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CFMP > CFMP financial principles 15% > Flashcards

CFMP financial principles 15% Flashcards

0
Q

Liability

A

Money that must be repaid upon request

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1
Q

Asset

A

Loans or investments that represent money due to the bank

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2
Q

Provide examples of bank liabilities

A

Fed funds borrowed, time deposits, non-time deposits, Federal home loan Bank borrowed funds

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3
Q

Explain the funding gap

A

Term differences between assets and liabilities. To assist with funding gaps we can run a deposit promotion, purchased fed funds, or brokered deposits etc.

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4
Q

Provide examples of bank assets

A

Commercial loans, consumer loans, securities, fed funds sold, Oreo property

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5
Q

What are three main methods of generating revenue for a bank

A

Interest income, noninterest income, investments and securities

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6
Q

Define interest income

A

Interest earned from lending activities, usually presented net of interest expense for the deposits

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7
Q

Define Noninterest income

A

Income gained from service fees and other charges. Transaction related income such as interchange income and ATM processing income would be included.

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8
Q

Define investments and securities

A

Interest income gained from the investment of liabilities that exceed lending volume. Basically excess cash that cannot be loaned out. Using investments and securities can compensate for slow loan demand

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9
Q

Define retained earnings

A

Dollars that have been generated from operations that exceed liabilities and can be used for future needs

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10
Q

Define the difference between managing expenses and leveraging expenses

A

Managing expenses involves minimizing the amount spent and controlling where spent.

Leveraging expenses involves maximizing every dollar invested in marketing by spending on the marketing that is bringing in the most profitable volume and type of customer

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11
Q

Name the six people who should be in the Alco meeting

A

CFO, chief marketing officer, chief lending officer, retail banking leader, business banking leader, trust and investment leader

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12
Q

What are the four pillars of a traditional bank

A

Retail deposits, retail and consumer lending, commercial lending, trust

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13
Q

What would four options be to change a balance sheet with high assets and low deposits?

A

Purchase fed funds, deposit promotion, raise loan rates, sell loans from portfolio

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14
Q

Define ROI

A

ROI is the profit from the marketing effort. This would mean the incremental profit minus the marketing investment.

(Incremental profit - marketing investment) / marketing investment

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15
Q

Define ROE

A

Return on owners equity ratio reflects the level of return for the bank’s shareholders.

10% is strong

Net income / average total equity (shareholder equity)

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16
Q

Define ROA

A

ROA ratios reflect a Banks ability to earn income from its assets.

1% or more is considered strong.

Net income / average total assets

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17
Q

Explain the difference between asset sensitivity and liability sensitivity

A

Asset sensitivity means that the assets will reply price more quickly than the liabilities. Liability sensitivity means the liabilities will reprice more quickly than the assets

18
Q

How is spread determined?

A

Earning asset yield - cost of funds rate

Spread is the difference between the income earned in using funds and the cost to the bank of those funds. The goal is to maximize that spread, also called the net interest margin.

19
Q

What is the equation for profit margin

A

Net income / total income

20
Q

What is the equation for earnings per-share?

A

Net income / number of shares outstanding

21
Q

What is the equation for the loan to deposit ratio?

A

Net loans / total deposits

22
Q

Name one thing a bank can do if the loan to deposit ratio is too high?

A

Access fed funds

23
Q

What is the equation for net interest income question

A

Interest income - interest expense

24
Q

What is the equation for earning assets to total assets

A

Interest producing assets/total assets

25
Q

What is the equation for yield on earning assets?

A

Gross interest income/average earning assets (earning asset yield)

26
Q

What is the equation for cost of interest bearing liabilities?

A

Interest expense/interest-bearing funds (cost of funds rate)

27
Q

What is the equation for earnings per-share?

A

Net income/number of shares outstanding

28
Q

You have a competitor that focuses on the wealth market. Your bank focuses on the mass market. In comparison to your income statement, your competitors income statement will most likely show greater ____

A

Non-interest income

29
Q

Define fed funds

A

Overnight borrowings that bank deposit with the Federal Reserve

30
Q

Define Alco

A

Elko is an asset liability committee. The committee charged with ensuring that the banks risk, funding needs, funding sources, and gaps are managed affectively

31
Q

Interest earned from lending activities, usually presented net of interest expense for the deposits

A

Interest income

32
Q

Income gained from service fees and other charges. Transaction related income such as interchange income and ATM processing income would be included

A

Noninterest income

33
Q

Interesting come gained from the investment of liabilities that exceed lending volume, excess cash. Can compensate for slow loan demand.

A

Investments and securities

34
Q

Net income / total income

A

Profit margin

35
Q

Earning asset yield - cost of funds rate

A

Spread

36
Q

Net income/number of shares outstanding

A

Earnings per-share

37
Q

Net loans / total deposits

A

Loan to deposit ratio

38
Q

Interest income-interest expense

A

Net interest income

39
Q

Interest producing assets/total assets

A

Earning assets to total assets

40
Q

Gross interest income/average earning assets

A

Yield on earning assets

41
Q

Interest expense/interest-bearing funds

A

Cost of interest bearing liabilities

42
Q

Fed Funds are BEST described as:

a. a measurement of the Federal Reserve’s liquidity
b. any deposit of a federal agency in your bank
c. overnight borrowings that banks deposit with the Federal Reserve
d. a group of mutual funds including only government obligations

A

c. overnight borrowings that banks deposit with the Federal Reserve

43
Q

Your bank’s ALCO committee has stated that your bank is liability sensitive. The committee has also determined a need for additional liability growth as a result of a strong loan demand. In a rising rate environment, which of the following product promotions is MOST appropriate?

a. 3-month introductory rate on a money-market savings account
b. 6-month introductory rate on HELOCs
c. 24-month fixed-rate CD special
d. Fixed-rate special on installment loans

A

c. 24-month fixed-rate CD special

CFMP (6 decks)

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