please explain in bullet points the info needed

II. Performance Analysis (see Evhibit 1.4) A. Trend OROA Analysis (explain the reasons based on the NIM, Bardenfo, and PLLWs why the OROA changed-incleding analyzing the IR\% and IEN changes for why the NIM changed and the likely funding gap and analyxing the NIEN and NIR\% for why the Barden changed). B. Peer OROA 2021 Comparisen Analysis fexplain the reasons based oa the NIM, Burdenith, and PLLL's wity the OROA for Blue Sky Baak differs from its Pects in 202lifincluding : analyzing differences in the IR* and IET to cuplain why the NIMs are different, and differences in the NIEFS and NIR. to explain why the Burdens are different). C. Dupont Trend Analysis including calculating the Bank's AU and NPM, EM, and ROE and analyzing these o determine why the ROE changed between the 2 years. Note Recall: (EM=1. Tier 1 Capital Ratio as a fraction): ROE =ROA EME AU= IR:=NIRo2:NPM=ROA/(AU as a fraction ) Doa Table 2021 Bank Pocr 2020 Bank Peer ROE ROA EM AU NPM B. Dupont Peer Comparison Aaalysis for the just 2021. analyzing AU, NPM, and BM to detcretine why Bhue Slcy Bank's ROE differs from its Peers in 2021. III. Net Interest Margin (NIM) Trend \& Reer Analysis (see Exhibits 2 \& 3) A. Asset Rate/Mix Analysis (Explain why the Bank's IR\% changed & why it is different frem the Peers in 2021 by looking at the types of loans it has and rates on these) B. Liability Rate/Mix Analysis (CExplain why the Bank's IE\% changed & why it is different from the Perr in 2021 by looking at the types of liabilities it has and rates en these) 1V. Burden Analysis (See Exhibit 1B) (Analyre by looking at different costs \& cfiliciency ratios \&c explain wby the Baak's NIE % changed \& why it is different from the Peers in 2021) V. Risk Aaalysis Pecr Cemparison for 2021 (sec Fxbibit 4) A. Analysis of Credit Risk Comparing the Bank to its Peers in 2021 (Look at the bank.'s mhix changes 5 credit risk ratios including loss ratios and earaings ceverage ratios) B. Analysis of Liquidity Risk Comparing the Bank to its Peers in 2021 (Look at ratios for the Bank"s Liquidity risk FNCE3600_BlueSkyBank... on the asset, liablility, and off-balance sheet sides) C. Analysis of Capital Risk Comparieg the Bank to its Peers In 2021 (Look at Tier 1 Capital Ratios, Dividend Payout Ratios, Growth in Equity compared to Growth in Assets) D. Analysis of Interest Rate Risk Comparing the Baak to its Peers in 2021 (Look at how volatile the change in their NIMIs were and at their Net 1 year $k3 year positions, that take Leng-term Assets - Long-term Liabilities), Larger net positions indicate greater initerest rate riok. VI. Conclusion: Based on your Analysis; Samaarize why the Baak's Performance Change frome 2020 to 2021 and why It differs from the Peers and your riak analysis compared to the Peers. - Discuss in your conclusion whether Blue Shy Bank is taking on too much risk or not, and ways Sophia Romero could approach management about her concerns. "Blue Sky Bank and Sophia Romero"s Dillemma" 1. Introduction Sophia Romero, Entrepreacur Sophta Romero, a young. Black Hispanic American, woman cntreprencur in her mid-30's started her own convelting business ten years ago in 2012. Her company, Chunging Faces, now has numerous corporate clients, including Fortune 500 companics? Her business focuses on public relations and positive strateyies: to help companies to change their strategies to be more authentic in their actions to match their environmentally conscious branding for their companies. Sophia has recerived acclaim for her work for both small businesses and major compunies, and was selected as a top entreprencur for ber region and has been recognized by cnvironmental groups. Sophia and the Blec-Sky Bank Board Mecting Sophia was recently honored by being asked to serve as a Board of Directors for Blue Sky Bank, a farnily-owned Community Bank with $250 million in assets, headquartered in ber home city, Santa Fe, New Mexico. Sophia never served on a Bank's Board before, so to prepare herself, she took an enline coarse on financial institutions and markets at CU Denver, so she would be able to analyze bank uniform bank perfonmance reports to be able to evaluate a bank's performance, and credit, liquidity, interest rate, and capital risks. During the first board mecting. Drew Peterson, Sly Bank's ED. Calendar shboard Co Do Notifications Inbox Duriag the first board meeting. Drew Peterson, Sky Bank's CFO, presented the bank's uniform bank performance report for the past two years. (sec Appendix Exhibits). Sophina had carefully analyzed these statements jriar to the moeting. When Drew asked the board if they had any questions following the presentation, the room was silent. Sophia raisod ber hand, and asked whether the bank might be taking ea too much eredit and liquidity risk by taking on more develogment and construction loans and financing