How Financial Institutions Operate

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 BS: how they are SET-UP to make $

• Assets side…
• THE real question in finance…

 IS: the report card…

1
©EQCC
This Session
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 Financial status of bank

• Data source : Uniform Bank Performance Report and Financial Statements
• What assets v
• How they are funded
• Equity v Debt
• Income

©EQCC 2
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
• Securities 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

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©EQCC
BS (assets): PNC v CNB
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©EQCC
4
Exercise: How Bank Manages Assets
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 Identify top 3 assets in National and Community banks

©EQCC 5
Com. Bank Assets
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 Pdf, p. 15

6
©EQCC
Insurance Co. Assets
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 Pdf., p. 136

7
©EQCC
Investment Bank Assets
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 Pdf., p. 132

8
©EQCC
Bank Liabilities
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 Demand deposits
• Transactions accounts that pay no interest

 Negotiable orders of withdrawal (NOWs) and automatic transfers from savings

(ATS) accounts
• Pay interest set by 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
per month

 Savings and time deposits represent the bulk of interest-bearing liabilities at

banks.

9
©EQCC
Bank Liabilities (continued)
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 Two general time deposits categories exist: EQuity Consulting

• Time deposits in excess of $100,000, 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not withdrawn over short periods of time.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.
 Purchased liabilities, (rate-sensitive borrowings):
• Federal Funds purchased
• Repos
• Other borrowings less than one year

10
©EQCC
Core versus Volatile Funds
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 Core deposits: stable deposits that are not rate-sensitive.

• More sensitive to the fees charged, services rendered, and location of the bank.
• Includes: demand deposits, NOW accounts, MMDAs, and small time deposits.

 Large: so volatile, and are highly rate-sensitive.

• Normally issued in uninsured denominations
• Ability to borrow is asset quality sensitive
• Includes: large CDs (over 100,000), deposits in foreign offices, federal funds purchased,
repurchase agreements, and other borrowings with maturities less than one year.*

*UBPR includes brokered deposits less than $100,000 and maturing within 1 year in
the definition of net non-core liabilities.

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©EQCC
BS (liabs.): PNC v. CNB
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Exercise: How Bank Manages Funding
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 Identify top 3 funding sources in National and Community banks

 How much debt v. equity are banks using to fund its balance sheet (i.e., assets)

©EQCC 13
Stockholders Equity
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 Subordinated notes and debentures:

• Notes and bonds: maturities > 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.
• Retained earnings equals accumulated net income not paid out as cash dividends

14
©EQCC
Risk Based Capital
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Com. Bank Liabs & EQ
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 Pdf, p. 15

16
©EQCC
Insurance Co. Liabs & EQ
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 Pdf., p. 136

17
©EQCC
Investment Bank Liabs & EQ
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 Pdf., p. 132

18
©EQCC
The income statement
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 Interest income (II)

 Interest expense (IE)
• Interest income less interest expense equals
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

 Securities gains or losses (SG)

 Taxes

©EQCC 19
Income statement (interest): PNC and Community
National Bank PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
Dec-03 % of Dec-04 % of Dec-03 % of Dec-04 % 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 -17.5% 1,730,575 37.5% 8.3% 1,875,058 38.4% 0.0% 7,923 73.6% 7.5% 8,521 72.1%
Income from lease financing -20.6% 189,910 4.1% -30.1% 132,839 2.7% 0.0% 0 0.0% 0.0% 0 0.0%
Memo: Fully taxable -17.7% 1,905,782 41.3% 4.6% 1,993,668 40.8% 0.0% 7,923 73.6% 7.5% 8,521 72.1%
Tax-exempt -25.7% 14,703 0.3% -3.2% 14,229 0.3% 0.0% 0 0.0% 0.0% 0 0.0%
Estimated tax benefit -27.7% 7,347 0.2% -22.3% 5,711 0.1% 0.0% 0 0.0% 0.0% 0 0.0%
Income on Loans & Leases (TE) -17.8% 1,927,832 41.7% 4.4% 2,013,608 41.2% 0.0% 7,923 73.6% 7.5% 8,521 72.1%

