 0.0% 0.0% 0 0.0% #N/A 625 0.4%
Investment in unconsolidated subs. 32.8% 4,320 0.0% 48.1% 6,400 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Other assets -20.8% 3,957,334 6.3% 13.6% 4,493,595 7.2% 14.8% 1,730 1.3% 14.0% 1,972 1.3%
Total Assets -7.3% 63,185,903 100.0% -0.9% 62,609,780 100.0% 14.4% 137,331 100.0% 13.8% 156,281 100.0%
Average Assets During Quarter -7.4% 62,706,833 99.2% 0.2% 62,838,680 100.4% 8.9% 136,551 99.4% 12.6% 153,733 98.4%
Adjustments to total loans
…three adjustments are made to obtain a
net loan figure.

 First, The dollar amount of outstanding

leases is included in gross loans.
 Second, unearned income is deducted
from gross interest received.
 Finally, gross loans are reduced by the
dollar magnitude of a bank's loan-loss
reserve, which exists in recognition
that some loans will not be repaid.
 Provisions for loan losses

Recoveries

Provisions for loan losses

Reserve for Loan Losses Charge offs

Bank investments and FASB 115
 Following FASB 115 a bank, at purchase, must
designate the objective behind buying investment
securities as either:
 held-to-maturity securities are recorded on the balance
sheet at amortized cost.
 trading account securities are actively bought and sold,
so the bank marks the securities to market (reports them
at current market value) on the balance sheet and
reports unrealized gains and losses on the income
statement.
 available-for-sale, all other investment securities, are
recorded at market value on the balance sheet with a
corresponding change to stockholders’ equity as
unrealized gains and losses on securities holdings.
 Average assets, capital and loan loss data:
PNC and Community National Bank
PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
—— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL——
12/31/00 % of 12/31/01 % of 12/31/00 % of 12/31/01 % of
SUPPLEMENTAL DATA % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total
Average Assets -3.08% 66,975,064 -5.21% 63,486,660 12.1% 130,280 9.1% 142,089
Domestic Banking offices 1.60% 698 -2.15% 683 0.0% 3 33.3% 4
Foreign Branches 0.00% 8 0.00% 8 0.0% 0 0.0% 0
Number of equivalent employees -12.27% 16,472 -3.12% 15,958 17.3% 61 6.6% 65

SUMMARY OF RISK BASED CAPITAL

Tier One Capital 6.02% 5,402,650 -12.46% 4,729,275 16.9% 9,976 8.2% 10,795
Tier Two Capital -5.77% 1,626,531 17.00% 1,903,111 -7.3% 706 20.3% 849
Tier Three Capital 0.00% 0 0.00% 0 0.0% 0 0.0% 0
Total Risk-Weighted Assets -6.31% 57,833,459 -5.93% 54,404,578 22.4% 84,529 19.0% 100,567

SUMMARY OF LOAN LOSS ACCOUNT

Balance at beginning of period -10.43% 643,905 1.2% 0.77% 648,833 1.4% 2.0% 762 0.9% -7.3% 706 0.7%
Gross Credit Losses -12.81% 181,385 0.4% 440.66% 980,672 2.2% 22.2% 270 0.3% -6.7% 252 0.3%
Memo: Loans HFS Writedown 0.00% 0 0.0% #N/A 637,086 1.4% 0.0% 0 0.0% 0.0% 0 0.0%
Recoveries -8.05% 48,917 0.1% -26.64% 35,886 0.1% -85.1% 14 0.0% 64.3% 23 0.0%
Net Credit Losses -14.44% 132,468 0.3% 613.22% 944,786 2.1% 101.6% 256 0.3% -10.5% 229 0.2%
Provisions for Credit Losses -15.09% 133,000 0.3% 575.75% 898,743 2.0% 40.8% 200 0.2% 86.0% 372 0.4%
Other Adjustments -105.73% 4,396 0.0% -100.00% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Balance at end of period 0.77% 648,833 1.3% -7.10% 602,790 1.3% -7.3% 706 0.9% 20.3% 849 0.9%

Average Total Loans & Leases -3.97% 51,542,871 100.0% -13.07% 44,804,389 100.0% 10.0% 81,478 100.0% 15.7% 94,299 100.0%

NON-CURRENT LN&LS
90 days and over past due -2.54% 125,264 0.2% 35.55% 169,798 0.4% -78.8% 290 0.4% 788.3% 2,576 2.7%
Total Nonaccrual Ln&LS 14.66% 354,651 0.7% -28.40% 253,945 0.6% -91.2% 48 0.1% 806.3% 435 0.5%
Total Non-current LN&LS 9.61% 479,915 0.9% -11.70% 423,743 0.9% -82.3% 338 0.4% 790.8% 3,011 3.2%
Ln&Ls 30-89 Days Past Due 0.00% 0 0.0% #N/A 332,103 0.7% 0.0% 0 0.0% #N/A 1,830 1.9%
Bank liabilities
 Demand deposits
 transactions accounts that pay no interest