these with more non-deposit financing as a bank strategy. Drew replied that the bank was doing just fine. Other board members also dismissed her coscerms. Sophia is worried about hew she can conviace management fo listen to her views, and asks you do to a performanceirisk analysis for Blae Sky bank to see if her concerns are warranted. Below is a suencary overviev for Blue Sly Bank and its competition. II. Background for Bluc Sky Bank, the Banking Industry. and Competitors A. Overview Blue Sky Bank Blue Sky Bank is independeatly osmed, beadquartercd in Santa Fec, and operates throughout Ncw Mexico. Bloc Sky Bank is categorized by the Federal Reserve as a coenmunity bank, with less than $10 billion in total average assets. Acoording to the FDIC as of June 30, 2021, 4, 750 commanity banks with over 29,000 bnaches operated in the U.S. Although they do not have as lange a market share as larger banks, in ternas of nurubers, they repiresent 97 F. of the banks eperating in the U.S. Banking Industry. By knowing their customers well, a comanunity bank often has a better handle on a pervonal cvaluation of their custopmers versus just credit scoring models, Often community banks are more. willing to work and negotiste with customens when they are having problems with their loans, and offer more personal and community-oriented services. B. Competitors Blue Sky Bank operates primarily in the New Miexico banking market eompeting with lange banks; along with other smaller bsinks and savings institutions. The frive banks with the largest market shares as of June 30, 2021, in New Mexico as reported by the FDiC include by asset sine catcgorics two large financial institutions Wells Fargo Bank ( 91.78 tnllion in asets) and Bank FNCE3600_BlueSkyBank... of America (\$2.35 trillion in assets, and U.S. Bank (\$547.85 billion in assets), and one regional bunk, Bunk of the West (\$99.18 bullion in assets), as well as New Mecico Bunk a Trust (\$2.50 billion in assets), capturing together 54.13% of the market share for deposits. Blue Sky Bank also faces Credit Unions and savings institutions in New Mcuico as conpetitors. Blue Sly, like other Comanuaty Banks faced tochnology challenges as well and positively adopted new technology for renote sperations and online banking and other services, including having a Blue-Sky Bank app for its custorners to use on their smart phones, laptops, or iPads to mulke deposits and to fill out loan applieations, among other online banking services. Other online bank competitors include Rocket Morsgage, Quicken Loans, Bir2 Credit, among numerous other online Fintech lenders that are subject to lower regulations than banks, since thcy do not take depesits. III. Informatios on the Bank and its CEO Blue Sky Bank was founded in 1915, and is a family-owned community bank. Gary Porter, Foster, age 40, the current owner is the great grandson of the oniginal founder, and the bank has remained in the family for over 100 years. Gary has been serving as the CEO and President of the Bank since 2012, takingover from his father when he retired at this time. Gary's father, Roy Porter had served as the CEO and President for over 40 years previously. Gary grew up in New Mexico and went to sehool at the University of New Mexico earning a buchelor's degree in Business, with a specialiration in Marketing and Finance in 2006 , and worked in the bank as the Bank's Marketing Director for six years before taking on the position ax President and CEO. Blue Sky Bank has been able to compete with langer banks in New Mexico by having a more personal touch with customers and being familiar with their situations and betlding personal relationships with the community and also kecping up with technology, so customers have the best of perwoeal relationships and convenience in banking. Many of Blac-Sky Bank's business customers have been with the bank for over 30 yean. Roy Porter, Gary's father, previously ran the bank very. conservatively and earned the respect of his cestomers for his personal touch and knowing his custoeners well. IV, Challenges in the post- Covid-19 Economic FNCE3600_BlueSkyBank... Eavironment During the Pandemic, the U.S. Federal Reserve engrged in massive Quantitative Easing open market boad purchases to provide liquidity in financial markets and by parchasing bonds from the public putting deposits into the poblic bond sellers" accounts and increasing the money supply, and pushed interest fates down to close to 0, with low rates on both short-term and long-term bonds. With low interest rates, bunk deposits become a less attractive place for parking liquid asets by customers, and banks also received lower interest revenuc as loan rates fall as well. Consequently, this squeczed many bunks +interest margins (i.e., interest revenues less interest expenses relative to total cataing assets). With high inflation is 2021 and 2022 , the