Benchmarking and Strategies

Transcription

1 Interest Bearing Deposit Cost of Funds Report: Present Benchmarking and Strategies COF Benchmarking Report Sample Report Greg Judge Banc Investment Group, LLC Pacific Coast Bankers Bancshares

2 Introduction and Disclaimer This report is intended to provide banks with a variety of benchmarks that will allow financial institutions to better track and manage their liabilities. Data in this report is compiled using modified FDIC call report data from 1997 to present for over 4,300 institutions in either the Western or Eastern portion of the U.S., depending upon the target institution s charter location. Information contained herein is based on sources Banc Investment Group believes to be reliable, but its accuracy is not guaranteed. Customers should rely on their own outside counsel or accounting firm to address specific circumstances. Banc Investment Group is a broker-dealer registered with the Financial Industry Regulatory Authority. Any investments contained herein are not guaranteed by the Federal Deposit Insurance Corporation (FDIC), are not bank deposits and are presented for illustration purposes only and not as recommendations. This document cannot be reproduced or redistributed outside of your institution without the written consent of the Banc Investment Group. Copyright 2008.

3 Deposit Mix and Cost of Funds Quarterly COF Information as of June 2008 The Mix of Deposits Can Influence Your COF as Much as Rates Percent of Total Deposits 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 48% 53% 34% 36% 18% 11% You Population Median 2.89% 2.88% Interest Bearing Deposit COF (CDs plus interest bearing non-maturity deposits) CDs IB Non-Mat Non-IB Deps Your IBD COF is 1 bps above the Total Population Median The Benchmarking Report analyzes the COF on your interest bearing deposits, which is typically the largest component of an institutution's funding base.

4 Interest Bearing Deposit COF Benchmarking Summary Report as of June 2008 Population is 4188 institutions in the Eastern USA How Does Your COF Compare to the Population Median? Ranking June 08 Last 4 Qtr Avg 40 Qtr Median IBD COF 2.89% 3.42% 3.36% Percentile bps from median Having deposit costs 1 bps higher than the median cost approximately $9,352 this quarter, based on June 2008 interest bearing deposits. A 25 bps reduction in your IBD COF would save about $234 k per qtr, or $935 k per year. The population median is a reference point, and not necessarily your target. High performing and larger institutions tend to have COFs consistently below the median How Close Are You to Your Targeted Percentile? Interest Bearing Deposit COF Percentiles and Corresponding COFs 3.98

5 Interest Bearing Deposit COF Benchmarking Statistics Report as of June 2008 How have your COF trends been tracking the population median recently? COF and Market Rate Correlation Analysis COF Change June 08 Last 4 qtrs (in basis points) Index Last 4 qtrs 40 qtrs You Fed Funds 99% 94% Pop Median mo LIBOR 96% 93% Difference mo LIBOR 94% 92% Prime 100% 94% Interest Bearing Deposit COF Values: Last 5 quarters You Population Median Jun-07 Sep-07 Dec-07 Mar-08 Jun bp 0 bp 6 bp 1 bp 1 bp Distance from population median COF Calculation Methodology: Int Expense on Deposits / Avg Qtrly Balance of IB Deposits Our reports compensate for DDA reporting inconsistencies Correlation analysis indicates the percent of time your IBD COF moves with an index 100% is perfect correlation Note: Market rates are lagged one quarter Ranges and Central Tendency ( interest bearing deposits only ) 40 Qtr IBD COF Stats You Pop Median Maximum Median Average Minimum Be cautious using longer-term funding costing more than 3.36% (your Median deposit cost) Your maximum single quarterly COF value was 4.83% over the last 10 years. During this same timeframe, half of your COF values have been below 3.36%, with at least 2/3 being below 4.27% (one std. deviation above your 3.2% average COF).

6 Comparison to Population Median and Percentile Ranges Eff. COF on Interest Bearing Deposits Present IBD COF Percentiles 40 Q Avg Current 40 Qtrs Group Subject Diff 48% 50% Max (0.11) Median Min Avg variance from Median = -2 bps Last Four Qtr Avg Variance = 2 bps IBD COF Benchmarking Report CDs / Deposits = 48% IBDs / Deps = 82% Current IBD COF = 2.89% Group Median 90th Pctle 10th Pctle Subject FED Funds % 45% 51% 40% 37% 36% 43% 43% 41% 43% 45% 48% 52% 55% 58% 45% 38% 39% 41% 41% 44% 38% 49% 53% 48% 47% 45% 46% 51% 57% 56% 58% 55% 61% 61% 58% 50% 53% 50% 50% Quarterly Percentile and Distance From the Population Median (bps) The median and percentiles are standards to measure your relative performance. - CONFIDENTIAL -