 Negotiable orders of withdrawal (NOWs) and

automatic transfers from savings (ATS) accounts
 pay interest set by each bank without federal
restrictions
 Money market deposit accounts (MMDAs)
 pay market rates, but a customer is limited to no
more than six checks or automatic transfers each
month
 Savings and time deposits represent the bulk of
interest-bearing liabilities at banks.
Bank liabilities (continued)
 Two general time deposits categories exist:
 Time deposits in excess of $100,000, labeled
jumbo certificates of deposit (CDs).
 Small CDs, considered core deposits which
tend to be stable deposits that are typically
not withdrawn over short periods of time.
 Deposits held in foreign offices
 balances issued by a bank subsidiary
located outside the U.S.
 Rate-sensitive borrowings:
 Federal Funds purchased and
 Repos
 Core versus volatile funds
 Core deposits are stable deposits that are not highly interest rate-
sensitive.
 Core deposits are more sensitive to the fees charged, services rendered,
and location of the bank.
 Core deposits include: demand deposits, NOW accounts, MMDAs, and
small time deposits.
 Large, or volatile, borrowings are liabilities that are highly rate-
sensitive.
 Normally issued in uninsured denominations.
 Their ability to borrow is sensitive to the markets perception of their
asset quality.
 Volatile liabilities or net non-core liabilities include: large CDs (over
100,000), deposits in foreign offices, federal funds purchased, repurchase
agreements, and other borrowings with maturities less than one year.*
*The UBPR also includes brokered deposits less than $100,000 and maturing within one year
in the definition of net noncore liabilities.
Balance Sheet (liabilities): PNC and Community National
Bank
Stockholders equity
 Subordinated notes and debentures:
 notes and bonds with maturities in excess
of one year.
 Stockholders' equity
 Ownership interest in the bank.
 Common and preferred stock are listed at par
 Surplus account represents the amount of
proceeds received by the bank in excess of
par when it issued the stock.
The income statement
 Interest income (II)
 Interest expense (IE)
 Interest income less interest expense is
net interest income (NII)
 Loan-loss provisions (PL)
 represent management's estimate of potential lost
revenue from bad loans.
 Noninterest income (OI)
 Noninterest expense (OE)
 noninterest expense usually exceeds noninterest
income such that the difference is labeled the bank's
burden
 Taxes
 Income statement (interest income and expenses):
PNC and Community National Bank
PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
—— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL—— —— HISTORICAL——
12/31/00 % of 12/31/01 % of 12/31/00 % of 12/31/01 % of
Income Statement % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total
Interest Income:
Interest and fees on loans -2.2% 3,845,374 62.1% -22.2% 2,992,253 52.0% 16.2% 8,478 72.4% 0.8% 8,547 72.5%
Income from lease financing 29.7% 208,494 3.4% 24.1% 258,790 4.5% 0.0% 0 0.0% 0.0% 0 0.0%
Memo: Fully taxable -0.9% 4,021,924 64.9% -19.8% 3,224,394 56.1% 15.9% 8,450 72.1% 1.1% 8,547 72.5%
Tax-exempt -7.2% 31,944 0.5% -16.6% 26,649 0.5% #N/A 28 0.2% -100.0% 0 0.0%
Estimated tax benefit -8.2% 15,701 0.3% -14.7% 13,394 0.2% #N/A 14 0.1% -100.0% 0 0.0%
Income on Loans & Leases (TE) -1.0% 4,069,569 65.7% -19.8% 3,264,437 56.8% 16.4% 8,492 72.5% 0.6% 8,547 72.5%

Other security inc. (data prior to 12/31/00) -20.6% 328,410 5.3% -100.0% 0 0.0% 6.8% 1,407 12.0% -100.0% 0 0.0%
U.S. Treasury & Agency securities 0.0% 0 0.0% #N/A 65,970 1.1% 0.0% 0 0.0% #N/A 620 5.3%
Mortgage Backed Securities 0.0% 0 0.0% #N/A 446,662 7.8% 0.0% 0 0.0% #N/A 541 4.6%
Estimated tax benefit -48.8% 791 0.0% -19.8% 634 0.0% #N/A 17 0.1% 5.9% 18 0.2%
All other securities income -48.2% 1,611 0.0% 3257.0% 54,082 0.9% #N/A 33 0.3% 9.1% 36 0.3%
Memo: Tax-Exempt Securities Income -48.2% 1,611 0.0% -21.6% 1,263 0.0% #N/A 33 0.3% 9.1% 36 0.3%
Investment Interest Income (TE) -20.9% 330,812 5.3% 71.5% 567,348 9.9% 10.5% 1,457 12.4% -16.6% 1,215 10.3%
Interest on due from banks 55.3% 8,137 0.1% -33.1% 5,447 0.1% 0.0% 0 0.0% #N/A 7 0.1%
Interest onFed funds sold & resales 30.2% 44,290 0.7% -71.4% 12,664 0.2% 79.9% 858 7.3% -49.0% 438 3.7%
Trading account income -13.0% 2,374 0.0% -38.2% 1,467 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Total interest income (TE) -2.5% 4,455,182 71.9% -13.6% 3,851,363 67.0% 18.9% 10,807 92.2% -5.6% 10,207 86.6%
Interest Expense:
Int on Deposits held in foreign offices 63.7% 111,622 1.8% -51.7% 53,928 0.9% 0.0% 0 0.0% 0.0% 0 0.0%
Interest on CD's over $100M 8.4% 211,127 3.4% -28.4% 151,082 2.6% 45.1% 820 7.0% -2.6% 799 6.8%
Interest on All Other Deposits: 25.7% 1,286,558 20.8% -22.7% 993,952 17.3% 18.9% 2,320 19.8% -7.0% 2,158 18.3%
Total interest expense on deposits 25.1% 1,609,307 26.0% -25.5% 1,198,962 20.8% 24.8% 3,140 26.8% -5.8% 2,957 25.1%
Interest on Fed funds purchased & resale 22.5% 168,549 2.7% -41.0% 99,507 1.7% 190.0% 58 0.5% -34.5% 38 0.3%
Interest on Trad Liab & Oth Borrowings -37.7% 473,858 7.7% -38.3% 292,561 5.1% 0.0% 0 0.0% 0.0% 0 0.0%
Interest on mortgages & leases 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Interest on Sub. Notes & Debentures 14.9% 84,270 1.4% -10.8% 75,145 1.3% 0.0% 0 0.0% 0.0% 0 0.0%
Total interest expense 3.5% 2,335,984 37.7% -28.7% 1,666,175 29.0% 26.1% 3,198 27.3% -6.3% 2,995 25.4%
Net interest income (TE) -8.3% 2,119,198 34.2% 3.1% 2,185,188 38.0% 16.1% 7,609 65.0% -5.2% 7,212 61.2%
Income statement (noninterest income and expenses):
PNC and Community National Bank
Interest income
…the sum of interest and fees earned on all
of a bank's assets.