Fed reversed its: previoes positions and began engaging ia contractioary foderal open market policies, where it sells bonds to the noe-bank public, to redace the moncy supply, which leads to Aigher rates. and slows down the cconcmy to curb inflation. Rising rates allows banks to charge higher loan rates, Bhac Shy Bank tried to increase its real estate construction 8 developrnent louns and receive fee income for these. With a decline in treditional insured core deposits with low deposit rates making these less attractive, In 2021. Blue Sky Bank started taking en more expensive, non-insured time depasits and brokered deposits during to finance its new loans. Brokered depotits (collected by brokers for investors) are more atractive for investors looking Eor higher interest rates). V. Conclusion Concerned about these trends Sophia aslas you to do a performance/risk analysis for both trends and a peer comparisen for 2021, using the exhibits in the Exhibits below. Also, she would like your advice on hew she can approach management with ber concerns to get the managers and board members to take her seriously. Appendix: Exhibits from Blue Sky Bank's Uniform Bank Performance Report for 2021 Exhibit 1A: Blue Sky Bank Earnings and Profitability Report Ail figures are as a % of the Band's Average Total Assets for euch respective yeur. Peer is the average for similar sired U.S. FDIC insured 2:35 FNCE3600_BlueSkyBank... Definitions for Items above: Interest Income\% (IR*S) is lateret Revemue as % of Average Assets, Interest Expense\% (ID\%6) is Interest Expenve as % of Average Assets. Net Interest Income (NIM%) is IR* - IE\% Noninterest lacome (NIR\%) is the Nonibterest Revenucth for the Bank Noninterest Expense ( NIE*) is the Noninterest Expense\%t. for the Bank Barden Expense % is the NIE \% less the NIR\% Provision for Loan Losses as a \% of Average Assets* Operating Inceme (OROA) \% is NIM\% - Burden\% - PLI\% (i.e., the Bank and Peer's Operating Return en Assets) - Note the loan loss provision is the expasse the bank taker based on expected loan losses, so is a discrionary expertse which is added to an acrumulated loar loss noune sccouat as a cashion egainst furmere loan losses. Exhibit 1B: Analysis of Burden for Blue Sky Bank Dashboard Calendar To Do Notifications Inbox V 2:35 FNCE3600_BlueSkyBank... Exhibit 3: Liability Mix and Rates Analysis Panel 1: Liability Mix "Note Coee Deposits are insured transacticoal and savings deposits that have low liquidity risk of leaving a bunk and ean offer lower rates, while brokered deposits and uninsured deposits are generally from investors looking for higher yiclds, so can leave the bank at any time Panel 2: 1.lability Rates Liability Rates Rates for Different Deposits\% 20212020 Deposit Rates \% Bank Peer Bank Peer Total Interest-Bearing Deposits 0.700.16 0.300.39 Transaction Accounts 0.200.16 0.410.40 Rrhare Savinas Amentuste 14 Dashboard Calendar To Do Notifications Inbox 235 FNCE3600_BlueSkyBank... \begin{tabular}{llcc} 0.41 & 0.40 & & \\ Other Savings Accounts & 0.10 & 0.13 & 0.34 \\ 0.31 & & & \\ Time Deposits & 1.29 & 0.67 & 0.50 \\ 0.61 & & & \\ Rates for Non-Deposit Liabilities & 2.82 & 1.29 \\ 1.501.52 & & & \\ \hline \end{tabular} Exhibit 4: Bank Risk Ratio Analysis Panel 1: Credit Risk Ratios Dashboard Calendar To Do Notifications Inbox II. Performance Analysis (see Exhibit 1A) A. Trend OROA Analysis (explain the reasons based on the NIM, Burden\%, and PLL\% why the OROA changed-including analyzing the IR\% and IE\% changes for why the NIM changed and the likely funding gap and analyzing the NIE\% and NIR\% for why the Burden changed). B. Peer OROA 2021 Comparison Analysis (explain the reasons based on the NIM, Burden\%, and PLL\% why the OROA for Blue Sky Bank differs from its Peers in 2021 (including analyzing differences in the IR\% and IE\% to explain why the NIMs are different, and differences in the NIE\% and NIR\% to explain why the Burdens are different). C. Dupont Trend Analysis including calculating the Bank's AU and NPM, EM, and ROE and analyzing these to determine why the ROE changed between the 2 years. Note Recall: (EM=1 Tier 1 Capital Ratio as a fraction); ROE =ROAEM;AU= IR %+NIR%;NPM=ROA/ (AU as a fraction) Do a Table 2021 Bank Peer 2020 Bank Peer ROE ROA EM AU NPM B. Dupont Peer Comparison Analysis for the just 2021 , analyzing AU, NPM, and EM to determine why Blue Sky Bank's ROE differs from its Peers in 2021. III. Net Interest Margin (NIM) Trend \& Peer Analysis (see Exhibits 2 \& 3) A. Asset Rate/Mix Analysis (Explain why the Bank's IR\% changed \& why it is different from the Peers in 2021 by looking at the types of loans it has and rates on these) B. Liability Rate/Mix Analysis ((Explain why the Bank's IE\% changed & why it is different from the Peers in 2021 by looking at the types of liabilities it has and rates on these) IV. Burden Analysis (See Exhibit 