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Are You Banking On or Are You Banking On or WithWith Deposits? Deposits?
Funding Strategies – Protecting Your Bottom LineFunding Strategies – Protecting Your Bottom Line
Greg Judge, VP, Sr. Financial Strategist Greg Judge, VP, Sr. Financial Strategist
Federal Home Loan Bank of Des MoinesFederal Home Loan Bank of Des Moines
2
Today’s RoadmapToday’s Roadmap
• Historical overview of deposits since 1934
• Peer comparisons– How do the “big guys” keep their deposit COF low?
• Pricing and structuring strategies
• Case studies of actual members
3
Why Liability Management Matters Aggregate Information for FDIC Insured Banks: 1934-2001
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001199819951992198919861983198019771974196819651962195919561953195019471944194119381935
Int Bearing Liabs / Int Earning Assets Non-Int Bearing Deps / Deps
NIBDs were over 70% of Deposits Until the 1960’s…
… now NIBDs are about 20% of deposits.
Liabilities Need to be Managed as Carefully as Assets…Especially Now!
1971
Funding Costs Started
Increasing
4
Interest Bearing Deposits / Interest Bearing Liabilities
Aggregate Information for All FDIC Insured Banks: 1934-2001
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
83
19
82
19
81
19
80
19
79
19
78
19
77
19
76
19
75
19
74
19
73
19
72
19
71
19
70
19
69
19
68
19
67
19
66
19
65
19
64
19
63
19
62
19
61
19
60
19
59
19
58
19
57
19
56
19
55
19
54
19
53
19
52
19
51
19
50
19
49
19
48
19
47
19
46
19
45
19
44
19
43
19
42
19
41
19
40
19
39
19
38
19
37
19
36
19
35
19
34
Large Banks Have Supplemented Deposits Since the Early 1960’s
FHLB Access for Banks
1962 1989
Stock Market 100 Year Average Return is approximately 8%
0%
10%
20%
30%
40%
50%
60%
200
1
200
0
199
9
199
8
199
7
199
6
199
5
199
4
199
3
199
2
199
1
199
0
198
9
198
8
198
7
198
6
198
5
198
4
198
3
198
2
198
1
198
0
197
9
197
8
197
7
197
6
197
5
197
4
197
3
197
2
197
1
197
0
196
9
196
8
196
7
196
6
196
5
196
4
196
3
196
2
196
1
196
0
195
9
195
8
195
7
195
6
195
5
195
4
195
3
195
2
195
1
195
0
194
9
194
8
194
7
194
6
194
5
194
4
194
3
194
2
194
1
194
0
193
9
193
8
193
7
193
6
193
5
193
4
CDs / Deps
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
IBD COF CDs to Deposits IBD COF
No CD Data Was Available from 1942-1960
Can CDs really compete with the stock market and mutual funds for long-term investors?
Have Banks "Always" Relied Upon CDs for Funding?Total CDs to Total Deposits for All FDIC Insured Banks: 1934-2001
6
24-Quarter Interest Bearing Deposit COF ComparisonStatistics for All 1,503 Banks & Thrifts In FHLB Des Moines District
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
3-97 6-97 9-97 12-97 3-98 6-98 9-98 12-98 3-99 6-99 9-99 12-99 3-00 6-00 9-00 12-00 3-01 6-01 9-01 12-01 3-02 6-02 9-02 12-02
FED Funds (QA) 90th Pctle IBD Median 10th Pctle
Median StatisticsMax 4.98
Median 4.47Min 2.61
Why are some institutions consistently below the median?
7
Peer GroupsPeer Groups• FHLB DSM Bank Members with Assets Under $1 billionFHLB DSM Bank Members with Assets Under $1 billion
– 1,066 banks in group
– Assets = $124 billion
– Deposits = $101 billion
– IB Deposit COF near district median
• National Peer of Banks with Assets Between $1– 3 billionNational Peer of Banks with Assets Between $1– 3 billion
– About 200 +/- banks in group
– Assets = $363 billion
– Deposits = $268 billion
– IB Deposit COF near 10th percentile for our district
Why are they different?Why are they different?