 Interest income includes interest from:

 Loans
 Deposits held at other institutions,
 Municipal and taxable securities, and
 Investment and trading account
securities.
Noninterest expense
…composed primarily of:
 Personnel expense:
 salaries
and fringe benefits paid to
bank employees,
 Occupancy expense :
 rent
and depreciation on equipment
and premises, and
 Other operating expenses:
 utilities
and
 deposit insurance premiums.
Non-interest expense
 Expenses and loan losses directly
effect the balance sheet.
 The greater the size of loan portfolio,
the greater is operating overhead and
PLL.
 Consumer loans are usually smaller
and hence more expensive (non-
interest) per dollar of loans.
Return on equity (ROE = NI / TE)
… the basic measure of stockholders’ returns
 ROE is composed of two parts:
 Return on Assets (ROA = NI / TA),
 represents the returns to the assets the
bank has invested in.
 Equity Multiplier (EM = TA / TE),
 the degree of financial leverage
employed by the bank.
Return on assets (ROA = NI / TA)
…can be decomposed into two parts:
 Asset utilization (AU) → income generation
 Expense ratio (ER) → expense control

 ROA = AU - ER
= (TR / TA) - (TE / TA)
Where:
TR = total revenue or total operating income
= Int. inc. + non-int. inc. + SG(L) and
TE = total expenses
= Int. exp. + non-int. exp. + PLL + Taxes
ROA is driven by the bank’s ability to:
…generate income (AU) and control expenses (ER)

 Income generation (AU) can be found on

the UBPR (page 1) as:
Int. Inc. Non. int. Inc. Sec gains (losses)
AU   
TA TA TA
 Expense Control (ER) can be found on the
UBPR (page 1) as:
Int. Exp. Non  int . Exp. PLL
ER 
*
 
TA TA TA
 Note, ER* does not include taxes.
 Bank Rate
BankPerformance
PerformanceModel
Model
Composition (mix)
Interest
Returns
Returnstoto
Shareholders Volume
Shareholders
ROE INCOME
ROE==NINI//TE
TE Fees and Serv Charge
Non Interest Trust
Other
Return to the Bank
ROA = NI / TA
Rate
Interest
Composition (mix)
Volume
EXPENSES
Salaries and Benefits
Overhead
Occupancy
Degree of Leverage
Prov. for LL Other
EM = 1 / (TA / TE)
Taxes
 Expense ratio (ER = Exp / TA)
… the ability to control expenses.
 Interest expense / TA
 Cost per liability (rate)
 Int. exp. liab. (j) / $ amt. liab. (j)

 Composition of liabilities
 $ amt. of liab. (j) / TA

 Volume of debt and equity

 Non-interest expenses / TA
 Salaries and employee benefits / TA
 Occupancy expenses / TA
 Other operating expense / TA

 Provisions for loan losses / TA

 Taxes / TA
 Asset utilization (AU = TR / TA):
… the ability to generate income.
 Interest Income / TA
 Asset yields (rate)
 Interest income asset (i) / $ amount of asset (i)

 Composition of assets (mix)

 $ amount asset (i) / TA

 Volume of Earning Assets

 Earning assets / TA

 Non interest income / TA

 Fees and Service Charges
 Securities Gains (Losses)
 Other income
 Aggregate profitability measures
 Net interest margin
 NIM = NII / earning assets (EA)
 Spread
 Spread = (int inc / EA)  (int exp / int bear. Liab.)
 Earnings base
 Eb = ea / ta
 Burden / TA
 (Noninterest exp. - Noninterest income) / TA
 Efficiency ratio
 Non int. Exp. / (Net int. Inc. + Non int. Inc.)
 Financial ratios
…PNC and Community National Bank
UBPR for PNC
PNC BANK, NATIONAL ASSOCIATION COMM UNITY NATIONAL BANK
UBPR Dec-00 Dec-01 Dec-00 Dec-01
Risk Ratios Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7