1B) (Analyze by looking at different costs \& efficiency ratios \& explain why the Bank's NIE % changed \& why it is different from the Peers in 2021) V. Risk Analysis Peer Comparison for 2021 (see Exhibit 4) A. Analysis of Credit Risk Comparing the Bank to its Peers in 2021 (Look at the bank's mix changes \& credit risk ratios including loss ratios and earnings coverage ratios) B. Analysis of Liquidity Risk Comparing the Bank to its Peers in 2021 (Look at ratios for the Bank's Liquidity risk on the asset, liability, and off-balance sheet sides) C. Analysis of Capital Risk Comparing the Bank to its Peers in 2021 (Look at Tier 1 Capital Ratios, Dividend Payout Ratios, Growth in Equity compared to Growth in Assets) D. Analysis of Interest Rate Risk Comparing the Bank to its Peers in 2021 (Look at how volatile the change in their NIMs were and at their Net 1 year \& 3 year positions, that take Long-term Assets - Long-term Liabilities). Larger net positions indicate greater interest rate risk. VI. Conclusion: Based on your Analysis: Summarize why the Bank's Performance Change from 2020 to 2021 and why it differs from the Peers and your risk analysis compared to the Peers. - Discuss in your conclusion whether Blue Sky Bank is taking on too much risk or not, and ways Sophia Romero could approach management about her concerns. "Blue Sky Bank and Sophia Romero's Dilemma" L. Introduction Sophia Romero, Entrepreneur Sophia Romero, a young, Black Hispanic American, woman entrepreneur in her mid-30's started her own consulting business ten years ago in 2012. Her company, Changing Foces, now has numerous corporate clients, including Fortune 500 companies. Her business focuses on public relations and positive strategies to help companies to change their strategies to be more authentic in their actions to match their environmentally conscious branding for their companies. Sophia has received acclaim for her work for both small businesses and major companies, and was selected as a top entrepreneur for her region and has been recognized by environmental groups. Sophia and the Blue-Sky Bank Board Meeting Sophia was recently honored by being asked to serve as a Board of Directors for Blue Sky Bank, a family-owned Community Bank with $250 million in assets, headquartered in her home city, Santa Fe, New Mexico. Sophia never served on a Bank's Board before, so to prepare herself, she took an online course on financial institutions and markets at CU Denver, so she would be able to analyze bank uniform bank performance reports to be able to evaluate a bank's performance, and credit, liquidity, interest rate, and capital risks. During the first board meeting, Drew Peterson, Sky Bank's During the first board meeting. Drew Peterson, Sky Bank's CFO, presented the bank's uniform bank performance report for the past two years (see Appendix Exhibits). Sophia had carefully analyzed these statements prior to the meeting. When Drew asked the board if they had any questions following the presentation, the room was silent. Sophia raised her hand, and asked whether the bank might be taking on too much credit and liquidity risk by taking on more development and construction loans and financing these with more non-deposit financing as a bank strategy. Drew replied that the bank was doing just fine. Other board members also dismissed her concerns. Sophia is worried about how she can convince management to listen to her views, and asks you do to a performance/risk analysis for Blue Sky bank to see if her concerns are warranted. Below is a summary overview for Blue Sky Bank and its competition. II. Background for Blue Sky Bank, the Banking Industry, and Competitors A. Overview Blue Sky Bank Blue Sky Bank is independently owned, headquartered in Santa Fe, and operates throughout New Mexico. Blue Sky Bank is categorized by the Federal Reserve as a community bank, with less than $10 billion in total average assets. According to the FDIC as of June 30, 2021, 4,750 community banks with over 29,000 branches operated in the U.S. Although they do not have as large a market share as larger banks, in terms of numbers, they represent 97% of the banks operating in the U.S. Banking Industry. By knowing their customers well, a community bank often has a better handle on a personal evaluation of their customers versus just credit scoring models. Often community banks are more willing to work and negotiate with customers when they are having problems with their loans, and offer more personal and community-oriented services. B. Competitors Blue Sky Bank operates primarily in the New Mexico banking market competing with large banks, along with other smaller banks and savings institutions. The five banks with the largest market shares as of June 30, 2021, in New Mexico as reported by the FDIC include by asset size categories two large financial institutions Wells Fargo Bank (\$1.78 