Other security inc. (data prior to 12/31/00) 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
U.S. Treasury & Agency securities 48.2% 34,418 0.7% 221.4% 110,614 2.3% -6.2% 427 4.0% 28.3% 548 4.6%
Mortgage Backed Securities -0.7% 366,877 7.9% -8.1% 337,110 6.9% -12.6% 368 3.4% 62.8% 599 5.1%
Estimated tax benefit 1.0% 504 0.0% 565.1% 3,352 0.1% 23.5% 21 0.2% 81.0% 38 0.3%
All other securities income -15.4% 117,866 2.6% -31.2% 81,129 1.7% 28.1% 41 0.4% 80.5% 74 0.6%
Memo: Tax-Exempt Securities Income 3.7% 1,008 0.0% 728.4% 8,350 0.2% 28.1% 41 0.4% 80.5% 74 0.6%
Investment Interest Income (TE) -2.4% 519,665 11.2% 2.4% 532,205 10.9% -7.4% 857 8.0% 46.9% 1,259 10.7%
Interest on due from banks 43.8% 4,835 0.1% -24.8% 3,638 0.1% 164.3% 37 0.3% 21.6% 45 0.4%
Interest on Fed funds sold & resales -32.4% 18,682 0.4% 57.9% 29,503 0.6% -7.0% 133 1.2% -23.3% 102 0.9%
Trading account income 216.9% 805 0.0% 2455.9% 20,575 0.4% 0.0% 0 0.0% 0.0% 0 0.0%
Other interest income 127.2% 39,447 0.9% -47.2% 20,847 0.4% 0.0% 15 0.1% 13.3% 17 0.1%
Total interest income (TE) -14.2% 2,511,266 54.4% 4.3% 2,620,376 53.6% -0.6% 8,965 83.3% 10.9% 9,944 84.1%
Interest Expense:
Int on Deposits held in foreign offices -14.7% 17,335 0.4% 144.0% 42,290 0.9% 0.0% 0 0.0% 0.0% 0 0.0%
Interest on CD's over $100M -29.5% 67,714 1.5% 6.4% 72,032 1.5% -19.2% 375 3.5% 6.4% 399 3.4%
Interest on All Other Deposits: -30.5% 369,702 8.0% 1.8% 376,244 7.7% -20.5% 1,060 9.8% 3.6% 1,098 9.3%
All NOW & ATS Accounts 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Money market deposit accounts 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Other savings deposits 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Time deposits under $100M 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Total interest exp. on deposits -29.8% 454,751 9.8% 7.9% 490,566 10.0% -20.2% 1,435 13.3% 4.3% 1,497 12.7%
Interest on Fed funds purchased & resale 2.2% 13,260 0.3% 204.9% 40,432 0.8% -52.2% 11 0.1% 90.9% 21 0.2%
Interest on Trad Liab & Oth Borrowings -59.0% 26,001 0.6% 429.4% 137,637 2.8% 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 -17.9% 55,449 1.2% 52.1% 84,340 1.7% 0.0% 0 0.0% 0.0% 0 0.0%
Total interest expense -30.6% 549,461 11.9% 37.0% 752,975 15.4% -20.6% 1,446 13.4% 5.0% 1,518 12.8%
Net interest income (TE) -8.1% 1,961,805 42.5% -4.8% 1,867,401 38.2% 4.5% 7,519 69.8% 12.1% 8,426 71.3%
Income statement (noninterest): PNC and Community
National Bank PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
Dec-03 % of Dec-04 % of Dec-03 % of Dec-04 % of
Income Statement % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total % Cha $ 1,000 Total
Noninterest Income:
Fiduciary Activities -5.4% 291,582 6.3% 1.6% 296,226 6.1% 0.0% 0 0.0% 0.0% 0 0.0%
Deposit service charges 4.8% 422,100 9.1% 2.1% 431,169 8.8% 16.7% 1,070 9.9% 30.5% 1,396 11.8%
Trading rev, venture cap., securitize inc. 61.8% 88,985 1.9% -24.4% 67,267 1.4% 0.0% 0 0.0% 0.0% 0 0.0%
Investment banking, advisory inc. 3.5% 562,482 12.2% 32.7% 746,475 15.3% 0.0% 0 0.0% 0.0% 0 0.0%
