Echo Partners Community Bank Blog

Popular IRR Models Rely on NMDA Method Declared Insufficient By FDIC...Does Yours?

Posted by Howard Lothrop on Mar 25, 2015 1:33:00 PM

Do you know the best way to avoid regulatory criticism?  

It's a simple answer really...Just do what your regulator tells you to do, and stop doing what he tells you not to do.  

If there's anything that will get your regulator all lathered up it's when he tells you what NOT to do and you do it anyway.

In fact, the only real problem is keeping up with the rapidly changing communications from the regulators.  Unfortunately, "ignorance of the law" is no more a defense with your regulators than it is in the courts.

Well I'm going to make your job just a little bit easier by showing you an easy-to-miss bit of oh-so-simple regulatory guidance that casts doubts on the non-maturity deposit account (NMDA) modeling process used at many community banks...

And it's actually built into many common or popular community bank IRR models.

It's called the retention method.  You might see it referred to as the closed accounts method.  

It can even go by a number of other names, but here's how you'll know you're looking at a regulatory problem...the calculation of your NMDA deposit decay rate, duration or average life is based directly or indirectly on the number of accounts remaining open or closed since a starting date.

And the FDIC says it's "insufficient".


"Number of accounts" is the giveaway phrase that lets you know your bank IRR is a walking, talking regulatory timebomb.  

There's even a variant where the model uses account balances in dollars, but only to determine the weighted average account open time.  And that's just as wrong as using closed accounts themselves.

So what's a community banker to do?

  • Check your NMDA assumptions in your IRR model without delay.
  • Stop using retention or closed accounts methods.
  • Change from a "backward looking" longevity method to a "forward looking" balance decay based method.
  • Let me know if you have NMDA deposit study questions.

You are calculating your own bank specific non-maturity deposit assumptions, aren't you?

Please don't delay addressing this issue.  Bank specific assumptions are a very hot topic right now and your regulator only has so much patience in dealing with willful guidance violations.

Ready to get started?  On a budget or looking for a D-I-Y solution?  Try our online training course.

Learn More Now


Topics: deposit study

Why Your Regulator Wants a Deposit Study and How You Know

Posted by Howard Lothrop on Mar 23, 2015 10:21:00 AM

There are really only 2 kinds of banks right now...those the regulators have already told to get a deposit study and those they are going to tell to get a deposit study soon. 
Free Deposit Study Online Training
Here's what they want you to do:
1) Produce statistically significant quantitative studies that calculate your bank's specific demonstrated deposit behaviors.
2) Adjust these numerical results for qualitative factors such as surge deposits.
3) Document your results in a way that fully supports these most important IRR assumptions.
Here's why they are concerned: 
Time deposits are at a 15 yr low while NMDAs are at a 15yr high.  They believe when rates turn these relationships could well reverse.  I've attached an FDIC graph below on these deposit trends.
OCC specifically has called out banks on the need to calculate, produce, and document bank specific assumptions, particularly deposit assumptions.  Here are a few references.
FAQs on Interest Rate Risk Management
The final 2 questions (on page 10) are the only questions related to assumptions and both refer to NMDA assumptions.  I've replicated them below...
11. Can an institution use industry estimates for non-maturity-deposit (NMD) decay
Answer: Institutions should use assumptions that reflect the institution’s profile and
activities and generally avoid reliance on industry estimates or default vendor assumptions.
Some institutions, however, have difficultly measuring decay rates on NMDs because of
limitations on their systems’ ability to provide necessary data, acquisitions or mergers, or
possibly a lack of technical expertise. Industry averages provide an approximation but may
not be a suitable estimate in every case. For example, customer types and behaviors are
inconsistent across geographic areas and are likely to produce very different deposit decay
rates from one institution to another. Industry estimates should be a starting point until
sufficient internal data sets can be developed. An institution can contract with an outside
vendor to assist with this process if necessary. For any key assumptions, back-testing
should be performed to determine whether assumption estimates are reasonable.

