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solution

Louisville Bank has the following information
for its 2005 and 2006 Uniform Bank Analysis Profitability and
Earnings section on the 1st page of its UBPR
report. PG3 is its peer group of similar size commercial
banks with assets between $300 million and $1 billion.
You are asked to do a historical trend analysis and peer comparison
analysis for Louisville Bank for 2005 and 2006 prior to the U.S.
Subprime Crisis.

ROA Analysis

12/31/2006

12/31/2005

Louisville Bank


PG3

Louisville Bank

PG3

IR %

6.99 %

6.63 %

6.28%

5.84 %

IE %

3.02 %

2.70 %

2.16%

1.89%

NIM %

3.98%

3.94%

4.12%

3.96%

NIR %

0.18%

0.83%

0.56%

0.88%

NIE %

3.89%

2.84%

4.00%

2.86%

Burden

3.62%

2.01%

3.44%

1.98%

PLL %

0.55%

0.15%

0.21%

0.17%

Realized Gain/Loss Sec.

0.04%

0.00%

0.08%

0.00%

OROA

(0.25 %)

1.81%

0.54%

1.84%

Tier 1 Leverage Capital Ratio

7.99%

9.02%

7.64%

8.88%

OROA Trend & Peer
Comparison Analysis:

  1. Trend OROA Analysis:
    Explain why Louisville Bank’s OROA
    declined
    In 2006 by looking at the trends in
    NIM%, Burden%, and PLL% and
    realized gain on
    securities.
    Why did the Bank’s NIM% change (based
    on trends in IR% and IE%),
    What funding gap
    does this imply?
    Explain why the Burden%
    changed (based on trends in NIR% and NIE%).
  2. Peer OROA Analysis: Explain why Louisville Bank has a
    lower OROA than
    Its peer banks (PG3) based on
    differences in its NIM, Burden, and
    PLL%
    Compare Louisville Bank’s IR% and IE% to
    that of the PG3, how do they differ and how does this explain any
    difference in their NIMs. What type of funding gap do the PG3
    have?
    Compare Louisville Bank’s NIR% and NIE% to
    that of the PG3, how do they differ and how does this explain any
    difference in their Burden %.
  3. Based on the Peer and Trend analysis, what
    weaknesses and strengths
    does Louisville Bank have
    compared to its peers (PG3).

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