trillion in assets) and Bank II. Performance Analysis (see Evhibit 1.4) A. Trend OROA Analysis (explain the reasons based on the NIM, Bardenfo, and PLLWs why the OROA changed-incleding analyzing the IR\% and IEN changes for why the NIM changed and the likely funding gap and analyxing the NIEN and NIR\% for why the Barden changed). B. Peer OROA 2021 Comparisen Analysis fexplain the reasons based oa the NIM, Burdenith, and PLLL's wity the OROA for Blue Sky Baak differs from its Pects in 202lifincluding : analyzing differences in the IR* and IET to cuplain why the NIMs are different, and differences in the NIEFS and NIR. to explain why the Burdens are different). C. Dupont Trend Analysis including calculating the Bank's AU and NPM, EM, and ROE and analyzing these o determine why the ROE changed between the 2 years. Note Recall: (EM=1. Tier 1 Capital Ratio as a fraction): ROE =ROA EME AU= IR:=NIRo2:NPM=ROA/(AU as a fraction ) Doa Table 2021 Bank Pocr 2020 Bank Peer ROE ROA EM AU NPM B. Dupont Peer Comparison Aaalysis for the just 2021. analyzing AU, NPM, and BM to detcretine why Bhue Slcy Bank's ROE differs from its Peers in 2021. III. Net Interest Margin (NIM) Trend \& Reer Analysis (see Exhibits 2 \& 3) A. Asset Rate/Mix Analysis (Explain why the Bank's IR\% changed & why it is different frem the Peers in 2021 by looking at the types of loans it has and rates on these) B. Liability Rate/Mix Analysis (CExplain why the Bank's IE\% changed & why it is different from the Perr in 2021 by looking at the types of liabilities it has and rates en these) 1V. Burden Analysis (See Exhibit 1B) (Analyre by looking at different costs \& cfiliciency ratios \&c explain wby the Baak's NIE % changed \& why it is different from the Peers in 2021) V. Risk Aaalysis Pecr Cemparison for 2021 (sec Fxbibit 4) A. Analysis of Credit Risk Comparing the Bank to its Peers in 2021 (Look at the bank.'s mhix changes 5 credit risk ratios including loss ratios and earaings ceverage ratios) B. Analysis of Liquidity Risk Comparing the Bank to its Peers in 2021 (Look at ratios for the Bank"s Liquidity risk FNCE3600_BlueSkyBank... on the asset, liablility, and off-balance sheet sides) C. Analysis of Capital Risk Comparieg the Bank to its Peers In 2021 (Look at Tier 1 Capital Ratios, Dividend Payout Ratios, Growth in Equity compared to Growth in Assets) D. Analysis of Interest Rate Risk Comparing the Baak to its Peers in 2021 (Look at how volatile the change in their NIMIs were and at their Net 1 year $k3 year positions, that take Leng-term Assets - Long-term Liabilities), Larger net positions indicate greater initerest rate riok. VI. Conclusion: Based on your Analysis; Samaarize why the Baak's Performance Change frome 2020 to 2021 and why It differs from the Peers and your riak analysis compared to the Peers. - Discuss in your conclusion whether Blue Shy Bank is taking on too much risk or not, and ways Sophia Romero could approach management about her concerns. "Blue Sky Bank and Sophia Romero"s Dillemma" 1. Introduction Sophia Romero, Entrepreacur Sophta Romero, a young. Black Hispanic American, woman cntreprencur in her mid-30's started her own convelting business ten years ago in 2012. Her company, Chunging Faces, now has numerous corporate clients, including Fortune 500 companics? Her business focuses on public relations and positive strateyies: to help companies to change their strategies to be more authentic in their actions to match their environmentally conscious branding for their companies. Sophia has recerived acclaim for her work for both small businesses and major compunies, and was selected as a top entreprencur for ber region and has been recognized by cnvironmental groups. Sophia and the Blec-Sky Bank Board Mecting Sophia was recently honored by being asked to serve as a Board of Directors for Blue Sky Bank, a farnily-owned Community Bank with $250 million in assets, headquartered in ber home city, Santa Fe, New Mexico. Sophia never served on a Bank's Board before, so to prepare herself, she took an enline coarse on financial institutions and markets at CU Denver, so she would be able to analyze bank uniform bank perfonmance reports to be able to evaluate a bank's performance, and credit, liquidity, interest rate, and capital risks. During the first board mecting. Drew Peterson, Sly Bank's ED. Calendar shboard Co Do Notifications Inbox Duriag the first board meeting. Drew Peterson, Sky Bank's CFO, presented the bank's uniform bank performance report for the past two years. (sec Appendix Exhibits). Sophina had carefully analyzed these statements jriar to the moeting. When Drew asked the board if they had any questions following the presentation, the room was silent. Sophia raisod ber hand, and asked whether the bank might be taking ea too much eredit and liquidity risk by taking on more develogment and construction loans and financing these with more