14
Wisconsin Community Banker
November/December 2014
have a plan.
Review improvements with the reg-
ulators before and after the changes.
You need to take credit for the
improvements and the thought that
went into the decisions. For example,
there might be a piece of your balance
sheet that would be a perfect fit for
Internet or brokered CDs. Document
what you did.
Core Deposits and Core Deposit
Analysis
Many bankers treat all non-con-
tractual maturity deposits and lower
balance customer CDs (say below
$100,000) as core deposits. These
deposits provide cheap funding espe-
cially if you’re the only bank in the area
and you’ll be able to lag on repricing.
Core deposits and core deposit
analysis are regulatory issues and
regulators are definitely concerned
about them, especially the prevalence
of “surge” deposits.
Recent growth has come from
customers switching from certificates,
rotating out of low-yielding broker
money market accounts, and the
impact of the Federal Reserve’s bal-
ance sheet growth, or what the regula-
tors call “surge” deposits. Regulators
are very concerned about the impact
on pricing and longevity of non-
maturity surge deposits since they
may react much differently than the
historical nature of the bank’s non-
maturity deposits.
A deposit study can utilize histori-
cal data to project the future. If your
deposits have grown, is it due to your
pricing, competitor pricing, and/or
client behavior? If not surge deposits,
what’s fueling your growth?
Other considerations: Do you
know the mix and the historical trend
of deposits by product? Do you know
what deposits are at risk for either
leaving the bank or moving from a
lagging rate product in the future to a
higher rate product?
How “sticky” are your deposits? For
example: is that $250,000 money mar-
ket product a single product for the
customer or does the deposit include
several accounts and ACH accounts?
The larger the balance, the more at
risk it is.
1st National Bank volunteers helped build a home through Habitat For Humanity.
Best Banks to Work For
American Banker magazine placed
North Shore Bank at the top of its list
of the “Best Banks to Work For.” The
annual award recognizes U.S. banks
that offer employees competitive
salaries and benefits, and that strive to
make team members feel valued and
engaged.
North Shore was recognized for
initiatives like its annual worn flag
collections and community shedding
day, as well as its employee wellness
program offerings, like free flu shots
and biometric screenings.
Other Wisconsin community banks
named to the honor this year include
Manitowoc-based Bank First National,
Berlin-based 1st National Bank, and
Eau Claire-based Charter Bank.
Listed as number three in the
nation, 1st National Bank offers its
employees flexible work schedules,
paid time off for both volunteering
and employee birthdays, and wellness
benefits.
1st National Bank pays employees
to volunteer during a normal work
day, allowing them to enjoy a field
trip with their children or spend time
helping a local organization. And,
birthdays are paid holidays too, so
employees can spend their special day
doing whatever they choose.
An emerging initiative, the bank’s
wellness program sponsors challenges
that have team members encouraging
one another to be healthy, with prizes
ranging from gift cards to Packer
tickets. Another benefit is the ability
to have organic vegetables delivered to
their workplace.
Review the ages of your custom-
ers stratified by deposit dollars. For
elderly depositors, service is key and
rates are important, but how many
Millennials have their money in CDs?
Being able to capture and understand
your data is critical.
Interest Rate Risk Assumptions
In a net interest income analy-
sis, making assumptions involves
stress testing the figures. The more
data you collect, the better assump-
tions you make, which leads to better
decision-making.
What drives interest rate simula-
tions? In many cases it will be asset
prepayments. Assumptions drive all
interest rate risk analysis. For the
longer term interest rate risk, use the
market value of equity.
Make sure your ALCO policy
covers documentation. Document all
assumption changes — including the
impact of changes in large assump-
tions — and have them reviewed by
key ALCO personnel in the process.
Have ALCO approve them after seeing
their impact. Do this annually.
Knowing the impact of potential
changes in your key assumptions can
also be called stress testing. Under-
standing and being able to articulate
stress testing results may help reduce
the focus on the “correctness” of your
key assumptions.