12. Regarding deposit decay-rate assumptions, what are some examples of a “market
environment in which customer behaviors may not reflect long-term economic
Answer: Management should carefully consider deposit and NMD decay-rate assumptions,
particularly when customer behaviors change during periods of stress as well as external
factors that may influence that behavior. For example, customers’ flight to quality (insured
deposits) during times of stress might influence NMD decay rates. Additionally, the
deterrence value of prepayment penalties during times of near-zero interest rates (penalty
becomes negligible) might influence time-deposit decay rates. Similar considerations
should be given to other key rate drivers and prepayment assumptions used in the IRR

Even more recently, the OCC Semiannual Risk Perspective Fall 2014 hits these points again.  Here's the link:
Pages 34 - 37 concern IRR and say...
Bottom of page 34:
"The IRR data show a wide range of practice for NMD assumptions. The diversity of the data indicates
unique funding profiles and stressors, and different customer types and behaviors across geographies
and depositor balances. NMD deposit assumptions are a key component of IRR measurements and a
driver of earnings and economic capital exposures. Accordingly, it is important that banks not rely on
external proxies and instead use assumptions that reflect the bank’s unique profile in order to identify
risk properly."

Middle of page 35:
"Banks reported a wide range of expected NMD
repricing assumptions for a 100 bp change in interest rates (see figure 29). For example, the median
money market deposit account (MMDA) repricing rate was 40 percent. This indicates that for an
increase in interest rates of 100 bps, the majority of banks expect MMDAs to reprice upward 40 bps.
Repricing assumptions, especially in MMDA-related accounts, vary widely, and should be analyzed
carefully to ensure the sensitivity estimates appropriately reflect realistic expectations.
Lower half of Page 36:
"Banks reported expected decay assumptions for six different deposit categories. The decay rate
estimates the percentage of an account that will “run-off” or move out of a particular deposit product
for a given rate change. The decay rates reported by banks are, like the banks' reported repricing rates,
contingent on multiple factors. Deposits that are more volatile (e.g., MMDA and High Yield MMDA),
show higher decay rates than more stable savings accounts (see figure 31). Banks reported expected
decay rates over the full range of possibilities (to 100 percent decay) for MMDA accounts. The OCC
did not collect data indicating whether the decay volume leaves the banks or moves into different
deposit categories as a part of this analysis. The wide range of decay rate assumptions should be
analyzed carefully to ensure the sensitivity estimates appropriately reflect realistic expectations.
Final paragraph on Page 37:
"Outliers in reported exposures and NMD assumptions may indicate diversity in balance sheet profiles
or unrealistic or incorrect modeling assumptions. The OCC reminds banks of the need to perform
sensitivity analysis of NMD assumptions to identify the potential impact of depositor instability.
Testing the sensitivity of existing assumptions by applying subtle or significant variations to the
repricing or decay rates may be used to analyze the potential impact on capital and earnings if
depositors are less stable, or more price sensitive, than expected
Free Deposit Study Online Training
Please let me know if you have any questions.  Thanks.

Topics: deposit study

How We Reduce Reported EVE Risk Up To 30%... (or More!)

Posted by Howard Lothrop on Feb 19, 2015 10:00:00 AM

DepositBoxThis is Part 1 of a 3-part series on the benefits of building your own deposit study:

Part 1 - [You Are Here] - How We Reduced Reported EVE Risk Up to 30%...(or More!)

Part 2 - 3 Steps to Time Bucket Your Deposit Average Life

Part 3 - Get Better Deposit Study Results...With Less Data

How would you like to turn this EVE profile...


...Into this EVE profile... 


...All without changing your balance sheet?

Here's the thing...

Most of the criticism and advice you've been getting about your EVE risk is DEAD WRONG.

I know this because I calculate interest rate risk statistics (including EVE) for thousands of banks nationwide (in fact, for EVERY FDIC-insured bank)... and I test EVERYTHING!

And I've uncovered the quickest and easiest method to cut your reported EVE risk up to 30% or more!

