business case analysis (financial projections)

Business Finance

Morgan State University

Question Description

this case is about the bank and how they are trying to get more collage students/ young people to join their bank

i just need the financial projections part and one power point slide about it. it should be comping from the excel file that i uploaded

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Business Case Analysis Competition Company Background Headquartered in Baltimore, Maryland, Howard Bank operates the region’s largest independently owned banking business with approximately $2.2 billion consolidated assets through its 15 branches located throughout the Greater Baltimore Metropolitan Area. Howard Bank’s mission is to help build enduring legacies for its customers, employees, and community. It will achieve this by combining expertise with experience, staying committed to its values, and dedicating to building lasting relationships with the people it serves. Howard is a commercial bank aimed at supporting the community’s small to medium size businesses, business owners and their families, and the next generation of business owners/entrepreneurs. At the same time, Howard bank resonates with a “community bank”. It is agile enough, unlike other regional and national competitors, to be extremely invested in the local communities that it serves. Since the bank is founded mostly on serving businesses, it has divided its commercial targets into three categories based on servicing needs relative to the size and loan requirements of the businesses (see the table below). Channel Branch Business Banking Small Business Banking Commercial Business Banking Revenue Size Revenues up to $1,000,000 Revenues between $1,000,000 - $5,000,000 Revenues in excess of $3,000,000 Loan Size Loan commitments up to $250,000 Loan commitments between $250,000 - $1,000,000 Loan commitments in excess of $1,000,000 Howard Bank provides the following list of products and services: • Consumer Products & Services o Checking Accounts o Savings Accounts ▪ Money Markets ▪ Certificate of Deposits (CDs) ▪ Health Savings Accounts (HSA) o Credit Cards o Personal Loans & Lines of Credit ▪ Home Equity Line of Credit ▪ Boat Loans ▪ Auto Loans ▪ Overdraft Protection ▪ CD Secured Loans ▪ Signature Line of Credit o Online Banking ▪ Bill Pay ▪ eStatements o Mobile Banking ▪ Mobile Deposit ▪ Mobile Payments • Apple Pay • Google Pay • Samsung Pay ▪ Manage My Cards ▪ Real-Time Account Alerts ▪ Zelle (Coming in May 2020) Additional Information about these products and services can be found at www.HowardBank.com Additional details on Howard Bank’s background are provided on its website https://www.howardbank.com/banking-with-us/about The Challenge According to JD Powers 2019 U.S. Retail Banking Satisfaction Study, only 4% of consumers changed banks in 2018. It seems one key way to grow a bank’s customer base is to acquire customers when they start their banking relationships and retain them by continually addressing/meeting their changing needs. For this reason, Howard Bank is seeking to attract customers at the start of the freshman year and retain them throughout the college experience and into the post graduate years. To do so, Howard Bank would like to offer a program or package of products, services, advice, and messaging that moves and changes with customers as their needs change through transacting, borrowing, and depositing years. The program should start by offering products and services needed by new college freshman, change as they progress through school, and then change again after graduation (possibly multiple times). For example, the program could offer transactional accounts (e.g. checking accounts, mobile banking, online banking) to new freshman, then credit products as the student progresses through college, and finally real estate products in the customer’s post graduate years. However, this is just one example. The challenge of the given case is to develop what the program should be! When developing the program, address the following questions: • • • • Which products and services should be offered and at what points during a customer’s journey? What is the customer experience? How do they interact with Howard Bank from account opening and then ongoing? What are the expectations of this audience? How long should the program run after graduation? Howard Bank would anticipate the expenses associated with this project to be $ 500,000. This is a rough estimate. Student teams are welcome to propose lower or slightly higher expenses as long as proper justification is included. Remember, the goal is to attract and retain customers with changing financial needs. Therefore, consider any alternatives that address this goal, including traditional products (e.g. checking, savings, credit cards, mortgages, etc.) as well as newer alternatives (e.g. Health Savings Accounts and more), traditional marketing and new media, in person discussions and digital solutions even if those aren’t current Howard Bank offerings. Considerations/Focus Areas External Analysis: • • • • Provide industry statistics on the consumer financial services/banking industry. (e.g. size, maturity, market