Profitability Ratios
ROE: Net Income / Average total equity 11 18.94% 13.82% 9.31% 9.37% 13.68% 20.28% 13.06% 10.98% 11.04% 11.81%
ROA: Net Income / Avg TA 1 1.50% 1.09% 0.74% 0.77% 1.12% 1.44% 1.14% 0.81% 0.82% 1.07%
AU: Total Revenue / Avg TA 1 calc 9.24% 9.19% 9.06% 9.10% 8.27% 9.00% 8.79% 8.29% 8.30% 8.24%
ER: Total expenses (less Taxes) / Avg TA
1 calc 6.96% 7.47% 7.88% 7.88% 6.54% 6.77% 7.08% 7.13% 7.13% 6.69%
Memo: PM: Net Income / Total Revenue1 calc 16.23% 11.86% 8.38% 8.46% 13.54% 16.00% 12.97% 9.80% 9.88% 12.99%
EM: Avg. TA / Avg, Total Equity 6 calc 12.63x 12.50x 12.41x 12.12x 11.88x 14.51x 11.45x 13.96x 13.72x 11.11x
EB: Earning Assets / Avg TA 6 86.95% 89.02% 85.76% 85.13% 88.31% 90.38% 91.57% 90.36% 89.65% 91.52%
NIM: Net interest margin (te) 1 3.58% 3.76% 4.05% 3.95% 3.71% 6.41% 4.74% 5.44% 5.59% 4.49%
Spread (te) 3 calc 3.11% 3.14% 3.62% 3.44% 3.31% 4.99% 3.89% 4.02% 4.27% 3.75%
Efficiency Ratio 1 calc 57.17% 59.44% 61.49% 61.15% 59.51% 63.66% 63.64% 76.92% 76.90% 65.35%
Burden / Avg. Total Assets 1 calc -0.71% -1.25% -1.04% -1.04% -1.22% -3.47% -2.49% -3.65% -3.65% -2.39%
Non Interest Income / Noninterest exp.1 calc 78.29% 60.69% 72.93% 72.92% 61.39% 16.79% 25.89% 23.29% 23.32% 28.01%
EXPENSES:
ER*: Expense ratio components 6.96% 7.47% 7.88%
0.00% 7.88% 6.54% 6.77% 7.08% 7.13%
0.00% 7.13% 6.69%
Total Interest expense / Avg. TA 1 3.49% 3.90% 2.62% 2.62% 2.90% 2.45% 3.51% 2.11% 2.11% 3.14%
Memo: Interest expense / Avg. Earn assets
1 3.94% 4.31% 3.09% 2.98% 3.21% 2.69% 3.78% 2.26% 2.32% 3.39%
Noninterest Expenses / Avg. TA 1 3.27% 3.18% 3.84% 3.84% 3.16% 4.17% 3.36% 4.76% 4.76% 3.32%
Personnel expenses 3 1.46% 1.35% 1.66% 1.66% 1.39% 2.38% 1.77% 2.74% 2.74% 1.77%
Occupancy expense 3 0.42% 0.41% 0.48% 0.48% 0.39% 0.62% 0.52% 0.75% 0.75% 0.50%
Other operating expense (incl. intangibles)
3 1.39% 1.37% 1.70% 1.70% 1.31% 1.17% 1.06% 1.27% 1.27% 1.04%
Provision: Loan & Lease Losses / Avg. TA 1 0.20% 0.39% 1.42% 1.42% 0.48% 0.15% 0.21% 0.26% 0.26% 0.23%
Income Taxes / Avg. TA 1 calc 0.78% 0.63% 0.43% 0.45% 0.61% 0.79% 0.57% 0.35% 0.35% 0.48%
 Interest expense
…composition, rate and volume effects for
PNC and Community National Bank
PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
UBPR Dec-00 Dec-01 Dec-00 Dec-01
Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7
Profitability Ratios
Interest Expense: Composition, Rate and Volume Effects
Rate: Avg, interest cost of liabilities 3 4.41% 4.94% 3.52% 3.49% 3.65% 4.11% 4.63% 3.67% 3.64% 4.13%
Memo: Interest expense / Earning assets 1 3.94% 4.31% 3.09% 2.98% 3.21% 2.69% 3.78% 2.26% 2.32% 3.39%
Volume: All Interest bearing debt (avg.) / Avg. TA 1 79.02% 79.45% 75.34% 75.29% 79.81% 59.78% 75.83% 55.52% 57.90% 76.04%
Mix and Cost of Individual Liabilities:*
Total deposits (avg.) / Avg. TA: 6 67.28% 66.58% 73.44% 70.93% 66.78% 91.91% 85.51% 91.90% 91.65% 85.39%
Cost (rate): Int bearing Total deposits 3 4.23% 4.41% 3.08% 3.18% 3.30% 4.08% 4.54% 3.67% 3.64% 4.09%
Core deposits (avg.) / Avg. TA 6 58.74% 49.81% 65.14% 63.74% 51.70% 81.11% 73.32% 81.59% 80.85% 72.12%
Trans (NOW & ATS) Accounts (avg.) / Avg. TA 6 1.77% 1.28% 2.11% 1.96% 1.36% 6.43% 9.78% 9.19% 7.16% 9.59%
Cost (rate): Trans (NOW & ATS) Accts* 3 2.98% 2.32% #N/A 2.17% 1.96% 1.42% 2.11% #N/A 0.90% 1.65%
Money mkt deposit accounts (avg.) / Avg. TA 6 28.31% 16.97% 33.50% 33.11% 20.14% 20.29% 12.44% 15.48% 18.01% 12.55%
Other savings deposits (avg.) / Avg. TA 6 2.97% 7.07% 2.98% 2.95% 7.53% 4.26% 8.43% 4.07% 4.21% 8.07%
Cost (rate): Other savings deposits* 3 1.62% 2.06% #N/A 2.08% 2.00% 2.57% 2.54% #N/A 2.40% 2.74%
Time deposits under $100M (avg.) / Avg. TA 6 15.69% 12.38% 14.94% 14.77% 11.46% 16.86% 25.15% 15.79% 16.27% 24.90%
Cost (rate): All other time dep. (CD < $100M)* 3 5.82% 5.79% #N/A 5.21% 5.31% 5.34% 5.63% #N/A 5.60% 5.44%
Memo: S.T. non core funding (avg.) / Avg. TA 6 17.48% 28.81% 12.07% 11.02% 26.65% 10.25% 13.37% 9.90% 10.30% 13.59%
Memo: Volatile liabilities (avg.) / Avg. TA calc 18.66% 30.00% 13.42% 12.27% 26.21% 11.53% 14.06% 10.99% 11.49% 14.48%
Large certificates of dep (inc. brokered) (avg.) / Avg.
6 TA4.85% 8.38% 4.56% 4.37% 7.66% 10.79% 11.56% 10.31% 10.80% 12.62%
Cost (rate): CD's over $100M 3 6.30% 5.92% 5.27% 5.46% 4.94% 5.55% 5.81% 5.28% 5.09% 5.38%
Deposits held in foreign offices (avg.) / Avg. TA 6 3.69% 6.39% 3.74% 2.83% 5.09% 0.00% 0.00% 0.00% 0.00% 0.00%
Cost (rate): Deposits held in foreign offices 3 6.31% 4.72% 2.29% 4.13% 2.58% 0.00% 0.00% #N/A 0.00% 0.00%
Fed funds purchased & resale (avg.)/ Avg. TA 6 2.28% 8.61% 1.72% 2.28% 8.93% 0.74% 1.47% 0.68% 0.69% 1.20%
Cost (rate): Fed funds purchased & resale 3 7.37% 6.17% 9.18% 4.19% 3.80% 5.80% 4.40% 3.80% 3.80% 2.53%
Memo: All brokered deposits (avg.) / Avg. TA 6 0.60% 2.29% 1.40% 1.41% 2.12% 0.00% 0.13% 0.00% 0.00% 0.23%
All common and preferred capital (avg.) / Avg. TA 6 7.92% 8.00% 8.06% 8.25% 8.42% 6.89% 8.73% 7.17% 7.29% 9.00%
 Interest income
…composition, rate and volume effects for
PNC and Community National Bank