Here's my disclaimer:  I obviously can't promise that you will get these results at your bank.  Your results will vary due to a multitude of factors.

But I owe it to you to tell you about my discovery.

And you owe it to your bank to look into this strategy right away.

I started off with all the traditional methods to reduce EVE.  You know...shortening my asset repricing and lengthening liabilities.

But the problem was that everything I did to reduce EVE also cut earnings and margin.  And in today's environment that's simply not acceptable.

So I started experimenting with other methods.

In this article, I'm going to reveal the method I used to achieve up to 30% and greater reductions in reported EVE risk for community banks nationwide...Without changing the balance sheet.

This is the same system I teach in much greater depth in Deposit Study Blueprint.  If you have any significant nonmaturity deposit account (NMDA) balances, you will definitely want to be part of this training because you stand to benefit the most.

As I mentioned, I started reducing EVE the way the so-called gurus didn't work.  Our margin and earnings were crushed.

So I started breaking their rules.  I started testing.

In the end, I developed my own system.

Here are six ways I broke the rules and transformed EVE reduction into a quick and easy endeavor.

1)  I Listened to Bank Regulators

Banking is a heavily regulated business and I treat it as a regulated business.  That means spending time reading and understanding what our regulators are telling us.

And the only thing they're talking about as much as EVE are bank-specific assumptions...particularly NMDA assumptions like decay and beta.  For example, these comments don't leave a lot of doubt about whether or not your regulator is focused on bank-specific deposit assumptions.




So I decided to kill 2 birds with one stone and combined my search for EVE reduction with cracking the bank-specific deposit assumption code.  And guess what happened?

I found that almost every bank I examined significantly improved their EVE risk profile (up to 30% risk reduction or more) when they implemented a deposit study and calculated their own bank-specific deposit assumptions.

Now, in retrospect, this makes sense.  The reason it works is that most banks have a very short and conservative set of assumptions, especially deposit assumptions.  And that's just fine...until you start to attract some regulatory attention on interest rate risk.  Then it's definitely in your best interests to extend those deposit assumptions if you can document and support the change

(By the way, I talk more about how the actual extension process plays out in this post about the "3 Steps to Time Bucket Your Average Life"...)

So when we actually run the numbers, do the math and plot out all the statistics we find that almost every bank can quantitatively, statistically and scientifically support longer and more EVE-friendly NMDA assumptions.

And, as you'll see in a second, if you follow our model you'll actually get better results and you'll also be doing less work than most.

Let's see...less work...better results?

(I talk more about getting better results with less data (and work) in this post  "Get Better Deposit Study Results With Less Data"...)

First, let's talk about the mistake I made with my deposit study design and how I fixed it...

2)  I Went "Simplistic"

You've probably been told that a "complex", "highly detailed" and "sophisticated" deposit study was the best (only?) way to go, right?

Well I heard the same thing, which is why this was the very first type of deposit study design that I tested when I first launched this project.

Mountains of data, detailed account transaction histories, complicated statistical techniques focused on tracking and analyzing every individual account...and every individual deposit type.

But there was just one problem....Well, three problems actually.

  • No one except a PhD could make it work.
  • No community bank had the reams of data and info in just the right formats all clean and neat.
  • The detailed focus actually made the results less useful

Have you ever heard of the Pareto principle?  You know, the old 80/20 rule.

It certainly applies here.  I discovered you could get the overwhelming majority of the deposit study benefits from just a small fraction of the work.  That's the beauty of simplicity.

So I focus on the forest, not the trees.  Here's how...

I call it my "Core Four".  They're the 4 basic NMDA types that virtually all community banks have, and that our deposit study approach is designed to provide.They are:

  • Non-interest bearing checking
  • Interest bearing checking
  • Money markets
  • Savings

Now don't turn your nose up at the straightforward approach.  It works, which is the key factor.

Plus, once you've created the "Core Four" study you know exactly how to extend the study later into more detailed areas, if (and that's a very big "if") the benefits outweigh the extra efforts.

But get the basics down before you try to do too much.