7 IBD COF Performance Benchmarked to a Specific Percentile Percentiles Provide a Context to Measure Performance Your IBD COF Highest Recent Pctle % 38% 39% 41% 41% 44% 38% 49% 53% 48% 47% 45% 46% 51% 57% 56% 58% 55% 61% 61% 58% 50% 53% 50% 50% Distance from specified percentile (in bps), and your actual quarterly percentile This quarter, a COF 16 bps below percentile 61 saved approximately $ 150 k, or $ 599 k per year Note: Your IBD COF includes brokered and wholesale deposits if applicable, but does not include funding reported as other borrowings

8 Duration of Funding is More About Behavior than Term Historical IBD COF Performance vs. 3 mo LIBOR - 1 qtr lag Sensitivity to Changes in Market Rates IBD COF 3 mo LIBOR - 1 qtr lag Group Median % 80% 82% 84% 82% 76% 70% 73% 71% 73% 72% 87% 104% 111% 152% 148% 136% 131% 138% 153% 153% 150% 148% 155% 131% 100% 79% 72% 72% 70% 64% 65% 65% 68% 70% 71% 70% 69% 65% 83% IBD COF as a percent of the market rate, and distance in bps from the market rate 40 qtrs Last 2 qtrs Pop Median Be very cautious about indexing the rate of deposit products to a market Percent of Index: 96% 74% 74% rate. This can be dangerous in both rising and falling rate evironments. Correlation: 92% 100% 100% Banks with lower COFs tend to have higher franchise values. Avg Spread to Index: -67 bps -117 bps -118 bps

9 Projected IBD COF Using the LIBOR Forward Curve Note: In a low interest rate environment, some institutions may reach an effective COF floor that can be above LIBOR Forward 3 MO LIBOR - 1 qtr lag Subj IBD COF - Projected Memo: Low COF in Dec Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar % 83% 74% 74% 74% 74% 74% 74% 74% Projected Spread to LIBOR: Basis points and percent of LIBOR Your actual performance may differ depending upon changes in your funding activity, effective COF floors, and the accuracy of the forward curve projections. 3 mo LIBOR was at 1.06 when the low COF was reached previously in Dec 2003 ( IBD COF was 53 bps above LIBOR, or 150% of LIBOR ) Projections are based upon your IBD COF percentage of LIBOR the last two quarters. - CONFIDENTIAL -

10 Knowing Your Range Bands Can Help Prevent Funding Mistakes Funding Range Bands: 1998 to Present +/- 1 Std Dev Range (bps) Subject 214 bps 6.00 Average IBD COF and One Standard Deviation Above and Below Std Dev Measures Variation in an Average Pop Median +1 Std Dev: 4.27 Average COF: Std Dev: 2.13 IBD COF Your Median IBD COF 216 bps Quarterly Distance from the Plus One Standard Deviation Your IBD COF has exceeded its 4.27% + 1 std deviation in only 7 of the last 40 quarters: 83% of qtrs have been below 4.27% This quarter's IBD COF is 2.89% which is 138 bps below the + 1 standard deviation. Be very cautious about locking in longer-term funding at costs greater than your upper IBD COF range band. While current short-term rates are low, the funding curve is steep. Certain longer-term funding options and competitor rates may be near or above your upper historical range bands. Avoid overpaying for your funding. - CONFIDENTIAL -

11 Industry Deposit and Funding Trends These topics can be discussed more fully in an optional 30 min conference call that comes with the basic COF Report every other quarter. Liability Coach clients receive unlimited real-time assistance beyond these reports at any time to help with current funding issues, training, pricing, and strategies. The rate cuts from the Fed slowed during the 2 nd quarter and, aside from a 25 bps cut in April, the fed funds target rate remained steady for 2/3 of the quarter at 2.00%, with Prime at 5.00%. The population median IBD COF fell 44 bps in the 2 nd quarter which was greater than the 33 bps change in the 1 st quarter due to the lagging effect of the rate cuts on deposit costs. Many banks will continue to have CDs from 2007 mature and price down (hopefully) in Due to some banks having serious liquidity and perhaps capital problems, we are seeing some of the worst relative deposit rates we have ever seen on certain products. Most of the market median rates for regular CDs out to 12 months have remained sub-libor. Top regular and special rates under 18 months have escalated to over 4.00% (less than 100 bps from Prime) in many markets. Large banks are responsible for some of this, although local banks are also participating. We are seeing banks split into two basic extremes. One is trying to maintain strict pricing discipline and is paying reasonable and fair rates on deposits. The other is paying whatever it takes to attract or retain deposits. Others are caught in the middle wanting to control funding costs, but also trying to grow and/or retain deposits with elevated rates. Typically, banks in this middle group are not having much success with either goal. Banks that have shifted their marketing focus away from rate shoppers, specials, and single product customers have been more able to control and reduce their funding costs. Relationship-based banking coupled with a well balanced retail / wholesale funding strategy has enabled a number of banks to produce record low cost of funds this quarter. Pay very close attention to your risk based capital ratio!!! - CONFIDENTIAL -

