Question

Which of the following factors would be LEAST likely to have a significant impact on the earnings level of an $80 million trust department that has 90% personal trusts and estates and 10% investment management accounts?

a. The bank's market location provides for intense competition for fiduciary business, resulting in customer instability.
b. Sustained decline in the stock market.
c. Reduction in net interest margin due to low prime interest rates over a sustained period.
d. The bank served as personal representative for eight estates one year and one estate the following year.

Answer 1

The least impact on an $80 million trust department's earnings would likely be the variation in the number of estates served as a personal representative, compared to other factors like intense competition, market decline, and interest rate changes.

Step-by-step explanation:

When evaluating factors impacting the earnings level of an $80 million trust department that primarily manages personal trusts and estates, the least significant impact would likely results from the fluctuation in the number of estates the bank serves as personal representative. This is because the difference between serving eight estates one year and one the following year is relatively small when considered within the full context of the department's operations, especially given that 90% of the business is focused on personal trusts.

In contrast, factors such as intense competition resulting in customer instability, a sustained decline in the stock market, and a reduction in net interest margin due to low prime interest rates over a sustained period could all profoundly impact the department's performance. These issues could affect the value of the assets under management, the department's ability to acquire and retain clients, and its earnings from interest-earning activities.