So, I have a question for you...

"Would you rather have a well-documented and supported (complete!) deposit study based on the "Core Four" (which will likely pay big and immediate EVE dividends) or would you rather have an incomplete plan for an expensive study that is overkill for a community bank?"

Choose your answer carefully, because you may not be able to have both...

This one was a biggie, but believe it or not this next change had an even bigger impact on my deposit study plans...

3)  I Didn't Crave Detailed Account Level Deposit History...In Fact I Did the Opposite

One day I walked into my office and proclaimed that detailed individual account-level deposit studies were now obsolete.  This may sound a little extreme, but I'm not going to continue doing something if it obviously isn't working for community banks.

Don't get me wrong.  There are some banks who can deliver all the pristine data sets, scrubbed and tidy for statistical gymnastics, and benefit from complicated and detailed individual account level deposit studies.

It's just that they tend to be big banks (north of $35 billion assets) with huge staffs teeming with number-crunching armies of analysts...And that's NOT who I work with.  Because the reality is...

Community Banks Don't Need More Complexity

I'll say it again.  Community banks do NOT need more complexity.

Instead, what community banks need (and value) is a trusted authority who will organize and aggregate all the GOOD deposit study information that's actually worth reading into one place.  And who will roll up his sleeves, get down and dirty, and get busy helping them make progress.

And this concept is nothing new.  In fact, it's the exact same value proposition you deliver to your clients every day when you help them get the banking service that's right for them.

Do you see where I'm going here?  Finding a better way that works for you is what this is all about.

And here's what I found...Instead of focusing on individual accounts (with all those extra privacy concerns) focus on the entire pool of accounts that makes up each of the "Core Four" line item deposit types.

Not only is it easier and quicker, but it's a proven technique recommended by your regulators.


That's right, the approach they recommend is to track balances at "product / account" level.  And that's exactly what you should do.

I talk more about exactly how we handle the data in this post about how we "Get Better Deposit Study Results...With Less Data"... .

And you can get all the details on how we put the deposit study together in this webinar, or if you're ready to move forward now and make a commitment to improve your bank's deposit assumptions and IRR results just skip straight to the training .

So that covers the first three steps, but the next one gets into how I can be so sure that you can create this exact same result at your bank...

4)  I Focused on Building Templates

Here's the biggest secret to guaranteeing your success: STOP reinventing the wheel!

ReinventWheelCropYou see, I've already figured this out.  We do deposit studies for all sorts, sizes and shapes of community banks nationwide.

Guess what:  They're really all the same.

Sure, the numbers differ and the mix varies, but the key steps remain the same.

So instead of letting you struggle with "What to do next" on your deposit study, I decided to standardize and templatize all of my deposit study steps.

No need to blindly stumble in the dark when you can quickly and easily use my templates to deliver proven success.

When you think about it, it's really a no-brainer.

5)  I Gave My "Secrets" Away...For Free

It might shock you to hear this but...

Most community bankers WILL NEVER purchase ANY deposit study solution.

And that's okay.

Giving my deposit study approach away for free like this is the best way to reach the largest number of community bankers with this important news.  News that can totally transform their bank, and their relationship with their regulator.

You see there are really four groups of community bankers to reach with this sort of information:

  1. Those that will read about it and do nothing;
  2. Those that will read about it and try to do it themselves;
  3. Those that will do it themselves but know they need some guidance; and,
  4. Those that don't have time or staff to do it themselves so they want it done for them.

And the good news is that spreading the word like this helps all 4 of these groups meet their needs.  Because they all need to learn more.

This 3-part series is far from the last you'll hear about this topic.I'm going to be posting more information, which you can sign up to hear about.

I'm also planning a book on community bank deposit study techniques, so you'll be able to learn more.

I have a free training webinar that you can sigup for right now,.

And finally, if you're ready to move from learning to doing, you can skip right to my community bank Deposit Study Blueprint training class if you wish.

But what about those bankers that don't have the time or staff to do it themselves?  Just email me directly if you want to see just how affordable it can be for me to actually do your deposit study for you.  Quick and painless.