8
Larger Banks Use More Supplemental Funding Funding Mix As a Percent of Assets
84% 83% 83% 83% 82%
78% 75% 75% 74% 74%
3% 4% 5% 5% 6%
5% 8% 8% 8% 8%
2% 3% 3% 2% 2%
6% 6% 6% 6% 6%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
4.62 4.37 5.13 3.77 2.68 4.10 4.21 4.99 3.10 2.06
52 bps 16 bps 14 bps 67 bps 62 bps - - - - -
Quarterly COF on Int Bearing Liabs (IBL) and Difference from Peer
Total deposits Total borrowed money (inc FHLB adv)FFP & Sec sold under agree to repurch
1,066 Members Under $1 billion National Peer: $1-3 billion
9
Sources of Deposits: Percent of Total Deposits
77% 77% 77% 77% 76%
75% 76% 75% 75% 74%
14% 14% 13% 14% 14%
19% 16% 16% 17% 17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Assumes Public Unit and Brokered Deposits are Interest Bearing - Totals Not Included in Retail IBDs or NIBDs
PUDs
Brokered
NIBDs
RetailIBDs
PUDs 8% 8% 8% 8% 8% 5% 5% 6% 6% 6%
Brokered 1% 1% 1% 1% 2% 1% 2% 3% 3% 3%
NIBDs 14% 14% 13% 14% 14% 19% 16% 16% 17% 17%
Retail IBDs 77% 77% 77% 77% 76% 75% 76% 75% 75% 74%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
1,066 Members Under $1 billion National Peer: $1-3 billion
Proportion of Retail Interest Bearing Deposits is About the Same
10
National Peer: $1-3 billion1,066 Members Under $1 billion
Larger Banks Use Less CD FundingComparison of Deposit Structure: Percent of Deposits
Deposit Cost is a Function of Price and Structure
27% 26% 25% 25% 25%
22% 19% 16% 16% 15%
8% 8%8% 9% 10%
15%13%
13% 15% 16%
14% 15%15%
17% 18%
21%23%
24%28%
31%
51% 50% 52% 49% 47%
42% 45% 46%41% 38%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
4.59 4.30 5.05 3.69 2.56 3.94 3.96 4.70 2.94 1.85
65 bps 34 bps 35 bps 75 bps 71 bps - - - - -
CDs
MMDAs
Savings
Checking
Quarterly COF on Int Bearing Deposits (IBDs) and Difference From Peer
11
National Peer
Member Peer
12
National Peer: $1-3 billion1,066 Members Under $1 billion
Peer Comparison: Deposit COF DetailCalculated From Call Report Data
4.594.30
5.05
3.69
2.56
3.94 3.96
4.70
2.94
1.852.21 2.16
2.48
1.24
0.95
2.06 2.08
2.55
1.130.98
3.37 3.33
3.79
2.16
1.55
2.64 2.73
3.09
1.46
0.93
5.61
5.22
6.10
4.91
3.45
5.26 5.19
6.19
4.53
3.04
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
4.59 4.30 5.05 3.69 2.56 3.94 3.96 4.70 2.94 1.85
65 bp 34 bp 35 bp 75 bp 71 bp - - - - -
Quarterly COF on Interest Bearing Deposits and Difference From Peer
Rates on interest bearing deposits Rates on int bearing transaction accts.