Insurance commissions & fees -74.8% (660) 0.0% -1896% 11,856 0.2% -66.7% 1 0.0% 100.0% 2 0.0%
Net servicing fees -7.9% 35,245 0.8% 45.3% 51,212 1.0% 0.0% 0 0.0% 0.0% 0 0.0%
Loan & lease net gains (losses) -13.4% 134,969 2.9% -3.0% 130,953 2.7% -100.0% 0 0.0% 0.0% 0 0.0%
Other net gains (losses) -39.1% 10,036 0.2% -88.8% 1,124 0.0% -1012.5% (73) -0.7% -75.3% (18) -0.2%
Other noninterest income 10.5% 474,040 10.3% 1.3% 479,982 9.8% -31.9% 590 5.5% -15.8% 497 4.2%
Total noninterest income 3.7% 2,018,779 43.7% 9.8% 2,216,264 45.4% -16.6% 1,588 14.7% 18.2% 1,877 15.9%
Adjusted Operating Income (TE) -2.5% 3,980,584 86.2% 2.6% 4,083,665 83.6% 0.1% 9,107 84.6% 13.1% 10,303 87.2%
Non-Interest Expenses:
Personnel expense 5.7% 1,112,208 24.1% 27.8% 1,421,341 29.1% -2.4% 4,202 39.0% 3.2% 4,335 36.7%
Occupancy expense 11.8% 352,506 7.6% -0.6% 350,550 7.2% 4.5% 1,256 11.7% 2.2% 1,284 10.9%
Goodwill impairment 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Other Intangible Amortization -4.6% 4,006 0.1% 186.5% 11,476 0.2% 0.0% 11 0.1% 0.0% 11 0.1%
Other Oper Exp (Incl intangibles) 10.9% 956,533 20.7% 3.9% 994,122 20.3% -2.8% 2,064 19.2% 3.3% 2,133 18.0%
Total Noninterest Expenses 8.6% 2,425,253 52.5% 14.5% 2,777,489 56.8% -1.4% 7,533 70.0% 3.1% 7,763 65.7%
Provision: Loan & Lease Losses -39.1% 176,612 3.8% -70.8% 51,553 1.1% 42.5% 684 6.4% -12.3% 600 5.1%
Pretax Operating Income (TE) -11.5% 1,378,719 29.8% -9.0% 1,254,623 25.7% -8.9% 890 8.3% 118.0% 1,940 16.4%
Realized G/L Hld-to-Maturity Sec. 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Realized G/L Avail-for-Sale Sec. 12.6% 89,786 1.9% -44.5% 49,792 1.0% 110.8% 215 2.0% -100.0% 0 0.0%
Pretax Net Operating Income (TE) -10.4% 1,468,505 31.8% -11.2% 1,304,415 26.7% 2.4% 1,105 10.3% 75.6% 1,940 16.4%
Applicable Income Taxes -13.4% 490,376 10.6% -22.1% 381,926 7.8% -2.2% 355 3.3% 80.6% 641 5.4%
Current Tax Equivalent Adjustment -26.4% 7,851 0.2% 15.4% 9,063 0.2% 23.5% 21 0.2% 81.0% 38 0.3%
Other Tax Equivalent Adjustments 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Applicable Income Taxes (TE) -13.6% 498,227 10.8% -21.5% 390,989 8.0% -1.1% 376 3.5% 80.6% 679 5.7%
Net Operating Income -8.6% 970,278 21.0% -5.9% 913,426 18.7% 4.3% 729 6.8% 73.0% 1,261 10.7%
Net Extraordinary Items 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Net Income -8.6% 970,278 21.0% -5.9% 913,426 18.7% 4.3% 729 6.8% 73.0% 1,261 10.7%
Cash Dividends Declared 87.5% 750,000 16.2% 6.7% 800,000 16.4% -100.0% 0 0.0% 0.0% 0 0.0%
Retained Earnings -66.7% 220,278 4.8% -48.5% 113,426 2.3% 58.8% 729 6.8% 73.0% 1,261 10.7%
Memo: Net International Income 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0% 0.0% 0 0.0%
Memo: Total operating income -6.7% 4,619,831 100.0% 5.8% 4,886,432 100.0% -2.3% 10,768 100.0% 9.8% 11,821 100.0%
Memo: Net operating income -2.5% 3,980,584 86.2% 2.6% 4,083,665 83.6% 0.1% 9,107 84.6% 13.1% 10,303 87.2% 21
Interest income
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 Interest income includes interest from:

• Loans and leases
• Deposits held at other institutions,
• Investment securities
 Taxable and municipal securities
• Trading account securities

 and loan fees earned on all of a bank's assets.

©EQCC 22
Noninterest income
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 Fiduciary activities
 Deposit service charges
 Trading revenue, venture cap., securitize inc.
 Investment banking, advisory inc.
• Net servicing fees

 Insurance commissions & fees

 Loan & lease net sales gains (losses)
 Other net gains (losses)
 Other noninterest income

©EQCC 23
Noninterest expense
…composed primarily of:
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 Personnel expense:
• Salaries and fringe benefits paid to bank employees

 Occupancy expense :
• Rent and depreciation on equipment and premises, and

 Other operating expenses:

• Utilities
• Deposit insurance premiums

©EQCC 24
Noninterest expense
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 Expenses and loan losses directly affect the balance sheet.

 The greater the size of loan portfolio, the greater is operating overhead and PL.
 Consumer loans are usually smaller and hence more costly (non-interest) per
dollar of loans.

©EQCC 25
Return on equity (ROE = NI / TE)
… the basic measure of stockholders’ returns
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 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

©EQCC 26
ROA is driven by the bank’s ability to:
…generate income (AU) and control expenses (ER)
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 Income generation (AU) can be found on the UBPR (page 1) as:

Int. Inc . N o n. int. Inc . S e c ga ins (lo sse s)

AU   
TA TA TA
• Expense Control (ER) can be found on the UBPR (page 1) as:

In t . E x p . N o n  int . E x p . P L
ER  *
 
TA TA TA
• Note:
• AU does not include non-operating items, e.g., associates
• ER* does not include taxes.

©EQCC 27
Asset utilization (AU = TR / TA):
… the ability to generate income.
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 Interest Income / TA
• Asset yields (avg. rate earned)
 Interest income asset (i) / $ amount of asset (i)
• Composition of assets (mix)
 $ amount asset (i) / TA
• Volume of Earning Assets
 Earning assets / TA

 Noninterest income / TA
• Fees and Service Charges
• Securities Gains (Losses)
• Other income

©EQCC 28
Expense ratio (ER = Exp / TA)
… the ability to control expenses.
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 Interest expense / TA
• Cost per liability (avg. rate paid)
 Int. exp. liab. (j) / $ amt. liab. (j)
• Composition of liabilities
 $ amt. of liab. (j) / TA
• Volume of int. bearing debt and equity

 Non-interest expense / TA
• Salaries and employee benefits / TA
• Occupancy expense / TA
• Other operating expense / TA

 Provisions for loan losses / TA

 Taxes / TA

©EQCC 29
Aggregate profitability measures
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 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.)