So you see, we really do have something for everybody when it comes to deposit study training.

That's the beauty of having a sharing mentality when it comes to "How We Do It".  It's the most effective way to reach the absolute most community bankers and actually get things done.

6)  I Optimized My Methods for Community Banks

Maybe you've been told that you need to fit your "square peg" community bank into a big bank complicated "round hole" deposit study.


We all know that community banks have different cultures, and different needs, than bigger banks.  It just stands to reason that we'll have different deposit study needs as well.

So I carefully adjusted my templates.  I revised my algorithms.  I tested my templates with community banks of all sizes...from less than $100mm to multi-billion $+ community banks.

Just so I could be certain that I could say...

"It Will Work For You."

You see, if your deposit study approach doesn't fit your bank, then all the time and effort you invest in organizing and laying out your deposit info is a complete waste of're just rearranging the deck chairs on the Titanic, so to speak.

Even worse, you might lock yourself into an expensive multi-year service that won't even give you what you really want in the first place.

And it certainly won't let you freely extend your study as you grow more comfortable with the tools and techniques that I teach.

But if you follow my approach you'll have a proven quick and easy method to not only complete your first deposit study in less than 30 days (part time) but you'll also be prepared to expand your reach over no additional expense.

You see, I understand that it's not enough for you to know that I can create a community bank deposit study.  

Nor is it enough for you to know that I can create deposit studies for other banks.  It's not even enough for you to know that I can train other bankers to create their own in-bank deposit study.

What's really important is that you come to learn and understand that...

... I can train YOU to quickly and easily create a deposit study for your bank.


Why Creating Your Own Deposit Study is So Much Better Than Sourcing One Externally 

 Here's why this model is vastly superior to the way most community banks operate:

  • You'll save thousands of dollars (probably tens of thousands) doing it yourself in-house.  Pusif you outsource you and your staff will have to do all the "grunt" work, but you'll get none of the benefit.  Save time and money doing it yourself.
  • You can become the respected deposit study authority both within your bank and with your regulators...even if you're a complete beginner today. Possessing the specialized knowledge that comes from being the "in-house expert" is powerful.
  • You'll be able to generate deposit studies on demand...which is something most ordinary community bankers could only dream about.
  • You don't have to be a "Rocket Scientist". It's more efficient to leverage proven templates...that I've pre-written and designed from the bottom up specifically optimized for your use.
  • You become a deposit study "insider"...doors will begin to open for you within your own bank, and within the greater banking community.

 There are a lot of articles out there that talk about deposit studies.  These trainings, and Deposit Study Blueprint, show you how to build your own deposit study.

Click here to get more information about Deposit Study Blueprint.




(Photos provided by Chewy734 and  Crispin Semmens )

Get Better Deposit Study Results With Less Data

Posted by Howard Lothrop on Feb 19, 2015 9:59:00 AM

MoreDifficultThis is Part 3 of a 3-part series on the benefits of building your own deposit study:

Part 1 - How We Reduced Reported EVE Risk Up to 30%...(or More!)

Part 23 Steps to Time Bucket Your Deposit Average Life

Part 3 - [You Are Here]Get Better Deposit Study Results...With Less Data

This is my most controversial post...Ever!  Here's my startling claim:

"Your community bank already has all the data you need for a high quality statistically valid deposit study.  And it will fit in a simple spreadsheet."

I totally flipped the model on its head.

And it worked.

If you've been told that more and detailed individual account level data is how you build a community bank deposit study, you've been lied to.

Don't worry...I fell for it too.

I tried it that way.  I gathered, manipulated and organized mountains of highly detailed data from other banker's deposit got us nowhere.

And when something gets me nowhere, I stop doing it...and I do the opposite.

Instead of data hoarding I started data slimming.

The results were almost flipping a switch.

Here's how I did it...

First, I searched the regulatory universe.  I devoured anything I could get my hands on from the regulators about deposit assumptions.  No luck.