PNC BANK, NATIONAL ASSOCIATION COM MUNITY NATIONAL BANK

UBPR Dec-00 Dec-01 Dec-00 Dec-01
Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7

Profitability Ratios
Interest Income: Composition, Rate and Volume Effects
Rate: Avg, yield on Avg, TA
Memo: Avg. yield on earn. assets (rate) 1 7.52% 8.08% 7.14% 6.93% 6.96% 9.10% 8.52% 7.69% 7.91% 7.88%
Volume: Earn assets (avg.) / Avg, TA 6 86.95% 89.02% 85.76% 85.13% 88.31% 90.38% 91.57% 90.36% 89.65% 91.52%
Non earning assets (avg.) / Avg. TA 13.05% 10.71% 14.24% 14.88% 11.42% 9.62% 8.15% 9.64% 10.34% 8.19%
Mix and Cost of Individual Assets:*
Total Loans (Gross loans less unearned inc.) 6 (avg.)
76.87%
/ Avg. TA
64.18% 71.87% 69.69% 63.43% 61.49% 65.48% 65.83% 65.47% 65.94%
Yield (rate): Total Loans & Leases (te) 3 7.90% 8.63% 7.29% 7.29% 7.44% 10.42% 9.37% 9.06% 9.06% 8.71%
Total Investments (avg.) / Avg. TA: 6-calc 11.04% 21.38% 14.89% 16.46% 21.89% 29.42% 23.93% 25.06% 24.71% 23.45%
Yield (rate): Total investment securities
3 (TE): 4.98% 6.72% 6.58% 5.55% 6.28% 6.20% 6.47% 4.49% 5.13% 6.17%
Yield (rate): Total investment securities
3 (Book):
4.97% 6.57% 6.58% 5.54% 6.13% 6.13% 6.12% 4.42% 5.05% 5.80%
Interest bearing bank balances (avg.) / 6 Avg. TA0.18% 0.84% 0.26% 0.20% 0.82% 0.00% 0.33% 0.17% 0.14% 0.58%
Yield (rate): Interest bearing bank balances
3 7.02% 5.95% 3.35% 5.33% 4.87% 0.00% 3.99% #N/A 4.44% 2.93%
Fed funds sold & resales (avg.) / Avg. TA 6 1.01% 2.34% 0.41% 0.58% 3.43% 12.24% 2.61% 6.46% 7.79% 3.85%
Yield (rate): Fed funds sold & resales 3 6.30% 6.33% 4.88% 3.86% 3.82% 6.22% 6.15% 4.62% 3.99% 3.50%
Trading account assets (avg.) / Avg. TA 6 0.33% 1.09% 0.52% 0.59% 1.18% 0.00% 0.00% 0.00% 0.00% 0.00%
Held-to Maturity Securities (avg.) / Avg. 6TA 0.00% 1.12% 0.00% 0.00% 0.71% 9.22% 3.60% 5.75% 5.28% 2.71%
Available-for-Sale-Securities (avg.) / Avg.
6 TA 9.52% 15.99% 13.70% 15.09% 15.75% 7.96% 17.39% 12.67% 11.50% 16.31%
Fundamental risks :
 Credit risk
 Liquidity risk
 Market risk
 Operational risk
 Capital or solvency risk
 Legal risk
 Reputational risk
Credit risk
…the potential variation in net income and
market value of equity resulting from
nonpayment or delayed payment.