©EQCC 30
 Financial ratios
…PNC and Community National Bank
UBPR for PNC
PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
Dec-03 Dec-04 Dec-03 Dec-04
RISK RATIOS Pg # CALC BANK  PG 1 CALC BANK  PG 1 CALC BANK  PG 4 CALC BANK  PG 4
ROE: Net Income / Average total equity 11 16.90% 16.56% 14.41% 15.59% 15.26% 14.55% 5.48% 5.56% 11.56% 8.63% 8.67% 11.72%
ROA: Net Income / aTA 1 1.59% 1.59% 1.28% 1.31% 1.31% 1.31% 0.41% 0.41% 1.07% 0.63% 0.63% 1.09%
AU: Total Revenue / aTA 1 calc 7.59% 7.59% 6.45% 7.02% 7.02% 6.21% 6.10% 6.10% 6.50% 5.90% 5.91% 6.23%
ER: Total expenses (less Taxes) / aTA 1 calc 5.18% 5.17% 4.51% 5.15% 5.14% 4.23% 5.47% 5.48% 5.01% 4.93% 4.94% 4.73%
EM: aTA / Avg, Total Equity 6 calc 10.59x 10.48x 11.20x 11.59x 11.47x 10.65x 13.37x 13.76x 10.85x 13.78x 13.97x 10.67x
EB: Earning Assets / aTA 6 82.86% 82.60% 89.84% 82.85% 82.92% 90.08% 85.43% 86.74% 91.45% 86.83% 86.98% 91.76%
NIM: Net interest margin (te) 1 3.89% 3.82% 3.51% 3.32% 3.18% 3.52% 4.95% 4.80% 4.33% 4.82% 4.74% 4.36%
Spread (te) 3 calc 3.74% 3.62% 3.36% 3.15% 3.02% 3.37% 4.39% 4.25% 3.97% 4.30% 4.25% 4.04%
Efficiency Ratio 3 60.93% 60.86% 57.73% 68.01% 67.97% 57.92% 82.72% 82.75% 66.06% 75.35% 75.34% 65.99%
Burden / aTA 1 calc 0.67% 0.66% 1.12% 0.81% 0.81% 1.16% 3.37% 3.37% 2.33% 2.94% 2.94% 2.39%
Non Interest Income / Noninterest exp. 1 calc 83.24% 83.42% 62.03% 79.79% 79.70% 59.86% 21.08% 21.08% 29.18% 24.18% 24.23% 26.23%
EXPENSES:
ER*: Expense ratio (Expense components) 5.18%
0.00% 5.17% 4.51% 5.15%
0.00% 5.14% 4.23% 5.47%
0.00% 5.48% 5.01% 4.93%
0.00% 4.94% 4.73%
Total Interest expense / aTA 1 0.90% 0.90% 1.29% 1.08% 1.08% 1.20% 0.82% 0.82% 1.50% 0.76% 0.76% 1.31%
Memo: Interest expense / Avg. Earn assets
1 1.09% 1.07% 1.41% 1.34% 1.28% 1.31% 0.95% 0.92% 1.61% 0.87% 0.85% 1.41%
Noninterest Expenses / aTA 1 3.98% 3.98% 2.95% 3.99% 3.99% 2.89% 4.27% 4.27% 3.29% 3.88% 3.88% 3.24%
Personnel expense 3 1.83% 1.83% 1.37% 2.04% 2.04% 1.38% 2.38% 2.38% 1.79% 2.16% 2.16% 1.78%
Occupancy expense 3 0.58% 0.58% 0.38% 0.50% 0.50% 0.36% 0.71% 0.71% 0.48% 0.64% 0.64% 0.47%
Other Oper Exp (Incl intangibles) 3 1.57% 1.58% 1.13% 1.43% 1.44% 1.08% 1.17% 1.18% 1.00% 1.07% 1.07% 0.98%
Provision: Loan & Lease Losses / aTA 1 0.29% 0.29% 0.27% 0.07% 0.07% 0.14% 0.39% 0.39% 0.22% 0.30% 0.30% 0.18%
Income Taxes / aTA #N/A 0.82% 0.83% 0.66% 0.56% 0.57% 0.67% 0.21% 0.21% 0.42% 0.34% 0.34% 0.41%
INCOME:
AU: Asset Utilization (Income components): 7.59% 7.59% 6.45% 7.02% 7.02% 6.21% 6.10% 6.10% 6.50% 5.90% 5.91% 6.23%
Interest income / aTA 1 4.12% 4.12% 4.57% 3.77% 3.77% 4.46% 5.08% 5.08% 5.52% 4.97% 4.97% 5.37%
Memo: Avg, yield on earning assets 1 4.98% 4.89% 4.98% 4.66% 4.46% 4.88% 5.91% 5.73% 5.95% 5.69% 5.59% 5.78%
Noninterest income / aTA 1 3.32% 3.32% 1.83% 3.18% 3.18% 1.73% 0.90% 0.90% 0.96% 0.94% 0.94% 0.85%
