my case study

Grantland National Bank (GNB) Grantland National Bank (GNB) operated successfully and profitability in the difficult banking environment of 1988 and 1989. The case raises basic issues on measuring both earnings and risk performance for a middle-sized community bank. In spite of GNB's relatively strong performance there are hints of potential problems by 1989. In 1990 GNB performance rather suddenly became unprofitable. Students can be asked to measure the performance in 1990, then to carefully explain why the bank's performance deteriorated so markedly from 1989 to 1990. The bank has plans to return to at least average profitability by 1992 without taking excessive risks. Students can evaluate how the bank plans to reach this goal, and the potential feasibility of GNB attaining such a turnaround. 1.0 Explain how Grantland Bank achieved its superior earning performance In 1988 and 1989, GNB's ROAs were significantly above those of the average peer group bank. In each year, GNB's higher ROAs resulted from both a larger net profit margin and a higher asset yield. However, GNBs ROA advantage over its peers dropped from 70 basis points in 1988 to only 28 basis points in 1989, as its ROA fell from 1.34% to 1. 09%, while the ROA of the average peer group bank increased from 0.64% to 0.81%. GNB's higher ROA's also produced higher ROEs, despite the bank's moderately lower leverage multiplier in 1988. In response to the decline of GNB's ROA and its advantage over its peers, the same relative deterioration occurred in the bank's ROE Despite a relatively smaller loan portfolio and larger holdings of money market investments, GNB achieved higher assets yields compared with the peer group. The higher asset yields are explained as follows: 1. High yield on investment securities, both taxable and tax-exempt. 2. Higher yields on all categories of loans. 3. A larger volume of fee-based or non-interest income