 Three Question need to be addressed:

1. What has been the loss experience?
2. What amount of losses do we expect?
3. How prepared is the bank?
Credit ratios to consider
 What has been the loss experience?
 Net loss to average total LN&LS
 Gross losses to average total LN&LS
 Recoveries to avg tot LN&LS
 Recoveries to prior period losses.
 Net losses by type of LN&LS
 What amount of losses do we expect?
 Non-current LN&LS to tot loans
 Total P/D LN&LS - incl nonaccural
 Non-curr restruc LN&LS / GR LN&LS
 Curr-Non-curr restruct / GR LN&LS
 Past due by loan type
Credit ratios to consider (continued)
 How prepared are we?
 Loss Provision to: average assets and
avg tot LN&LS
 LN&LS Allowance to: net losses and
total LN&LS
 Earnings coverage of net loss
 Credit risk ratios :
PNC and Community National

PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK

UBPR Dec-00 Dec-01 Dec-00 Dec-01
RISK RATIOS Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7
Credit Risk
Gross loss / Avg. Tot LN&LS 7 0.35% 0.56% 2.19% 2.19% 0.76% 0.33% 0.22% 0.27% 0.27% 0.27%
Net loss / Avg. Tot LN&LS 7 0.26% 0.43% 2.11% 2.11% 0.63% 0.31% 0.16% 0.24% 0.24% 0.21%
Recoveries / Avg. Tot LN&LS 7 0.09% 0.12% 0.08% 0.08% 0.12% 0.02% 0.05% 0.02% 0.02% 0.05%
Recoveries to prior credit loss 7 23.51% 30.12% 19.8%
0.00% 19.78% 26.90% 6.33% 31.64% 8.5%
0.00% 8.52% 33.01%
90 days past due / EOP LN&LS 8A 0.25% 0.19% 0.42% 0.42% 0.23% 0.32% 0.13% 2.49% 2.49% 0.16%
Total Nonaccrual LN&LS / EOP LN&LS 8A 0.71% 0.74% 0.63% 0.63% 0.97% 0.05% 0.40% 0.42% 0.42% 0.49%
Total Noncurrent / EOP LN&LS 8A 0.96% 0.99% 1.05% 1.05% 1.31% 0.38% 0.59% 2.91% 2.91% 0.71%
LN&LS Allowance to total LN&LS 7 1.30% 1.48% 1.49% 1.49% 1.62% 0.79% 1.23% 0.82% 0.82% 1.24%
LN&LS Allowance / Net losses 7 4.90x 4.60x 0.64x 0.64x 3.13x 276.00% 15.34x 3.71x 371.00% 12.71x
Earn Coverage of net losses 7 12.32x 11.46x 1.60x 1.62x 6.93x 1193.0% 33.17x 8.78x 883.00% 27.11x
Net Loan and lease growth rate 1 -5.23% 26.93% -19.18%
0.00% -19.18% 8.39% 17.48% 16.13% 15.18%
0.00% 15.18% 12.18%
Liquidity risk
…the variation in net income and market value of
equity caused by a bank's difficulty in obtaining
cash at a reasonable cost from either the sale of
assets or new borrowings.

 Banks can acquire liquidity in two distinct

ways:
1. By liquidation of assets.
 Composition of investments
 Maturity of investments
2. By borrowing.
 Core deposits
 Volatile deposits
 Liquidity risk ratios :
PNC and Community National

PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK

UBPR Dec-00 Dec-01 Dec-00 Dec-01
RISK RATIOS Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7
Liquidity Risk
%Total (EOP) Assets (except where noted)
Total equity 11 8.31% 8.03% 7.81% 7.81% 8.36% 7.30% 8.86% 7.05% 7.05% 8.92%
Core deposits 10 63.61% 49.59% 65.14% 66.70% 52.73% 81.21% 72.77% 81.59% 81.92% 72.29%
S.T Non-core funding 10 14.37% 28.27% 58.15% 9.74% 25.13% 9.99% 13.45% 82.85% 9.82% 13.31%
Avg. Volatile liabilities (% Avg, TA) 6 calc 18.66% 30.00% 13.41% 12.27% 26.21% 11.53% 14.06% 11.00% 11.49% 14.48%
Net loans & leases / Total Deposits 10 107.19% 96.26% 85.91% 85.91% 93.01% 70.76% 76.78% 71.32% 71.32% 77.33%
Net loans & leases / Core Deposits 10 122.68% 137.94% 95.43% 95.43% 123.0% 79.90% 90.91% 80.17% 80.17% 92.11%
Avg. Available for sale securities / Avg. TA6 9.52% 15.99% 13.70% 15.09% 15.75% 7.96% 17.39% 12.67% 11.50% 16.31%
Short-term investments 10 0.66% 5.81% #N/A 0.74% 6.74% 12.30% 6.72% #N/A 8.50% 6.44%
Pledged securities 10 74.50% 55.99% #N/A
0.00% 45.01% 52.38% 50.66% 41.89% #N/A
0.00% 34.27% 38.82%
Market risk
…the risk to a financial institution’s
condition resulting from adverse movements
in market rates or prices .