Realized security gains (losses) / aTA 1 0.15% 0.15% 0.05% 0.07% 0.07% 0.02% 0.12% 0.12% 0.02% 0.00% 0.00% 0.01%
 Interest expense
…composition, rate and volume effects for
PNC and Community National Bank
PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK
Dec-03 Dec-04 Dec-03 Dec-04
RISK RATIOS Pg # CALC BANK  PG 1 CALC BANK  PG 1 CALC BANK  PG 4 CALC BANK  PG 4
Interest Expense: Composition, Rate and Volume Effects
Rate: Avg, interest cost of interest bearing liabilities
3 1.24% 1.27% 1.62% 1.50% 1.44% 1.51% 1.51% 1.48% 1.98% 1.39% 1.34% 1.74%
Memo: Interest expense / Earning assets 1 1.09% 1.07% 1.41% 1.34% 1.28% 1.31% 0.95% 0.92% 1.61% 0.87% 0.85% 1.41%
Volume: All Interest bearing debt (avg.) / aTA 1 72.73% 70.78% 80.81% 73.70% 74.97% 80.65% 53.76% 55.17% 75.51% 54.29% 56.69% 74.88%
Mix and Cost of Individual Liabilities:*
Total deposits (avg.) / aTA: 6 73.72% 73.84% 67.79% 72.45% 72.30% 68.32% 91.72% 91.94% 85.07% 92.02% 91.96% 84.46%
Cost (rate): Int bearing Total deposits 3 1.20% 1.22% 1.39% 1.18% 1.14% 1.25% 1.52% 1.49% 1.90% 1.38% 1.33% 1.66%
Core deposits (avg.) / aTA 6 67.41% 68.16% 53.90% 64.84% 64.29% 54.64% 84.26% 84.50% 72.07% 85.00% 84.90% 71.52%
All other deposits (avg.) / aTA 6-calc 55.93% 55.41% 42.13% 53.38% 53.19% 43.03% 45.73% 45.52% 54.88% 46.77% 47.73% 53.88%
Trans (NOW&ATS) Accts (avg.) / aTA 6 2.40% 2.23% 1.81% 2.35% 2.15% 1.92% 6.55% 6.58% 10.37% 7.43% 7.02% 10.60%
Cost (rate): Trans (NOW&ATS) Acts 3 #N/A 0.90% 0.60% #N/A 0.86% 0.62% #N/A 0.29% 0.63% #N/A 0.28% 0.59%
MMDA's and other sav. Accts (avg) / aTA 6-calc 42.29% 42.15% 30.73% 41.23% 41.28% 32.75% 25.67% 25.71% 22.70% 28.07% 29.57% 22.85%
Cost (rate): Other savs deposits* 3 #N/A 0.57% 0.70% #N/A 0.60% 0.69% #N/A 0.90% 1.08% #N/A 0.98% 1.00%
Time deposits under $100M (avg.) / aTA 6 11.24% 11.03% 9.59% 9.80% 9.76% 8.36% 13.51% 13.23% 21.81% 11.27% 11.14% 20.43%
Cost (rate): All oth time dep. (CD<100M) 3 #N/A 3.12% 2.41% #N/A 2.78% 2.03% #N/A 2.51% 2.80% #N/A 2.01% 2.43%
Volatile (S.T non core) liab (avg.) / aTA 10 9.85% 11.47% 23.24% 13.08% 12.11% 23.42% 8.03% 4.10% 11.90% 7.52% 4.84% 12.21%
Large CDs (inc. brokered) (avg.) / aTA 6 3.23% 3.14% 9.02% 3.67% 3.76% 8.99% 7.46% 7.44% 12.41% 7.02% 7.06% 12.39%
Cost (rate): CD's over $100M 3 3.44% 3.66% 2.38% 2.89% 2.81% 2.17% 2.83% 2.79% 2.72% 2.82% 2.78% 2.40%
Fed funds purchased & resale (avg.)/ aTA 6 0.74% 0.99% 8.16% 1.55% 3.18% 8.00% 0.56% 0.55% 1.05% 0.50% 0.55% 1.07%
Cost (rate): Fed funds pur & resale 3 2.95% 1.10% 1.15% 3.84% 1.37% 1.41% 1.10% 1.10% 0.82% 2.10% 1.75% 0.98%
Memo: All brokered deposits (avg.) / aTA 6 2.36% 2.19% 2.29% 2.81% 3.00% 2.81% 0.00% 0.00% 0.51% 0.00% 0.11% 0.84%
All common and preferred capital (avg.) / aTA 6 9.44% 9.54% 8.93% 8.63% 8.72% 9.39% 7.48% 7.27% 9.22% 7.26% 7.16% 9.37%