And then I found it...NOT where I expected it.

I was busy searching for "What to do" but instead realized that the answer was right in front of me all along...It was hidden (a real needle in a haystack) in a stack of "What NOT to dos".

You see, I had been so drawn into the web of the deposit study gurus that I had constructed a false reality built on their standard formula...

More Data + More Analysis (More Expense!) = Hopelessly Complex Deposit Study

They worship at this shrine because they are its high priests.  The only ones with the special knowledge needed to interpret the tea leaves of deposit behaviors.  The only ones with the statistical prowess worthy of divining right from wrong...

And they were wrong...for almost all community banks.

You see, it's not that more data and detail is wrong so much as it is that it's just not available in the typical community bank.  Not with mergers and core conversions and data dumps.

And when your regulator is clamoring for your bank-specific deposit assumptions, it just doesn't work to say "Wait seven years until I have more (better?) data."

We don't need a pristine ivory tower approach that we can't hope to achieve.  Instead we need a practical, roll up your sleeves and get your hands dirty way to get well documented and statistically significant results right now...with the data we already have on hand.

Identifying the right data is only the first step in the system I teach in the Deposit Study Blueprint training. 

And here's exactly what you need to ensure quick and easy deposit study success.

Just 3 simple numbers each month from each of your "Core Four" account types...

  1. The month end $ balance (for the entire deposit type)
  2. The $ balance of new accounts opened that month (Again, for the entire deposit type)
  3. The month end rate paid on that deposit type

3 data numbers times 4 account types means just 12 numbers monthly...

...And this is just about the hardest math you'll have to do to build your deposit study.

(Not familiar with the "Core Four"?  I teach about the "Core Four" in this post about "Reducing Your Reported EVE Risk Up to 30%...")

No individually identifiable details.  No privacy concerns.  No massive IT projects required.

Here's the best part...You don't even have to go back very far in history.

You can get a completely valid beginning decay rate (used to calculate average life) with just 2 years worth of monthly data!

Now, in this case, more history is better, (to identify surge balances, or to discern changing patterns in different rate environments)... but it's NOT required.

You can calculate decay, smooth it and extract average life all with just 2 years monthly data.

If you want to know more about translating average life into your IRR model inputs, look at this post about "3 Steps to Time Bucket Average Life"

So that's decay rate...all neatly tied up in a community-bank-friendly bow.  

But what about beta?

Here's where the big data dumpers are licking their chops.  They might grudgingly agree on lower data needs for decay rate ... but then they're muttering under their breath... "But what about beta?"

And, they've got a point.  Because to get a good quality, statistically valid beta estimate, you should probably start with at least 60 data points.

And 60 data points means 5 years of monthly data.

But here's the key.

The data requirements for calculating your beta analysis are not nearly as challenging or onerous as the decay rate data requirements.

All you need is a simple rate history.  A list of rate changes.  Even a simple spreadsheet or handwritten log that somebody has in virtually every community bank.

It's good enough.

Just remember to keep in mind that although we always say "Decay and Beta" for data purposes it's really "Decay or Beta".

Two years data for decay, 5 years for beta...

We all have that much data.

Click here to learn more about Deposit Study Blueprint.





Photo provided by Sasquatch I


3 Steps to Time Bucket Your Deposit Average Life

Posted by Howard Lothrop on Feb 3, 2015 10:28:00 AM


This is Part 2 of a 3-part series on the benefits of building your own deposit study:

Part 1 -  How We Reduced Reported EVE Risk Up to 30%...(or More!)

Part 2 - [You Are Here] -3 Steps to Time Bucket Your Deposit Average Life

Part 3 - Get Better Deposit Study Results...With Less Data

Regulators are focused on bank-specific assumptions, particularly nonmaturity deposit average life assumptions.  But even after you calculate your deposit average life you're not done.  You still need to slot the appropriate amounts into the various deposit time buckets.