12 Balance Sheet Overview - Growth YTD information as of June 2008 ( # of Qtrs = 2 ) Number of Offices: 13 Deposit Growth: 78% Retail / 22% Brokered YTD Growth Patterns: Ending Balances (millions) Assets Deposits Loans YTD Growth Amounts (millions) OBM = FFP/Repos, FHLB, and Other Borr Money $700 $600 $500 $400 $300 $420 $387 $456 $417 $45 $40 $35 $30 $25 $20 $38.72 $30.23 $36.69 $200 $15 $100 $0 Dec-07 Jun-08 $533 $572 73% 73% $10 $5 $0 $3.61 Assets Loans Deposits OBM 14.52% 15.62% 17.48% 17.96% Total Assets and Loans / Assets Annualized Growth Rates Assets have grown faster than Deposits IBD COF Change Since Beginning of Year You: -82 bps Median: -77 bps YTD Changes Total Deposits Brokered Deps Est Retail Deposits Total OBM Dec 06 Jun 08 $ Chng Pct Chng (Ann) $420 $456 $ $12 $20 $ $408 $436 $ $40 $44 $

13 Estimated Benefit of Brokered Deposit Usage Quarterly information as of June 2008 Rates for avg 3 mo Brokered Deps are lagged one quarter Non-brokered interest bearing deposits were approximately 3 bps less costly than the overall COF on IBDs this quarter. Amount Effective IBD COF $400, % $350, % $300,000 $250,000 $200,000 $150, % 3.30% 3.20% 3.10% 3.00% 2.90% $100,000 $50, % 2.86% 2.80% 2.70% $0 Total IBDs Brokered Deposits (5% of IBDs) Non-Brokered IBDs $ $19.94 $ % - 49% 2.60% Dollar Amount (quarter end) and percentile ranking of IBDs (total and estimated non-brokered component) Banks in difficult deposit markets that attempt to fund themselves exclusively with retail deposits tend to have elevated deposit costs since offering higher rates to attract or retain deposits often results in a repricing effect on existing deposits. Brokered deposits are assumed to be a consistent percentage of IBDs, and to have a cost equal to avg 3 mo Brokered Deps This analysis is an estimate of the effective COF of your non-brokered deposits.

14 RBC May be the Most Important Capital Ratio for Remaining Well Capitalized Risk Based Capital and Funding Implications Quarter End information as of June 2008 Risk Based Capital (RBC) Ratios Risk Based Capital Position Margin above well capitalized minimum 14.00% $70, % $60,000 $59, % $50,000 $49, % $40, % 4.00% 2.00% 12.21% 10.00% 2.21% $30,000 $20,000 $10,000 $10, % Ending RBC Ratio Well Capitalized Threshold Difference $0 RBC for 10% Ratio Current RBC Excess or Buffer Dollar Amounts of RBC At quarter end, your risk based capital totaled $60 mm and supported risk weighted assets of $491 mm. - Access to wholesale funding may be restricted for institutions that are not well capitalized (i.e. <10% RBC Ratio). Your RBC cushion to meet the minimum Well Capitalized 10% RBC ratio = $10.85 mm It is very important to maintain sufficient risk based capital to absorb unexpected events Your RWA / TA ratio was 86% - the typical community bank ratio is between 75-80% Most banks falling below well capitalized do so due to their RBC ratios rather than their Leverage or Tier 1 ratios

15 Capital Ratio Comparisons YTD information as of June 2008 Regulatory Capital Levels at Quarter End Ratio and Difference from Peer Equity: 2.04% Tier 1 (Lev): 0.83% Risk Based: -2.12% 15.00% 14.00% 14.33% 13.00% 12.00% 12.29% 12.21% 11.00% 10.00% 9.00% 10.51% 10.25% 9.68% 8.00% 7.00% 6.00% 5.00% You Pop Median 1.70% 4.65% Difference Between Tier 1 Lev and RBC - Less Than 3% Indicates a More Heavily Risk-Weighted Asset Mix Financial institutions with lower costs of funds are able to produce the same or higher spreads with less risk intensive asset mixes than those with higher costs of funds. A low COF can improve your overall risk profile and profitability. Your interest bearing deposit COF this quarter was in Percentile 50. RBC ratio is a function of Tier 1 Capital, Tier 2 Capital (reserves, etc.), and the risk weighting of the asset base.