share, growth potential, etc.). Who are the main competitors? Conduct a competitive landscape analysis. Apply the Five-Forces Model analysis of industry competition. Discuss the barriers to entry into the industry. Other external strategic analysis tools covered in the course: general environment, industry success factors, industry evolution. Internal Analysis: • • • What is Howard Bank’s competitive advantage or disadvantage over rivals in the marketplace? Apply internal strategic tools covered in the course: value chain, resource based view, financial analyses, vision-mission-objectives, core competencies, transitory rather than sustained competitive advantage. With reference to the value chain, identify the key activities and interrelationships that Howard Bank needs to exploit to develop the digital-only banking unit. Marketing • • • • • Identify the target market. Develop a go-to market strategy (think about value proposition, how to reach the target market, etc.). o How should marketing attract new customers? o What marketing should be done to existing customers as they move through the program? Create branding for the program. What measures of success should marketing track? Determine the marketing budget for years 1, 2, and 3. Financial Analysis • • • Provide revenue projections for 3 years. Estimate the cost to develop and operate the program Provide projected income statements combining revenue and cost projections from the previous two bullets Banks earn profits by lending money at interest rates that exceed what they pay for expenses. This is called "interest income In order to have money to lend, banks offer deposits at interest rates competitive in their markets. Interest paid on deposits is the major expense for banks. It is appropriately called "interest expense." Banks also collect revenue from fees such as maintenance fees, NSF (non sufficient funds or overdraft fees), foreign ATM fees Banks also pay for overhead and other expenses. These are all considered "non interest expenses." As with any institutions, banks must earn more in revenue (from both interest and non interest income) than they pay in exp Major expense categories include: Interest expense Provision for loan losses Compensation and benefits Marketing and promotions Occupancy and equipment related Data processing and IT General expenses Income tax What the bank pays on deposits in order to have money to lend. What the bank loses due to defaults on loans. Salaries, health insurance, and other benefits. Spending on advertising, including tradtional and digital media. Includes expenses Building, computers, teller machines, ATMs. Core system processing (the system that records transactions, generates statemen Software liscening, postage, telephone and data lines, armored carriers and secur The spreadsheet in the "calculations" tab includes formulas you may use to calculate revenue and profitability for various ban The formulas in this tab are correct. We have also provided figures for interest expense and credit losses. You will need to estimate other expenses based on research (industry averages, etc.) You should also provide a recommended average interest rate for the various products. Yellow highlighted cells should be completed by you. The figures included currently are for illustrative purposes only. Note: Not all who apply for loan products will qualify. Research industry averages to learn approval rates for various products In order to make loans, you must have adequate deposits to cover the amount loaned. If not, you will need to borrow. The cost of borrowing is 2.25%. This is factored into the spreadsheet and included in interest expense. ctions, generates statements, etc.) and banking network costs (networks to receive/send wires and ACH transactions, ATM networks, credi ions, ATM networks, credit/debit card networks). Deposits Checking Accounts Savings Accounts Money Market Accounts Health Savings Accounts CDs Deposits Checking Accounts Number of new checking accounts Average checking balance Average debit card use per checking account per month Average interchange revenue per debit card Annual average interchange revenue per checking account Average fee income from checking accounts (e.g. from overdrafts and other fees) Non interest income per checking account Non Interest Income from Checking Accounts Average interest expense--what we pay on checking acocunts Interest Expense Checking Average losses for checking accounts (fraud, NSFs not paid back, etc.) Losses from checking Savings Accounts Number of new savings accounts Average savings balance Average fee income from savings accounts (e.g. from maintenance and other fees) Non Interest Income from Savings Accounts Average interest expense--what we pay for savings accounts Interest Expense Savings Average losses for Savings accounts (fraud, NSFs not paid back, etc.) Losses from Savings Money Market Accounts Number of new Money Market accounts Average Money Market balance Average fee income from money market accounts (e.g. from maintenance and other fees) Non Interest Income from Money Market Accounts Average interest expense--what we pay for money market accounts Interest