 Market risk arises from changes in:

 Interestrates
 Foreign exchange rates
 Equity and security prices.
Interest rate risk
…the potential variability in a bank's net
interest income and market value of equity
due to changes in the level of market interest
rates.
Example: $10,000 Car loan
4 year Car loan at 8.5%
1 year CD at 4.5%
Spread 4.0%
But for How long?
 Funding GAP
GAP = $RSA - $RSL,
where $RSA = $ amount of assets which will mature or reprice in a give
period of time.
 In this example:
GAP3m = $0.00 - $10,000 = - $10,000
This is a negative GAP.
Foreign exchange risk
… the risk to a financial institution’s
condition resulting from adverse movements
in foreign exchange rates.

 Foreign exchange risk arises from changes in

foreign exchange rates that affect the values
of assets, liabilities, and off-balance sheet
activities denominated in currencies different
from the bank’s domestic (home) currency.
 This risk is often found in off-balance sheet
loan commitments and guarantees
denominated in foreign currencies; foreign
currency translation risk.
Equity and security price risk
…change in market prices, interest rates and
foreign exchange rates affect the market values of
equities, fixed income securities, foreign currency
holdings, and associated derivative and other off-
balance sheet contracts.

 Large banks must conduct value-at-

risk analysis to assess the risk of loss
with their trading account portfolios.
Operational risk
…measures the cost efficiency of the bank's
activities; i.e., expense control or productivity.

 Typical ratios focus on:

 total assets per employee
 total personnel expense per employee
 noninterest expense ratio
 There is no meaningful way to estimate the likelihood
of fraud or other contingencies from published data
 A bank’s operating risk is closely related to its
operating policies and processes and whether is has
adequate controls
 Operational risk ratios:
PNC and Community National

PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK

UBPR Dec-00 Dec-01 Dec-00 Dec-01
RISK RATIOS Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7
0.00%
0.00% 0.00%
0.00%
Operational Risk
Total Assets / Number of employees 3 3,840x 4,780x 3,923x 3,920x 4,730x 2,250x 2,630x 2,404x 2,400x 2,720x
Personnel expense / number of employees 3 59.40x 55.47x 66.14x 66.14x 58.28x 50.82x 41.82x 59.88x 59.88x 43.83x
Efficiency ratio 1 calc 57.17% 59.44% 61.49% 61.15% 59.51% 63.66% 63.64% 76.92% 76.90% 65.35%
Marginal tax rate 3 35.00% 0.00% #N/A 35.00% 0.00% 34.00% 0.00% #N/A 34.00% 0.00%
Overhead less noninterest income / Avg TA
3 0.70% 1.17% 1.04% 1.04% 1.15% 3.47% 2.45% 3.65% 3.65% 2.35%
Capital risk
… closely tied to asset quality and a bank's
overall risk profile
 The more risk taken, the greater is the
amount of capital required.
 Appropriate risk measures include all the
risk measures discussed earlier as well as
ratios measuring the ratio of:
 tier 1 capital and total risk based capital to
risk weighted assets,
 equity capital to total assets,
 dividend payout, and growth rate in tier 1
capital.
Definitions of capital
 Tier 1 capital is:
 total common equity capital plus
noncumulative preferred stock, plus minority
interest in unconsolidated subsidiaries, less
ineligible intangibles.
 Risk weighted assets are:
 the total of risk adjusted assets where the
risk weights are based on four risk classes
of assets.
 Importantly, a bank's dividend policy affects
its capital risk by influencing retained
earnings.
 Capital risk ratios :
PNC and Community National

PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK

UBPR Dec-00 Dec-01 Dec-00 Dec-01
RISK RATIOS Pg # UBPR PEER1 CALC UBPR PEER1 UBPR PEER7 CALC UBPR PEER7
0.00% 0.00%
Capital Risk
Tier 1 Capital / Risk-weighted assets 11A 9.34% 8.49% 8.73% 8.69% 9.20% 11.80% 12.38% 10.73% 10.73% 12.37%
Total RBC / Risk weighted Assets 11A 12.15% 11.21% 12.24% 12.19% 12.03% 12.64% 13.48% 11.58% 11.58% 13.48%
Tier 1 Leverage Capital / Total Assets 11A 8.77% 7.04% 7.55% 7.65% 7.12% 7.31% 8.71% 6.91% 7.02% 8.65%
Equity Capital / Total Assets 11 8.31% 8.03% 7.81% 7.81% 8.36% 7.30% 8.86% 7.05% 7.05% 8.92%
Dividend Payout 11 64.53% 64.59% 222.58% 211.54% 68.90% 24.47% 34.72% 31.17% 30.85% 33.65%
Growth rate in total equity capital 11 -5.23% 32.87% -6.92% -6.92% 19.03% 17.68% 15.95% 9.78% 9.78% 11.09%
Equity growth less asset growth 11 2.10% 4.78% -6.01%
0.00% -6.01% 3.39% 3.33% 2.72% -4.02%
0.00% -4.02% -0.32%
Legal risk
…the potential that unenforceable contracts,
lawsuits, or adverse judgments can disrupt or
otherwise negatively affect the operations or
condition of banking organization

 Legal risk include:

 Compliance risks
 Strategic risks
 General liability issues
Reputational risk
 Reputational risk is the potential that
negative publicity regarding an
institution’s business practices,
whether true or not, will cause a
decline in the customer base, costly
litigation, or revenue reductions.
 (UBPR users manual)
UBPR format http://www.ffiec.gov/UBPR.htm
 Cover page 00
 Contains basic descriptive information on the bank, its location,
charter and certification numbers, and a brief description of the peer
group included.
 Summary Ratios01
 Basic summary information on the bank include return on assets;
interest and non-interest income and expenses as a percentage of
assets.
 Risk summary measures on the loan portfolio; liquidity;
capitalization; and growth rates are also included.
 Income Information
 Income Statement - Revenues and Expenses02
 Detailed income statement, in $1,000 of dollars.