I connected the dots between deposit studies and IRR risk reduction in my post "How to Reduce Reported EVE Risk Up to 30%...(or More)"

We also created a free training webinar called "7 Steps to Deposit Study Success" that shows you how you can quickly and easily build your own deposit study at your bank.

I'm going to walk through a time bucket process we use at Echo Partners.  This process actually works so well it's a natural addition to our deposit study training.


So which balances go into which buckets?  

Here's how to do this quickly and easily

If there's one thing that I believe in it's making things as simple as possible.  And simple in the case of nonmaturity deposit assumptions means both quick and easy.

I talk about making the deposit study process quick and easy in the post ""...

Here's one way to divvy up your deposits that will pass muster with your regulators and doesn't require a PhD in statistics.  To make the math simple, we'll assume 1 class of NMDAs with a 6.5yr year average life in a $100mm bank.

  • Identify Your Rate Sensitive Balances

Your rate sensitive balances should be modeled within the initial 12 months.  Determine these balances by examining your deposit history.  The minimum level that your balances never fall below represents the non-rate sensitive amount.  These balances never vary regardless of rate moves.  The balances above this minimum, however, are those which vary with rates.  Here's an illustration.


In this case, balances never fall below 74% of assets.  That means that the ending balances (84% or 84mm) need to be divided into 10mm rate sensitive and 74mm not rate sensitive.

  • Barbell an Equivalent Amount

There are an infinite number of deposit time bucket combinations that can produce our desired 6.5 year average life.  Here's an easy way to set the extremes.

We've already bucketed 10mm in the less than 1 year bucket.  If this balance is spread evenly over the first year, that means that 10mm has a 6 month average life.  This portion of the deposits is therefore 6 years shorter than the average life we are targeting (6.5 years).

To easily offset these very short average lives, simply bucket an equivalent balance that same amount longer than the overall average life.  In this case, since 10mm is 6 years shorter than the average, just extend the average life on another 10mm by an additional 6 years (to 12.5 years) to balance it out.  


With 10mm short and 10mm long, 64mm remains in our 6.5 year average life bucket.

  • Ratably Schedule the Remaining Balances

Now comes the easy part.  With 64mm in remaining unbucketed balances, and a 12 year difference between our short and long average life extremes, we simply divide the balances (64mm) by the years (12) and put the same amount (5.333) in each annual bucket.  


Of course, since we're just walking through a sample we can stop here.  If you wish you can subdivide these balances into ever finer time buckets...But you don't have to.

Because our interest rate risk modeling is generating cashflows based upon the average life, you can consider your work here complete.

In my Deposit Study Blueprint training I'll show you step-by-step how to create your own deposit study quickly and easily using my proven templates.

I'll show you EXACTLY how I've done this for dozens of community banks nationwide.

Get more information about Deposit Study Blueprint here.



Photo provided by Rex Hammock

7 Steps to Deposit Study Success

Posted by Howard Lothrop on Nov 18, 2014 1:16:00 PM

BankVaultIt's no secret that regulators have been focused on bank-specific assumptions, particularly deposit assumptions.  It's also no secret that the most inquiries and questions that I get concern deposit study issues.

Please join me for a webinar "7 Steps to Deposit Study Success" on Friday November 21 at 3pm ET where I will uncover and explore the steps involved in creating an accurate deposit study, acceptable to your regulator.

All attendees will recieve a copy of my 7 Steps to Deposit Study Success roadmap.  Click here to register

Topics covered will include data prep, decay, beta, surge and extracting asset liability inputs from the study results. 

This training webinar is suitable for all community banks investigating deposit study methodologies.

There are really only 2 types of banks right now:  Those who have been told by their regulator to get bank-specific deposit assumptions, and those who are going to be told by their regulator to get bank-specific deposit assumptions.

Take this first step to get in front of this important issue now.

All attendees will recieve a copy of my 7 Steps to Deposit Study Success roadmap.  Click here to register


Photo provided by Ishmael Orendain

Topics: bank regulators, deposit study

Path to the Community Bank Executive Suite

Posted by Howard Lothrop on Oct 29, 2014 9:15:00 AM

CareerWhat bankers say, in their own words, about the important factors in getting to that next level of community bank success. It's a quick read.   Read the post here.

