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Blog CALL TOLL-FREE 1-800-323-3281 Solutions Budgeting ALM ALM Advisory Services CECL Strategy Market Intelligence Products StrategyGPS Compass BankersGPS Resources Blog Videos Compass Tutorials Lunch N’ Learn Webinars About Schedule A Discovery Call CALL TOLL-FREE 1-800-323-3281 Blog Staying Agile in 2024: The Importance of Liquidity Management Posted by Dave Wicklund on 5/2/24 10:30 AM Tweet In the last two years, the Fed has implemented 11 increases in the target Fed Funds rate, amounting to a total of 525 basis points. These moves were aimed at tempering the overheated economy in the wake of the COVID pandemic. As a result of these increases, we have seen massive shifts in deposit balances as consumers have become more aware of opportunities to move balances from lower yielding non-maturity deposits into higher yielding CDs and alternative investment products. While we can’t be sure of what future market rate movements will be, or when they will occur, every financial institution must be prepared for any outcome. Considering this era is marked by economic uncertainty and rapid shifts, understanding liquidity’s critical role continues to be paramount. Here are three key reasons maintaining a strong liquidity risk management program in 2024 and beyond is not a suggestion, but a necessity for community banks and credit unions. Read More Margin Risk Tolerance: How Much Risk Can your Financial Institution Afford? Posted by Bill Smith on 4/5/24 2:36 PM Tweet Risk is inevitable in banking; in fact, it’s what makes banking profitable. The question is, how much risk is acceptable? Recognizing that existing techniques of measurement were sometimes misleading and arbitrary, developed a simple calculation called "Margin Risk Tolerance" that defines how much risk each bank can take. Despite the wealth of banking information has at hand, we believe risk relates to the individual bank, and cannot be measured to any peer standard or magic number. Margin risk tolerance calculates the minimum net interest income and net interest margin necessary to maintain continuing operations. Minimum margin consists of two basic components: 1) earnings needed to maintain an acceptable capital ratio and pay dividends, and 2) earnings needed for overhead. Read More Liquidity: Read all about it! Posted by Dave Wicklund on 2/5/24 9:16 AM Tweet What do massive shifts in deposits, a possible impending recession, and a tremendous hike in interest rates have in common? Absolute potential for wreaking havoc on your institution’s liquidity position. One unplanned or mismanaged situation could mean falling out of policy limits, or worse. Before we dig into what the present state of the economy could mean for your organization’s liquidity position, let’s make sure we’re on the same page with what we’re discussing. Per the OCC , Liquidity is the risk to a bank’s earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses. Bank management must ensure that sufficient funds are available at a reasonable cost to meet potential demands from both funds providers and borrowers.” Read More The Power of Playbooks: A Blueprint for Success Posted by Craig Hartman on 1/11/24 11:19 AM Tweet In the face of complexity and uncertainty, human instinct seeks order and guidance. A playbook, whether etched on ancient clay tablets or stored in modern cloud servers, provides this very structure. It transcends a mere collection of rules; it’s a living document, a distilled wisdom of past experiences, offering a roadmap for navigating future challenges. The benefits of a well-crafted playbook are manifold, weaving their magic across both individual and collective endeavors. Read More Ask an Expert: Top Priorities for 2024 Posted by Dave Wicklund on 1/9/24 1:01 PM Tweet "Which measurements would you put highest priority on in 2024?" I’d say that Net Interest Margin (NIM) changes and Economic Value of Equity (EVE) should continue to be the primary focus of IRR management in 2024. Gap calculations rarely give the full picture (focused on timing of reprice, and not magnitude), and Duration measurements can be difficult to understand. Given the extreme rate increases in the past two years and the bank failures in 2023, all financial institution managers and directors should have a clear understanding of how future market rate changes could impact both shorter-term earnings (aka the NIM in the next one and two years) and longer-term capital values (aka the EVE). Read More Three Most Frequent Pitfalls of Interest Rate Risk Management Programs Posted by Dave Wicklund on 12/4/23 11:00 AM Tweet Establishing and maintaining a sound interest rate risk (IRR) program is crucial to ensure proper balance sheet structure and comply with Regulatory expectations. During my 20+ years as a senior FDIC examiner, I routinely saw organizations experiencing issues with their ALM/IRR practices, ranging from loose misunderstandings of the guidance to critical errors that put the health of the organization at risk. Unfortunately, in my current advisory role, I see the same issues all too often. Read More Surge Deposits: Straight Up with a Twist Posted by Dave Wicklund on 11/1/23 10:59 AM Tweet For the past few years, I’ve written about the varying circumstances surrounding Surge Deposits. From the death of” to the resurgence,” it seems to be a consistently hot topic – this year, with a slight twist. While previously keeping a close watch on the influx of demand deposits, we’re now seeing increased pressure on funding flowing either from non-maturity deposits (NMDs) into higher costing CDs, or out of financial institutions all together. Before we get further, if you haven’t yet read my other blogs discussing Surge Deposits, or could use a refresher, click here to do so. Read More Don’t Just Budget, Control Your Results Posted by Craig Hartman on 10/2/23 12:35 PM Tweet Are you really planning, or are you just budgeting? By this I mean, are you filling out the numbers on a spreadsheet or planning the actions needed to make it a reality? It’s always gratifying when all the numbers come together in a neat package showing expected growth and earnings for next year. And, there were likely many contributors who verbally expressed their goals and plans on how they are going to reach them. The compiled financial targets are then presented to and accepted by the board, and your monthly comparisons begin. Budget predictions” are compared to reality. Variances from budget” are explained, and business continues as usual. In essence, that’s budgeting. Read More Branch Profitability Posted by Sue West on 9/5/23 9:37 AM Tweet Our recent blog discussed Product Profitability, or the process of analyzing your product line by looking at each asset category and adjusting its yield by adding non-interest income, and subtracting applicable loan losses and overhead. The overhead we associated with the asset was its funding liability cost less applicable service charges. This gave us a more heightened awareness of the true earning potential of each earning asset. Read More Product Profitability and Funding Posted by Sue West on 8/7/23 12:04 PM Tweet As increased competition and consolidation challenge the financial industry, your business must continue to adapt using strategies for success, not unlike those of other businesses. Manufacturing and retail have long used product management techniques to meet competitive pressures for pricing, product planning, and growth strategies. If financial institutions are to survive and prosper in this highly charged competitive environment, management must understand and control all components of profitability. Margin and equity risks have been addressed using regulatory rate shock methodologies, as well as recommended and required stress testing of the loan portfolio, including loan losses. Product profitability combines these concepts with...