©EQCC 32
 Interest income
…composition, rate and volume effects for
PNC and Community National Bank

PNC BANK, NATIONAL ASSOCIATION COMMUNITY NATIONAL BANK

Dec-03 Dec-04 Dec-03 Dec-04
RISK RATIOS Pg # CALC BANK  PG 1 CALC BANK  PG 1 CALC BANK  PG 4 CALC BANK  PG 4
Interest Income: Composition, Rate and Volume Effects
Rate: Avg, yield on aTA
Memo: Avg. yield on earn. assets (rate) 1 4.98% 4.89% 4.98% 4.66% 4.46% 4.88% 5.91% 5.73% 5.95% 5.69% 5.59% 5.78%
Volume: Earn assets (avg.) / aTA 6 82.86% 82.60% 89.84% 82.85% 82.92% 90.08% 85.43% 86.74% 91.45% 86.83% 86.98% 91.76%
Non earning assets (avg.) / aTA 6-calc 17.14% 17.39% 9.75% 17.15% 17.07% 9.64% 14.57% 13.27% 8.25% 13.17% 13.03% 7.93%
Mix and Yield on Individual Assets:*
Total Loans (Gross loans - unearn inc.) (avg.) / 6aTA 57.55% 57.17% 57.69% 57.13% 57.25% 58.22% 65.76% 64.10% 66.45% 62.05% 61.33% 67.80%
Yield (rate): Total Loans & Leases (te) 3 5.48% 5.48% 5.66% 5.04% 5.04% 5.47% 6.89% 6.89% 6.91% 6.90% 6.90% 6.58%
Total Investments (avg.) / aTA: 6-calc 26.33% 26.46% 26.43% 26.60% 26.52% 26.50% 20.36% 23.28% 21.82% 25.50% 26.35% 20.98%
Total investment securities (avg.) / aTA 6-calc 21.41% 21.90% 22.56% 22.12% 22.03% 23.03% 16.43% 14.97% 17.89% 20.83% 20.78% 17.81%
Yield (rate): Total invest secs. (TE) 3 3.99% 3.81% 4.18% 3.54% 3.51% 3.98% 2.94% 3.32% 4.08% 3.00% 2.92% 3.91%
Yield (rate): Total invest secs. (Book) 3 3.99% 3.81% 4.00% 3.52% 3.48% 3.84% 2.86% 3.24% 3.75% 2.91% 2.83% 3.61%
Trading account assets (avg.) / aTA 6 1.61% 1.63% 0.39% 1.92% 2.09% 0.34% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

©EQCC 33
Average Performance Characteristics of Banks by
Business Concentration and Size
Partner in Building Corporate & Personal EQuity

EQuity Consulting

 ROE and ROA (up to $10 billion in assets) increases with bank size
 Employees per dollar of assets decreases with bank size
 Larger banks have lower efficiency ratios than smaller banks
 Smaller banks:
• have proportionately more core deposits and fewer volatile liabilities than larger banks
• have a proportionately larger earnings base than larger banks
• have proportionately lower charge-offs than larger banks

©EQCC 34
Bank Performance Measure by Size
Partner in Building Corporate & Personal EQuity

EQuity Consulting
All
$100M - $1B - Trend Commercial
Assets Size < $100M $1B $10B > $10B with Size Banks
Number of institutions reporting 3,655 3,530 360 85  7,630
% of unprofitable institutions 9.80 2.00 1.90 1.20  5.70
% of institutions with earn gains 59.30 70.70 71.90 68.20  then  65.30
Performance ratios (%) 
Return on equity 8.46 12.88 13.48 14.24 generally 13.82
Return on assets 0.99 1.28 1.46 1.30 then  1.31
Pretax ROA 1.24 1.73 2.21 1.93 then  1.92
Equity capital ratio 11.52 10.00 10.90 9.95  10.10
Net interest margin 4.18 4.22 4.00 3.43  3.61
Yield on earning assets 5.65 5.73 5.39 4.83  5.02
Cost of funding earn assets 1.47 1.51 1.39 1.40  1.41
Earning assets to total assets 91.86 91.93 91.01 84.39  86.18
Efficiency ratio 69.54 62.22 55.54 57.42  57.96
Burden ratio 2.60 2.07 1.21 0.82  1.06
Noninterest inc to earn assets 1.03 1.54 2.46 2.93  2.66
Noninterest exp to earn assets 3.63 3.61 3.67 3.75  3.72
Net charge-offs to LN&LS 0.27 0.31 0.43 0.73  0.63
LN&LS loss provision to assets 0.22 0.26 0.34 0.34  0.33

©EQCC 35