Expense Money Market Average losses for Money Market accounts (fraud, NSFs not paid back, etc.) Losses from Money Market Health Savings Accounts Number of new health savings accounts Average health savings balance Average debit card use per health savings account account per month Average interchange revenue per debit card Annual average interchange revenue per health savings account account Average fee income from health savings account accounts (e.g. from overdrafts and other fees) Non interest income per health savings account account Non Interest Income from Health Savings Accounts Average interest expense--what we pay for HSAs Interest Expense health savings Average losses for health savings accounts (fraud, NSFs not paid back, etc.) Losses from health savings CDs Number of new CDs Average Money Market balance Average fee income from CDs (e.g. from maintenance and other fees) Non Interest Income from CDs Average interest expense--what we pay for CDs Interest Expense CDs Average losses for CDs (fraud, NSFs not paid back, etc.) Losses from CDs Loans/Lines Credit Cards 1000 $ 2,000 $ 2.00 0.52 $ 12.48 $ 24.00 $ 36.48 $ 36,480 $ 0.05% 1,000 $ 2.00% 40,000 Mortgages $ 250 4,000 $ 5.00 $ 1,250 0.10% $ 1,000 $ 0.15% 1,500 Note: Appraisal and other closing cost fees are generally a pass through of actual costs so they are not included here. $ 100 7,500 $ 3.00 $ 300 $ 0.30% 2,250 0.15% New Auto Loans $ 1,125 Used Auto Loans $ 750 2,000 $ 0.52 0.53 $ $ 3.29 4.00 $ 7.29 $ 5,471 0.20% $ 3,000 $ 0.15% 2,250 $ 250 12,500 $ 4.00 $ 1,000 Personal Loans 1.75% $ 54,688 Home Equity Line of Credit 0.05% $ 1,563 Note: Appraisal and other closing cost fees are generally a pass through of actual costs so they are not Loans/Lines Credit Cards Number new credit cards Average monthly balance (rolled over) Average monthly spend 400 $ $ 2,000 5,000 Average interest rate Interest Income from Credit Cards 14% $ 112,000 Average interchange rate 1.55% Average interchange income credit cards Average fee income from credit cards (late fees, etc.) $ $ 77.50 10.00 Non interest income per credit card Non Interest Income from Credit Cards $ $ 87.50 35,000 $ 3.00% 24,000 Average losses for credit cards accounts (defaults, fraud, etc.) Losses from Credit Cards Mortgages Number new mortgages Average balance $ 15 150,000 Average interest rate Interest Income from Mortgages $ 5.25% 118,125 Origination fees Average fee income from mortgages (late fees, etc.) $ 1.00% 7.50 Non interest income per mortgage $ 1,508 Non Interest Income from mortgages $ 22,613 Average losses for mortgages accounts (defaults, fraud, etc.) Losses from mortgages $ 0.25% 5,625 Note: Appraisal and other closing cost fees are generally a pass through of actual costs so they are not included here. New Auto Loans Number new auto loans Average balance $ 125 7,500 Average interest rate Interest Income from new auto loans $ 6.75% 63,281 Average fee income from auto loans (late fees, etc.) $ 7.50 Non Interest Income from auto loans $ 938 Average losses for auto loans accounts (defaults, fraud, etc.) Losses from auto loans $ 1.50% 14,063 Number new auto loans Average balance $ 200 5,000 Average interest rate Interest Income from used auto loans $ Average fee income from auto loans (late fees, etc.) $ 10.00 Non Interest Income from auto loans $ 2,000 $ 2.00% 20,000 $ 50 5,000 Used Auto Loans Average losses for auto loans accounts (defaults, fraud, etc.) Losses from auto loans 10.00% 100,000 Personal Loans Number new auto loans Average balance Average interest rate 15.00% Interest Income from auto loans $ 37,500 Average fee income from auto loans (late fees, etc.) $ 10.00 Non Interest Income from auto loans $ 500 Average losses for auto loans accounts (defaults, fraud, etc.) Losses from auto loans $ 4.00% 10,000 Number new Home Equity Lines of Credit Average monthly balance (rolled over) $ 70 40,000 Average interest rate Interest Income from Home Equity Lines of Credit $ 4.50% 126,000 Origination fees Average fee income from HELOCs late fees, etc.) $ 1.00% 5.00 Non interest income per HELOC $ 405 Non Interest Income from HELOCs $ 28,350 Home Equity Line of Credit Average losses for Home Equity Lines of Credit accounts (defaults, fraud, etc.) 0.25% Losses from Home Equity Lines of Credit $ 7,000 Note: Appraisal and other closing cost fees are generally a pass through of actual costs so they are not Income Statement Cost of Funds Interest Income $ 556,906 Interest expense Provision for credit losses $ $ 61,938 80,688 Noninterest income Noninterest expense $ $ 133,901 525,000 NIBT $ 23,182 Federal and State income tax expense % Total Deposits Total Interest Expense Cost of Funds Interest Expense for Borrowing Total Loans Total Deposits 30.0% Borrowing Cost of funds borrowed Federal and State income tax expense $ $ 6,955 NIAT $ 16,228 Non interest expense: Compensation and benefits Marketing and promotions Occupancy and equipment related Data processing and IT $ $ $ $ 125,000 100,000 100,000 100,000 General expenses $ 100,000 Total $ 525,000 Interest expense borrowing st of Funds $ $ 8,375,000 61,938 0.74% se for Borrowing $ 8,037,500 $ 8,375,000 $ 2.25% $ - ...
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