Growth Reporting on the Balance Sheet To Identify Imbalances Four reports focused on growth to run and review in comparison with peers are: • Asset growth rate • Loan growth rate • Deposit growth rate • Core deposit growth rate These reports show how a financial institution is growing components of each side of the balance sheet to identify potential imbalances that may prompt the need for additional funding or liquidity. Deposit analysis provides insight on surge balances as well as non-core versus core deposits, which are more stable sources of funding for loan growth. Core deposits in growth reports for financial institutions should be defined in a variety of ways. For example, the UBPR defines core deposits as the sum of demand deposits, all NOW and ATS accounts, MMDA savings, other savings deposits, and time deposits under $100,000. Still, it is vital to consider depositor behavior as well when defining what really is a core deposit. A report designed to identify growth opportunities as well as flag liquidity needs is one showing the loan pipeline according to when loans are projected to close and fund. Showing projected loan fundings over the next week, for example, helps the CFO or other staff involved in liquidity management to plan anticipated funding needs to support loan originations. This report requires (and therefore improves) communication between the credit and lending area of the bank and those responsible for liquidity management. Monitor Liquidity Risk With Regular Reporting Capital and liquidity go hand in hand, as the industry saw with the recent bank failures. In the case of Silicon Valley Bank (SVB), the bank needed liquidity fast due to significant depositor withdrawals and had to liquidate its securities portfolio. The sale depleted its capital because SVB was in a large unrealized loss situation on its held-to-maturity investment securities. Three types of reports to monitor liquidity risk are those evaluating: • Liquid assets • Core deposits • Short-term investments First, monitor liquid assets and those that can be liquidated quickly with few adverse consequences. Measure liquid assets as a percentage of total assets and evaluate this ratio relative to peers. Second, track core deposits as a percentage of total assets and evaluate this relative to peers. Core deposits should be assessed not only by deposit type (e.g., transactional accounts like CDs versus primary checking accounts) but also in terms of balances to identify surge balances. In addition, it’s useful to discern the migration of deposit funds from existing depositors (i.e., the movement of money out of money market funds to CDs versus new deposit money coming in). Continued from page 12 14 In Touch
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