Rates on Savings deposits Rates on CDs (blended)
More CDs Higher Cost
13
National Peer: $1-3 billion1,066 Members Under $1 billion
Larger Banks Emphasize Shorter-Term CDs
26% 27% 26% 27% 25%
34% 33% 31%35%
30%
47% 47% 50% 48%
44%
45% 46% 49%45%
41%
23% 22% 21% 21%
23%
17% 16% 16% 15%
21%
4% 4% 3% 4%7% 4% 4% 4% 5%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
5.61 5.22 6.10 4.91 3.45 5.26 5.19 6.19 4.53 3.04
35 bp 3 bp -9 bp 38 bp 41 bp - - - - -
Quarterly CD COF and Difference from Peer
Pct of Total CDs
+ 3 yrs
1-3 yrs
3-12 mos
< 3 mos
Remaining Maturity Schedule from Call Report Data
14
13% 14% 14% 13% 12% 14% 15% 14% 14%11%
24% 24% 26% 23%21% 19% 21% 22%
19%
15%
12% 11%11%
10%11% 7%
7% 7%
6%
8%
2% 2%2%
2%3%
2%2% 2%
2%
3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
5.61 5.22 6.10 4.91 3.45 5.26 5.19 6.19 4.53 3.04
35 bp 3 bp -9 bp 38 bp 41 bp - - - - -
Quarterly CD COF (blended) and Difference from Peer
Pct of Total Deps
+ 3 yrs
1-3 yrs
3-12 mos
< 3 mos
1,066 Members Under $1 billion National Peer: $1-3 billion
Larger Banks Use Less CDs in the Funding Mix Remaining Maturity Schedule from Call Report Data
Same Info - as a Percent of DepositsRecent CD Term Changes Insignificant in Larger
Context
15
26% 26% 25% 26% 26% 26% 26% 27% 26% 25% 25% 26% 26% 27% 27% 27% 27% 27% 26% 25%
46% 46% 47% 47% 48% 48% 48% 47% 48% 48% 50%50% 51% 50% 49% 48% 48% 46%
45% 44%
25% 25% 24% 23% 22% 22% 22% 22% 22% 23% 22% 21% 20% 20% 21% 21% 21% 21%23% 23%
4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 3% 3% 3% 3% 3% 4% 4% 5% 6% 7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3-98 6-98 9-98 12-98 3-99 6-99 9-99 12-99 3-00 6-00 9-00 12-00 3-01 6-01 9-01 12-01 3-02 6-02 9-02 12-02
72% 72% 72% 73% 74% 74% 74% 74% 74% 73% 74% 76% 76% 76% 76% 75% 75% 73% 71% 70%
5.59 5.61 5.61 5.61 5.31 5.22 5.19 5.22 5.34 5.49 5.88 6.10 6.01 5.81 5.43 4.91 4.29 3.93 3.70 3.45
Percent of CDs Under 1 Year and Quarterly COF on CDs
+ 3 yrs
1-3 yrs
3-12 mos
< 3 mos
Rate Environments Have Not Affected TermsIs it really effective to pay up to extend CDs?
1,066 Members Under $1 billion
Median Percent of CDs Under 1 Year = 74%
Pct of CDs
16
Asset Yield and Cost of Funds TrendsQuarter and Median Information: March 1998 – Dec 2002
8.25 8.30 8.29 8.21
7.87 7.90 8.02 8.00 8.108.27
8.48 8.558.31
8.137.85
7.35
6.96 6.90 6.87
6.51
4.59 4.62 4.64 4.594.33 4.27 4.30 4.30 4.41
4.57
4.905.05
4.914.66
4.30
3.69
3.172.94 2.81
2.56
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
2 bp -1 bp 8 bp 36 bp 9 bp 3 bp 0 bp -6 bp -10 bp -18 bp -19 bp 0 bp -6 bp 11 bp 14 bp 17 bp 24 bp 34 bp 57 bp 70 bp
39 bp 39 bp 44 bp 65 bp 49 bp 41 bp 45 bp 34 bp 34 bp 31 bp 32 bp 35 bp 42 bp 59 bp 69 bp 75 bp 74 bp 67 bp 68 bp 71 bp
Yield on IEAs 8.06% IBD COF 4.37% Fed Funds Qtr Avg
Peer IEA Yield Peer IBD COF
1,066 FHLB Des Moines Members Under $1 billion vs. National Peer of Banks $1-3 billion
Period and Difference From Peer in Basis Points for Interest Earning Assets and Interest Bearing Deposits
Asset yield advantage is offset by higher
COF on IBDs
20Q Median Diff: 6 bps
20Q Median Diff: 45 bps
17
Where to from Here?Where to from Here?