Here are the top 6 qualities:

  1. Initiative
  2. Integrity
  3. Perseverance
  4. Enthusiasm
  5. Vision
  6. Education

 The quotes from our community bankers are insightful and inspiring.  Take a look and let me know your thoughts.

If you prefer a pdf click here instead.

BCBA Partners With Pepperdine University on Capital Markets Study

Posted by Howard Lothrop on Oct 20, 2014 2:16:00 PM

ResearchBest Community Banks Association (BCBA) has joined Pepperdine University as a Research Partner on the 2014 Pepperdine Private Capital Markets Project.

This important national study is used to provide capital markets insights to businesses and funding providers about current cost of capital trends.

Please participate in this important survey.

We are particularly looking for survey responses from community banks that provide senior or junior lending to private companies.  Follow the link below and on the second page of the survey select the type of capital provider that most closely represents your bank’s primary funding activity.

Please take a few minutes and visit the Pepperdine research site to participate in the survey, which is open online until October 31st.

All survey responses are held in the strictest of confidence and only aggregate results are reported in the study.

Survey participants will receive a complimentary early release of the comprehensive report on the survey before its public release in November.

Findings from the previous reports have been reported in The Wall Street Journal, New York Times, Venture Beat, Times, peHUB, TechCrunch and many other media outlets. Since 2009, thousands of capital professionals and business owners representing every market type and more than 60 countries have downloaded Pepperdine’s research.

You can learn more about the Pepperdine Private Capital Markets Project and access last year’s report at .

You can learn more about the Best Community Banks Association at

Echo Partners is a proud supporter of both the Best Community Banks Association and the Pepperdine Private Capital Markets Project. 



Photo provided by AJ Cann

OCC's Curry Talks Bank Strategic Planning

Posted by Howard Lothrop on Oct 6, 2014 9:28:00 AM

planningLast week Comptroller of the Currency Thomas Curry addressed the value of strategic planning in today's community banking environment.  And while his remarks were delivered to a group of minority depository institutions, they are absolutely relevant to all community banks.

Read the full text of Curry's remarks here.

Low growth, a tepid and uneven economic recovery and margin pressures all combine to make strategic planning more important than ever.  Strategic planning helps identify:

  • Who you are
  • Your strengths and weaknesses
  • What you can realistically accomplish
  • What success should look like

As Curry notes, sustaining your mandate and existing profitability will likely require some difficult trade-offs.

Use strategic planning to answer:

  • Where are we now?
  • Where do we want to be?
  • How do we get there?
  • How do we measure our progress?
  • What adjustments are required to meet our goals?

There are many tools available to help.  Some are simple while others are more complex.  Curry recommends you select tools that make sense for your bank.

The OCC goes as far as suggesting creative solutions, such as cost sharing or other collaborative approaches among financial institutions to help community banks achieve greater cost efficiency.

Let me know your unanswered question concerning strategic planning.

Photo provided by Nomadic Lass.

Topics: bank regulators, bank strategic plan

Community Bank Summit: What Topics Next?

Posted by Howard Lothrop on Sep 19, 2014 9:27:00 AM

Check BoxWith 4 of the 5 sessions complete in our inaugural community bank summit, I can tell you it's been a big success.

Select Next Topics

We've had over 300 community bankers on each session tuned in for a unique series of timely and on-point workshops covering almost every aspect of ALCO risk management.

Our guest faculty has really opened up for the community banking community.  Personalized answers from the experts to specific bank questions has over-delivered, practically turning the workshops into a complimentary consulting call.

But now, it's time to plan our follow up summit, tentatively scheduled for late October.  And this is where I need your help.

Please click the blue button above and tell me what topics you most want to see in the follow up summits.  You'll know you're in the right place when you see the green check mark.

With your help, we can make the next summit even bigger, better and more in line with your needs. Thanks again.




Photo provided by Oliver Tacke