Bank Analysis School Case Study eBook

Sunny State Bank

LIQUIDITY - FUNDING

Funding Amounts Over Time (Broad)

80M

70M

60M

50M

40M

Metrics

30M

Wholesale Core Dep & TCDs>250M

20M

10M

20 X9 Q2

20 X9 Q4

20X9Q3

20X0Q1

20X0Q2

20X0Q3

20X0Q4

20X1Q1

20X1Q2

20X1Q3

20X1Q4

20X2Q1

20X2Q2

20X2Q3

20X2Q4

20X3Q1

20X3Q2

20X3Q3

20X3Q4

20X4Q1

20X4Q2

20X4Q3

20X4Q4

20X5Q1

20X5Q2

20X5Q3

20X5Q4

Possible Funding Concentrations (% Total Assets)

12.0%

10.0%

Metrics

8.0%

Brokered Deposits FHLB

6.0%

Listing Service Public Funds

4.0%

Reciprocal Deposits Other Borrowings

2.0%

20 X9 Q2

20 X9 Q4

20X9Q3

20X0Q1

20X0Q2

20X0Q3

20X0Q4

20X1Q1

20X1Q2

20X1Q3

20X1Q4

20X2Q1

20X2Q2

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20X5Q1

20X5Q2

20X5Q3

20X5Q4

Funding is a critical aspect of liquidity. Local core deposits are preferable as these are generally more stable and lower cost than wholesale funding. It is easier for banks operating in areas with more local deposits than loan demand to maintain a solid amount of liquid assets. Banks which struggle to obtain local deposits often rely on wholesale sources to fund growth. Funding concentrations will typically be cited when a single funding source exceeds 10 percent of total assets, which is represented by the dotted horizontal line in the chart. The primary risk of a funding concentration is that the funds might have to be replaced quickly or at unfavorable terms if the condition of the bank deteriorates.