• Asset yields remain under pressureAsset yields remain under pressure– Markets and competition put pressure on yields
• Spreads will continue to be testedSpreads will continue to be tested– Assets continue to reprice/refinance downward
– Later, what if funding costs increase faster than asset yields?
• Cost of funds management may be solutionCost of funds management may be solution– Use alternative funding to support retail pricing and structuring activity
– Protect and stabilize core deposit base
18
Part IIPart II
Deposit Pricing and Structuring Strategies
19
The Multiplier EffectThe Multiplier Effect
• One of the largest values a dollar of advances can have is its effect on your overall deposit base.
• Borrowing from the FHLB will not have much effect on your overall COF by itself, unless deposit pricing is also adjusted.
• With this approach, one dollar of advances will lower the cost of MANY other dollars of existing funding.
20
Deposits Are the Largest Component of Funding
A few dollars of borrowings can impact MANY dollars of deposits
84% 83% 83% 83% 82%
78% 75% 75% 74% 74%
3% 4% 5% 5% 6%
5% 8% 8% 8% 8%
2% 3% 3% 2% 2%
6% 6% 6% 6% 6%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
4.62 4.37 5.13 3.77 2.68 4.10 4.21 4.99 3.10 2.06
52 bps 16 bps 14 bps 67 bps 62 bps - - - - -
Quarterly COF on Int Bearing Liabs (IBL) and Difference from Peer
Total deposits Total borrowed money (inc FHLB adv)FFP & Sec sold under agree to repurch
1,066 Members Under $1 billion National Peer: $1-3 billion
21
How do you price your deposits?How do you price your deposits?
• The competition or local market surveys?The competition or local market surveys?– What if the market is skewed?
– How does this compare to your alternatives?
– How do you set limits?
• National data and the FHLB curve?National data and the FHLB curve?– Provides an objective structure
– Helps to instill pricing discipline
– Protects and stabilizes larger core deposit base
22
Pricing Your New and Renewing DepositsAre You Pricing Deposits 25-50 bps Below the Advance Curve?
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Checking and MMDA Rates Compared to 1-Week Repo Advance
Natl Avg Deps FHLB Des Moines
Natl Avg Deps 0.81 1.43 0.91 0.95 1.19 1.39 1.72 2.11 2.54 3.36
FHLB Des Moines 1.45 1.45 1.43 1.43 1.43 1.45 1.53 2.07 2.66 3.52
Checking MMDA 1 mo 2 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr
64 bp 2 bp 52 bp 48 bp 24 bp 6 bp -19 bp -4 bp 12 bp 16 bp
Tuesday, April 15, 2003
Rates and National Averages as of
Every 10 bps above the advance curve costs a MINIMUM of $1,000 per million, annually.
Does it really make sense to push short-term CDs out on the curve with rate specials?
Can you afford the +100 bps additional cost?
Deposit Source: Bankrate.com
Adv vs Deposit
1 mo CD vs 2 yr CD-120 bps
23
Marginal Cost of Funds ExampleMarginal Cost of Funds ExamplePromotion to Extend CD Terms
• Considering 2.50% 2-yr CD special
• Expect to attract 10% new money
• Assume repriced funds are short-term CDs
• Run promotion or use 5-yr Advance?
24
5 ($4)
Should you Raise Rates to Raise Funds ?