16 Performance and Structure Overview YTD information as of June 2008 The median is the median value of the applicable ratio or statistic in the population Number of Offices: 13 IBL COF and Interest Spread are adjusted to compensate for DDA reporting issues that may skew the Subject and Pop Median data YTD Net Interest Spread Quarter End Funding Sources as Percent of Assets 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 7.35% 6.27% 3.17% 3.38% 4.17% 2.89% You Median 100% 90% 80% 70% 60% 50% 40% 30% 3% 7% 4% 62% 72% Other Borr FHLB Adv FFP Repos Brokered Deps Retail IB Deps 2.00% 1.00% 0.00% IEA Yield IBL COF Int Spread 20% 10% 0% 14% You 9% Pop Median 80% 81% Non IBDs 1.08% -0.21% 1.28% Total Deposits / Assets Loan Concentrations (Gross Loans) YTD Annualized Growth Rates 100% 90% 80% 70% 60% 50% 40% 30% 73% 72% 91% 90% 82% 68% You Median 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 15% 17% 6% 5% 16% 6% You Median 20% 4.00% 10% 2.00% 0% Loans / Assets Loans / Deposits non 1-4's / Loans 0.00% YTD TA growth YTD Dep growth YTD Loan Growth

17 Performance and Structure Benchmarking YTD information as of June 2008 Run Date: 11/6/2008 Pop YTD Information You Median Diff FDIC Cert ROAA - Sub S Adj 1.25% 0.59% 0.66% Name Example Bank ROE - Sub S Adj 10.06% 5.51% 4.56% City Banker Town Tier 1 Lev Capital 10.51% 9.68% 0.83% State US County Risk Based Cap / RBA 12.21% 14.33% (2.12%) HC Name >70% Loans / Assets 73% 72% 1% Inst Type Bank >80% Loans / Deposits 91% 90% 2% FHLB Dist / Member Atlanta / Yes non 1-4's / Loans 82% 68% 14% Tax Elect Sub S Regulator / Charter FDIC / Commercial bank 1.08% IEA Yield 7.35% 6.27% 1.08% -0.21% IBL COF 3.17% 3.38% (0.21%) Assets $571, % Int Spread 4.17% 2.89% 1.28% Deposits $456,236 Int Bear Deps $374,080 NIM 4.86% 3.47% 1.39% Net Int Inc / AA 4.23% 3.22% 1.01% Curr Qtr IBD COF 2.89% YTD IBD COF 3.11% Deps / TA 80% 81% (1%) Difference -0.22% CDs / Deps 48% 53% (5%) Non IB Deps / Deps 18% 11% 7% YTD TA growth 14.52% 5.71% 8.81% Brokered Deposits = $19.94 mm, or 4.4% deposits >15% YTD Dep growth 17.48% 5.22% 12.26% YTD Loan Growth 15.62% 6.11% 9.51% Observations: Margins Higher asset yields and lower funding costs combine for a larger interest spread Yield Influence Loans / Assets ratio is 73% TA COF Influence IBD COF is 1 bps over the median: CDs / Deps > 40% and YTD deposit growth > 10%

18 For More Information For more information regarding the information contained herein or to inquire about other Banc Investment Group or Pacific Coast Bankers Bank products, please contact: Greg Judge Banc Investment Group, LLC Pacific Coast Bankers Bancshares Toll Free: Direct: Or log on to: Other products and services from BIG that might be of interest: Late day Federal Funds Lines Brokered and non-brokered sources of funding Asset-liability Interest Rate Risk Review & Credit Stress Analysis Interest rate swaps and Loan Pricing Models Loan sales/purchases Trust Preferred Securities and Holding Company Loans Liability Coach Consulting Full range of tactical funding and banking assistance is a phone call away - when you need it Coach version of COF Reports includes local peer data, and much deeper analysis of your funding activity Assistance setting rates, tiers, and structuring / marketing retail deposit products Avoid funding mistakes by discussing strategies beforehand learn what others are doing Receive funding tools, training and calculators to improve funding discipline and sales efforts Policy and procedure review and assistance for liquidity and contingency funding plans Real-time rate surveys and market analysis to better position your products Assistance with special projects and strategic planning NEW - Early data peer analysis before UBPRs are released, receive final data too Whole bank peer analysis focuses on asset quality, reserves, capital, and much more.