non-deposit financing as a bank strategy. Drew replied that the bank was doing just fine. Other board members also dismissed her coscerms. Sophia is worried about hew she can conviace management fo listen to her views, and asks you do to a performanceirisk analysis for Blae Sky bank to see if her concerns are warranted. Below is a suencary overviev for Blue Sly Bank and its competition. II. Background for Bluc Sky Bank, the Banking Industry. and Competitors A. Overview Blue Sky Bank Blue Sky Bank is independeatly osmed, beadquartercd in Santa Fec, and operates throughout Ncw Mexico. Bloc Sky Bank is categorized by the Federal Reserve as a coenmunity bank, with less than $10 billion in total average assets. Acoording to the FDIC as of June 30, 2021, 4, 750 commanity banks with over 29,000 bnaches operated in the U.S. Although they do not have as lange a market share as larger banks, in ternas of nurubers, they repiresent 97 F. of the banks eperating in the U.S. Banking Industry. By knowing their customers well, a comanunity bank often has a better handle on a pervonal cvaluation of their custopmers versus just credit scoring models, Often community banks are more. willing to work and negotiste with customens when they are having problems with their loans, and offer more personal and community-oriented services. B. Competitors Blue Sky Bank operates primarily in the New Miexico banking market eompeting with lange banks; along with other smaller bsinks and savings institutions. The frive banks with the largest market shares as of June 30, 2021, in New Mexico as reported by the FDiC include by asset sine catcgorics two large financial institutions Wells Fargo Bank ( 91.78 tnllion in asets) and Bank FNCE3600_BlueSkyBank... of America (\$2.35 trillion in assets, and U.S. Bank (\$547.85 billion in assets), and one regional bunk, Bunk of the West (\$99.18 bullion in assets), as well as New Mecico Bunk a Trust (\$2.50 billion in assets), capturing together 54.13% of the market share for deposits. Blue Sky Bank also faces Credit Unions and savings institutions in New Mcuico as conpetitors. Blue Sly, like other Comanuaty Banks faced tochnology challenges as well and positively adopted new technology for renote sperations and online banking and other services, including having a Blue-Sky Bank app for its custorners to use on their smart phones, laptops, or iPads to mulke deposits and to fill out loan applieations, among other online banking services. Other online bank competitors include Rocket Morsgage, Quicken Loans, Bir2 Credit, among numerous other online Fintech lenders that are subject to lower regulations than banks, since thcy do not take depesits. III. Informatios on the Bank and its CEO Blue Sky Bank was founded in 1915, and is a family-owned community bank. Gary Porter, Foster, age 40, the current owner is the great grandson of the oniginal founder, and the bank has remained in the family for over 100 years. Gary has been serving as the CEO and President of the Bank since 2012, takingover from his father when he retired at this time. Gary's father, Roy Porter had served as the CEO and President for over 40 years previously. Gary grew up in New Mexico and went to sehool at the University of New Mexico earning a buchelor's degree in Business, with a specialiration in Marketing and Finance in 2006 , and worked in the bank as the Bank's Marketing Director for six years before taking on the position ax President and CEO. Blue Sky Bank has been able to compete with langer banks in New Mexico by having a more personal touch with customers and being familiar with their situations and betlding personal relationships with the community and also kecping up with technology, so customers have the best of perwoeal relationships and convenience in banking. Many of Blac-Sky Bank's business customers have been with the bank for over 30 yean. Roy Porter, Gary's father, previously ran the bank very. conservatively and earned the respect of his cestomers for his personal touch and knowing his custoeners well. IV, Challenges in the post- Covid-19 Economic FNCE3600_BlueSkyBank... Eavironment During the Pandemic, the U.S. Federal Reserve engrged in massive Quantitative Easing open market boad purchases to provide liquidity in financial markets and by parchasing bonds from the public putting deposits into the poblic bond sellers" accounts and increasing the money supply, and pushed interest fates down to close to 0, with low rates on both short-term and long-term bonds. With low interest rates, bunk deposits become a less attractive place for parking liquid asets by customers, and banks also received lower interest revenuc as loan rates fall as well. Consequently, this squeczed many bunks +interest margins (i.e., interest revenues less interest expenses relative to total cataing assets). With high inflation is 2021 and 2022 , the Fed reversed its: previoes