Use FHLB AdvanceNew Acct/Special $1.0 million
Sources of Funds : Save $5,770 = 577 bpsNew Money $0.1 million does not include FDIC or advertising & overhead expenses
Repriced Accts $0.9 million
Interest Rates :
Repriced Accts 1.75% ReRate: Promotion Rate 2.50%FHLB Advance 3.48%
0
Retail Strategy FHLB Advance
Marginal Cost : 9.25% FHLB Advance Cost : 3.48%Balance Increase Cost Borrowing Rate Cost
$900,000 0.75% $6,750(existing accounts) $100,000 3.48% $3,480
$100,000 2.50% $2,500 (net liab increase)
(new money)
Dollar Cost of Raising Rates : $9,250 Cost of FHLB Advance : $3,480
New Money
10%
Repriced Accts90%
5 yr Adv
Break Even Point = 43% New Money
Save Over $5,000 per Million by Not Raising Rates
25
4.73
4.12
3.56 3.62
3.72
0
5,000
10,000
15,000
20,000
25,000
Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
-21 bp -21 bp -43 bp -13 bp 20 bp
Quarterly CD COF Difference From Peer
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
Avg. Time deposits of < $100,000 Rate on time deposits < $100,000 Peer Rate
Case Study: Raising Rates to Grow and Extend CDs Did Not WorkAverage Balance and Cost of Funds
1,066 Members Under $1 billion
26
3.71
3.15
2.992.91
2.75
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
2 bp -2 bp 5 bp 10 bp 19 bp
Quarterly IBD COF Difference From Peer
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
Avg. Interest bearing deposits Rates on interest bearing deposits Peer Rate
Case Study: Raising Rates to Grow and Extend CDs Did Not WorkAverage Balance and Cost of Funds
This pricing change cost this bank about $18,156 (19bps) during the Dec 2002 quarter !
1,066 Members Under $1 billion
27
Reverse Marginal Cost ExampleReverse Marginal Cost ExampleLowering Rates on Existing Deposits
• Currently Paying 1.25% on MMDAs
• Considering lowering rate by 25 bps
• Replace any lost balances with 2-yr FHLB advance– Estimated balances at risk = 10% of total
28
Should You Pay Up to Retain?
Best Case: Drop Rates 25 bp With No Runoff 1.00%Balance Ann Int Exp
90% Rollover 900,000$ 9,000$ 1.00%
At Risk 10% 100,000$ 1,000$ 1.00% At Risk 10.00%
Total 1,000,000$ 10,000$ New Rate 1.00%
Former Rate 1.25%
FHLB Advance 2.02%
Leave Rates at 1.25% to Retain Balances 1.25%Balance Ann Int Exp
90% Rollover 900,000$ 11,250$ 1.25%
At Risk 10% 100,000$ 1,250$ 1.25%
Total 1,000,000$ 12,500$
0 1480
Drop Rates and Replace 10% Runoff with Advance 1.10% Save $1.5M by not raising rates
Balance Ann Int Exp ( 14.8 bps )
#### 90% Rollover 900,000$ 9,000$ 1.00%
Advance 100,000$ 2,020$ 2.02%
Total 1,000,000$ 11,020$
- Blend Retail Deposits with Advances and Lower Your COF 10%
90%
Break Even Point:
25% w/ 2yr Adv 49% w/ 1yr Adv
Lowering Rates 25 bps Could Result in Savings of up to $2,500 per million
29
Action PlanAction Plan• Determine how your deposit base compares to peer.Determine how your deposit base compares to peer.
– Rates– Structure
• Review and evaluate your deposit pricing practices.Review and evaluate your deposit pricing practices.– Do you try to keep every last deposit dollar?– How do you set limits for specials, promotions, special customers?– What TYPES of deposits are you targeting?
• Determine your FHLB capacity and other sources of funds.Determine your FHLB capacity and other sources of funds.
• Test your deposit elasticity.Test your deposit elasticity.– Lower rates incrementally– Were any balances lost?
• Contact your FHLB Regional VP for assistance.Contact your FHLB Regional VP for assistance.