 Noninterest Income and Expenses and Yields 03

 On this page the FDIC mixes additional detail on noninterest income

and expenses in $1,000 of dollars with ratio (% of assets) of these

same numbers.
 In addition, the average rates on, or yields of assets and costs of

liabilities, are include in the bottom half of the page.

 UBPR format
 Balance Sheet Information:
 Balance Sheet - Assets, Liabilities & Capital04
 Basic balance sheet detail in $1,000 of dollars.
 Off-Balance Sheet Items 05
 Both dollar amounts and ratios, each off-balance sheet item as a
percent of total off-balance sheet items.
 Derivatives Analysis 05A
 This is one of many pages that provide additional detail for items
from the previous page.
 Dollar amounts of derivative contracts and percent of total ratios
are provided.
 Derivatives Analysis 05B
 notional value of derivatives.
 Balance Sheet - % Composition of Assets & Liab.06
 Basic common size analysis.
 The balance sheet is presented in percentage of total assets.
 Very useful for evaluating the mix of assets and liabilities.
 UBPR format
 Balance Sheet Information:
 Analysis of Loan & Lease Allowance and Loan Mix 07
 Reconciliation of the Loan and Lease (LN&LS) allowance is provided

in $1,000 of dollars.
 Ratios on the provisions for loan losses (loss provision), LN&LS

allowance, gross losses, recoveries, and net losses by loan type are
provided as well.
 Analysis of Loan & Lease Allowance and Loan Mix 07A
 Ratios detailing the loan mix (each loan category as a percentage of

total loans) as well as information on mortgage serving assets.

 Analysis of Past Due, Nonaccrual & Restructured LN&LS 08
 The dollar amount of past due, nonaccrual, restructured and other

real estate owned (OREO) is provided.

 Ratios, detailing the percentage of non-current loans, by type, for

past due and nonaccrual loans is provided.

 Analysis of Past Due, Nonaccrual & Restructured LN&LS 08A
 Memoranda Information

 Additional detail in dollars and percentage of non-current real estate

loans.
 UBPR format
 Balance Sheet Information:
 Interest Rate Risk Analysis as a Percent of Assets 09
 Basic interest rate risk information.

 Total interest bearing assets and liabilities and the net position (GAP)

for three month and one year repricing.

 Liquidity and Investment Portfolio 10
 Dollar amount of short term investments, debt securities and high

risk mortgage securities.

 Liquidity ratios and the securities mix (percentage of total securities)

is provided as well.
 Capital Analysis 11
 Reconciliation of stockholders equity and the dollar amounts of

equity components.
 Capital ratios, including return on equity (ROE), dividend payout, and

growth rates in capital components.

 Risk-Based Capital Analysis 11A
 The dollar amount of tier one and tire two capital and its components.

 Dollar amount of risk-weighted assets and adjustments to risk-

weighted assets.
 Risk-based capital and leverage capital ratios are provided as well.
 UBPR format
 Balance Sheet Information:
 Last-Four Quarters Income Analysis 12
 Four quarter summary information which combines
information from page 01 and 03 on yield or cost of assets
and liabilities.
 State Average Summary
STAVG
 Summary ratios, similar to page 01 for state averages.
SUMMARY RATIOS Page 01
INCOME STATEMENT - REVENUES AND EXPENSES ($000) Page 02
NONINTEREST INCOME AND EXPENSE ($000) AND YIELDS Page 03
BALANCE SHEET - ASSETS, LIABILITIES AND CAPITAL ($000) Page 04
OFF-BALANCE SHEET ITEMS PAGE 05
DERIVATIVES ANALYSIS PAGE 05A
BALANCE SHEET - PERCENTAGE COMPOSITION OF ASSETS & LIABILITIES PAGE 06
ANALYSIS OF LOAN & LEASE ALLOWANCE AND LOAN MIX PAGE 07
ANALYSIS OF LOAN & LEASE ALLOWANCE AND LOAN MIX PAGE 07A
ANALYSIS OF PAST DUE, NONACCRUAL & RESTRUCTURED LOANS & LEASE PAGE 08
ANALYSIS OF PAST DUE NONACCRUAL & RESTRUCTURED LOANS & LEASES PAGE 08A
INTEREST RATE RISK ANALYSIS AS A PERCENT OF ASSETS PAGE 09
LIQUIDITY AND INVESTMENT PORTFOLIO PAGE 10
CAPITAL ANALYSIS PAGE 11
RISK-BASED CAPITAL ANALYSIS PAGE 11A
ONE QUARTER ANNUALIZED INCOME ANALYSIS PAGE 12
SUMMARY INFORMATION FOR BANKS IN STATE STAVG
Bank Management,
Management 5th edition.
Timothy W. Koch and S. Scott MacDonald
Copyright © 2003 by South-Western, a division of Thomson Learning

ANALYZING BANK
PERFORMANCE:
USING THE UBPR

Chapter 3