positions and began engaging ia contractioary foderal open market policies, where it sells bonds to the noe-bank public, to redace the moncy supply, which leads to Aigher rates. and slows down the cconcmy to curb inflation. Rising rates allows banks to charge higher loan rates, Bhac Shy Bank tried to increase its real estate construction 8 developrnent louns and receive fee income for these. With a decline in treditional insured core deposits with low deposit rates making these less attractive, In 2021. Blue Sky Bank started taking en more expensive, non-insured time depasits and brokered deposits during to finance its new loans. Brokered depotits (collected by brokers for investors) are more atractive for investors looking Eor higher interest rates). V. Conclusion Concerned about these trends Sophia aslas you to do a performance/risk analysis for both trends and a peer comparisen for 2021, using the exhibits in the Exhibits below. Also, she would like your advice on hew she can approach management with ber concerns to get the managers and board members to take her seriously. Appendix: Exhibits from Blue Sky Bank's Uniform Bank Performance Report for 2021 Exhibit 1A: Blue Sky Bank Earnings and Profitability Report Ail figures are as a % of the Band's Average Total Assets for euch respective yeur. Peer is the average for similar sired U.S. FDIC insured 2:35 FNCE3600_BlueSkyBank... Definitions for Items above: Interest Income\% (IR*S) is lateret Revemue as % of Average Assets, Interest Expense\% (ID\%6) is Interest Expenve as % of Average Assets. Net Interest Income (NIM%) is IR* - IE\% Noninterest lacome (NIR\%) is the Nonibterest Revenucth for the Bank Noninterest Expense ( NIE*) is the Noninterest Expense\%t. for the Bank Barden Expense % is the NIE \% less the NIR\% Provision for Loan Losses as a \% of Average Assets* Operating Inceme (OROA) \% is NIM\% - Burden\% - PLI\% (i.e., the Bank and Peer's Operating Return en Assets) - Note the loan loss provision is the expasse the bank taker based on expected loan losses, so is a discrionary expertse which is added to an acrumulated loar loss noune sccouat as a cashion egainst furmere loan losses. Exhibit 1B: Analysis of Burden for Blue Sky Bank Dashboard Calendar To Do Notifications Inbox V 2:35 FNCE3600_BlueSkyBank... Exhibit 3: Liability Mix and Rates Analysis Panel 1: Liability Mix "Note Coee Deposits are insured transacticoal and savings deposits that have low liquidity risk of leaving a bunk and ean offer lower rates, while brokered deposits and uninsured deposits are generally from investors looking for higher yiclds, so can leave the bank at any time Panel 2: 1.lability Rates Liability Rates Rates for Different Deposits\% 20212020 Deposit Rates \% Bank Peer Bank Peer Total Interest-Bearing Deposits 0.700.16 0.300.39 Transaction Accounts 0.200.16 0.410.40 Rrhare Savinas Amentuste 14 Dashboard Calendar To Do Notifications Inbox 235 FNCE3600_BlueSkyBank... \begin{tabular}{llcc} 0.41 & 0.40 & & \\ Other Savings Accounts & 0.10 & 0.13 & 0.34 \\ 0.31 & & & \\ Time Deposits & 1.29 & 0.67 & 0.50 \\ 0.61 & & & \\ Rates for Non-Deposit Liabilities & 2.82 & 1.29 \\ 1.501.52 & & & \\ \hline \end{tabular} Exhibit 4: Bank Risk Ratio Analysis Panel 1: Credit Risk Ratios Dashboard Calendar To Do Notifications Inbox II. Performance Analysis (see Exhibit 1A) A. Trend OROA Analysis (explain the reasons based on the NIM, Burden\%, and PLL\% why the OROA changed-including analyzing the IR\% and IE\% changes for why the NIM changed and the likely funding gap and analyzing the NIE\% and NIR\% for why the Burden changed). B. Peer OROA 2021 Comparison Analysis (explain the reasons based on the NIM, Burden\%, and PLL\% why the OROA for Blue Sky Bank differs from its Peers in 2021 (including analyzing differences in the IR\% and IE\% to explain why the NIMs are different, and differences in the NIE\% and NIR\% to explain why the Burdens are different). C. Dupont Trend Analysis including calculating the Bank's AU and NPM, EM, and ROE and analyzing these to determine why the ROE changed between the 2 years. Note Recall: (EM=1 Tier 1 Capital Ratio as a fraction); ROE =ROAEM;AU= IR %+NIR%;NPM=ROA/ (AU as a fraction) Do a Table 2021 Bank Peer 2020 Bank Peer ROE ROA EM AU NPM B. Dupont Peer Comparison Analysis for the just 2021 , analyzing AU, NPM, and EM to determine why Blue Sky Bank's ROE differs from its Peers in 2021. III. Net Interest Margin (NIM) Trend \& Peer Analysis (see Exhibits 2 \& 3) A. Asset Rate/Mix Analysis (Explain why the Bank's IR\% changed \& why it is different from the Peers in 2021 by looking at the types of loans it has and rates on these) B. Liability Rate/Mix Analysis ((Explain why the Bank's IE\% changed & why it is different from the Peers in 2021 by looking at the types of liabilities it has and rates on these) IV. Burden Analysis (See Exhibit 1B) (Analyze by looking at