30
Non-Maturity Deposits Are Key to Lower Funding Costs Deposit Categories and Median Rates: 1998-2002
4.59 4.62 4.64 4.594.33 4.27 4.30 4.30 4.41
4.574.90
5.05 4.914.66
4.30
3.69
3.172.94 2.81
2.56
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
85% 85% 85% 86% 87% 87% 87% 87% 87% 86% 86% 87% 87% 88% 88% 88% 88% 87% 86% 86%
53% 53% 53% 51% 51% 51% 51% 50% 51% 53% 53% 52% 53% 53% 52% 49% 49% 49% 48% 47%
Percent of Deposits with Reported Terms of Less than One Year and CDs/Deposits
Rates on interest bearing deposits: 4.37% Rates on int bearing transaction accts.: 2.15%
Rates on Savings deposits: 3.31% Rates on time deposits (blended): 5.39%
1,066 Members Under $1 billion
Which Lines Are Consistently Lower and More Stable?
31
AppendixAppendix
Case StudiesCase Studies
From different states in FHLB Des Moines DistrictFrom different states in FHLB Des Moines District Assets of selected members are between $100-500mmAssets of selected members are between $100-500mm
32
Case Study OverviewsCase Study Overviews• Case Study #1 – Reached GoalCase Study #1 – Reached Goal
– Transitioned from just above median to under 10th percentile– CDs shifted from over 50% of deposits to 35%– Incrementally lowered rates, continually tested deposit elasticity
• Case Study #2 – Working Towards GoalCase Study #2 – Working Towards Goal– In high cost market, consistently near the 90th percentile historically– IBD COF now near the median, goal is to be below the median– Aggressively cut rates across the board
• Case Study #3 – Been There, Done ThatCase Study #3 – Been There, Done That– IBD COF has averaged in the 14th percentile over the last 6 years– Very consistent and disciplined deposit structuring and pricing
These members have funding plans…what is yours? These members have funding plans…what is yours?
33
Case Study #1- Used to base rates off of local market area - Incrementally cut rates - NIM is now over 6%
24-Quarter Interest Bearing COF ComparisonStatistics for All 1,503 Banks & Thrifts In FHLB DesMoines District
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
32% 32% 47% 54% 60% 63% 58% 68% 65% 69% 70% 67% 61% 64% 76% 68% 36% 24% 15% 11% 11% 13% 10% 3%
-22 bp -19 bp -3 bp 5 bp 10 bp 13 bp 9 bp 20 bp 17 bp 21 bp 21 bp 18 bp 12 bp 15 bp 34 bp 24 bp -14 bp -34 bp -57 bp -77 bp -72 bp -61 bp -71 bp -104 bp
FED Funds (QA) 90th Pctle IBD Median 10th Pctle Subject
Percentile
Median Statistics Subject StatisticsMax 4.98 Max 5.22
Median 4.47 Median 4.50Min 2.61 Min 1.57
Average Percentile for Subject Bank45%
To Median
Deposits / TA = 72%
Adv / TA = 5.65%
34
Comparison of Deposit Structure: Percent of Deposits Deposit Cost is a Function of Price and Structure
22% 24% 26%31% 33%
27% 26% 25% 25% 25%
4%5% 4%
4%5%
8% 8%8% 9% 10%
22%25%
26%
29%27%
14% 15%15%
17% 18%
52%47% 44%
36% 35%
51% 50% 52% 49% 47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
4.74 4.50 5.22 2.99 1.57 4.59 4.30 5.05 3.69 2.56
15 bps 20 bps 17 bps -70 bps -99 bps - - - - -
CDs
MMDAs
Savings
Checking
Quarterly COF on Int Bearing Deposits (IBDs) and Difference From Peer
Peer = 1,066 Members Under $1 billion
Case Study Bank #1
35
24-Quarter Interest Bearing COF ComparisonStatistics for All 1,503 Banks & Thrifts In FHLB DesMoines District
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
86% 83% 85% 86% 89% 89% 90% 87% 82% 82% 86% 86% 85% 85% 88% 87% 85% 71% 67% 50% 52% 49% 50% 57%
44 bp 42 bp 45 bp 46 bp 51 bp 53 bp 58 bp 50 bp 37 bp 39 bp 45 bp 48 bp 44 bp 47 bp 61 bp 61 bp 52 bp 27 bp 18 bp 1 bp 3 bp -1 bp 0 bp 8 bp
FED Funds (QA) 90th Pctle IBD Median 10th Pctle Subject
Percentile
Median Statistics Subject StatisticsMax 4.98 Max 5.59
Median 4.47 Median 4.89Min 2.61 Min 2.69
Average Percentile for Subject Bank77%
To Median
Case Study #2- Used to base rates off of local market area - Cut rates across the board - Added about 100 bps to NIM
Deposits / TA = 80%
Adv / TA = 10.24%
36
Peer Comparison: Deposit COF DetailCalculated From Call Report Data
5.044.80
5.59
3.77
2.69
4.594.30
5.05
3.69
2.56
2.172.00 2.02
0.73
0.46
2.21 2.16
2.48
1.24
0.95
4.14 4.04
4.34
2.06
1.44
3.37 3.33
3.79
2.16
1.55
5.90
5.55
6.47
4.94
3.63
5.61
5.22
6.10
4.91
3.45
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
5.04 4.80 5.59 3.77 2.69 4.59 4.30 5.05 3.69 2.56
45 bp 50 bp 54 bp 8 bp 13 bp - - - - -
Quarterly COF on IBDs and Difference From Peer
Rates on interest bearing deposits Rates on int bearing transaction accts.