different costs \& efficiency ratios \& explain why the Bank's NIE % changed \& why it is different from the Peers in 2021) V. Risk Analysis Peer Comparison for 2021 (see Exhibit 4) A. Analysis of Credit Risk Comparing the Bank to its Peers in 2021 (Look at the bank's mix changes \& credit risk ratios including loss ratios and earnings coverage ratios) B. Analysis of Liquidity Risk Comparing the Bank to its Peers in 2021 (Look at ratios for the Bank's Liquidity risk on the asset, liability, and off-balance sheet sides) C. Analysis of Capital Risk Comparing the Bank to its Peers in 2021 (Look at Tier 1 Capital Ratios, Dividend Payout Ratios, Growth in Equity compared to Growth in Assets) D. Analysis of Interest Rate Risk Comparing the Bank to its Peers in 2021 (Look at how volatile the change in their NIMs were and at their Net 1 year \& 3 year positions, that take Long-term Assets - Long-term Liabilities). Larger net positions indicate greater interest rate risk. VI. Conclusion: Based on your Analysis: Summarize why the Bank's Performance Change from 2020 to 2021 and why it differs from the Peers and your risk analysis compared to the Peers. - Discuss in your conclusion whether Blue Sky Bank is taking on too much risk or not, and ways Sophia Romero could approach management about her concerns. "Blue Sky Bank and Sophia Romero's Dilemma" L. Introduction Sophia Romero, Entrepreneur Sophia Romero, a young, Black Hispanic American, woman entrepreneur in her mid-30's started her own consulting business ten years ago in 2012. Her company, Changing Foces, now has numerous corporate clients, including Fortune 500 companies. Her business focuses on public relations and positive strategies to help companies to change their strategies to be more authentic in their actions to match their environmentally conscious branding for their companies. Sophia has received acclaim for her work for both small businesses and major companies, and was selected as a top entrepreneur for her region and has been recognized by environmental groups. Sophia and the Blue-Sky Bank Board Meeting Sophia was recently honored by being asked to serve as a Board of Directors for Blue Sky Bank, a family-owned Community Bank with $250 million in assets, headquartered in her home city, Santa Fe, New Mexico. Sophia never served on a Bank's Board before, so to prepare herself, she took an online course on financial institutions and markets at CU Denver, so she would be able to analyze bank uniform bank performance reports to be able to evaluate a bank's performance, and credit, liquidity, interest rate, and capital risks. During the first board meeting, Drew Peterson, Sky Bank's During the first board meeting. Drew Peterson, Sky Bank's CFO, presented the bank's uniform bank performance report for the past two years (see Appendix Exhibits). Sophia had carefully analyzed these statements prior to the meeting. When Drew asked the board if they had any questions following the presentation, the room was silent. Sophia raised her hand, and asked whether the bank might be taking on too much credit and liquidity risk by taking on more development and construction loans and financing these with more non-deposit financing as a bank strategy. Drew replied that the bank was doing just fine. Other board members also dismissed her concerns. Sophia is worried about how she can convince management to listen to her views, and asks you do to a performance/risk analysis for Blue Sky bank to see if her concerns are warranted. Below is a summary overview for Blue Sky Bank and its competition. II. Background for Blue Sky Bank, the Banking Industry, and Competitors A. Overview Blue Sky Bank Blue Sky Bank is independently owned, headquartered in Santa Fe, and operates throughout New Mexico. Blue Sky Bank is categorized by the Federal Reserve as a community bank, with less than $10 billion in total average assets. According to the FDIC as of June 30, 2021, 4,750 community banks with over 29,000 branches operated in the U.S. Although they do not have as large a market share as larger banks, in terms of numbers, they represent 97% of the banks operating in the U.S. Banking Industry. By knowing their customers well, a community bank often has a better handle on a personal evaluation of their customers versus just credit scoring models. Often community banks are more willing to work and negotiate with customers when they are having problems with their loans, and offer more personal and community-oriented services. B. Competitors Blue Sky Bank operates primarily in the New Mexico banking market competing with large banks, along with other smaller banks and savings institutions. The five banks with the largest market shares as of June 30, 2021, in New Mexico as reported by the FDIC include by asset size categories two large financial institutions Wells Fargo Bank (\$1.78 trillion in assets) and Bank