Rates on Savings deposits Rates on CDs (blended)
Case Study Bank #2 Peer = 1,066 Members Under $1 billion
37
24-Quarter Interest Bearing COF ComparisonStatistics for All 1,503 Banks & Thrifts In FHLB DesMoines District
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02
24% 23% 21% 20% 21% 22% 19% 10% 8% 8% 18% 14% 20% 18% 15% 15% 17% 8% 9% 6% 6% 6% 7% 8%
-33 bp -34 bp -40 bp -43 bp -40 bp -38 bp -42 bp -72 bp -77 bp -74 bp -42 bp -55 bp -39 bp -46 bp -56 bp -54 bp -48 bp -76 bp -83 bp -110 bp -99 bp -95 bp -84 bp -78 bp
FED Funds (QA) 90th Pctle IBD Median 10th Pctle Subject
Percentile
Median Statistics Subject StatisticsMax 4.98 Max 4.44
Median 4.47 Median 3.94Min 2.61 Min 1.83
Average Percentile for Subject Bank14%
To Median
Case Study #3- Always under median - Emphasizes non-maturity deposits – Very Stable NIM
Deposits / TA = 83%
Adv / TA = 6.92%
38
Comparison of Deposit Structure: Percent of Deposits Deposit Cost is a Function of Price and Structure
36% 36% 36% 39% 37%
27% 26% 25% 25% 25%
7% 6% 5%5% 5%
8% 8%8% 9% 10%
21% 24%21%
22%21%
14% 15%15%
17% 18%
36% 34%38%
34% 37%
51% 50% 52% 49% 47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12-98 12-99 12-00 12-01 12-02 12-98 12-99 12-00 12-01 12-02
3.82 3.77 4.44 2.66 1.83 4.59 4.30 5.05 3.69 2.56
-77 bps -53 bps -61 bps -103 bps -73 bps - - - - -
CDs
MMDAs
Savings
Checking
Quarterly COF on Int Bearing Deposits (IBDs) and Difference From Peer
Case Study Bank #3 Peer = 1,066 Members Under $1 billion
39
Action Plan – Is Your COF as Low As It Can Be?Action Plan – Is Your COF as Low As It Can Be?• Determine how your deposit base compares to peer.Determine how your deposit base compares to peer.
– Rates– Structure
• Review and evaluate your deposit pricing practices.Review and evaluate your deposit pricing practices.– Do you try to keep every last deposit dollar?– How do you set limits for specials, promotions, special customers?– What TYPES of deposits are you targeting?
• Determine your FHLB capacity and other sources of funds.Determine your FHLB capacity and other sources of funds.
• Test your deposit elasticity.Test your deposit elasticity.– Lower rates incrementally– Were any balances lost?
• Contact your FHLB Regional VP for assistance.Contact your FHLB Regional VP for assistance.