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FHLBank Resources Make Corporate Resolutions Easier to Keep

If the first several weeks of January are any indication, the operating environment for financial institutions in 2008 will be extremely difficult. Loan demand is down, delinquencies are up, and the cost of liquidity remains at a premium. To make matters worse, as the residential housing bubble continues to deflate, some level of economic recession in the U.S. in the months ahead seems increasingly likely.

In light of these challenges, now may be the time for you to consider making a New Year’s resolution for your company. Whether you represent a bank or credit union, one action that could serve your institution and its stakeholders well would be to resolve to make better-informed decisions. FHLBank Pittsburgh’s Peer Report, Marginal Cost of Funds Analysis, and Modicus^SM online financial modeling application are three valuable informational resources that can help you stick to such a resolution in 2008.

Peer Report: Informative, Comprehensive, Easy to Use
For data to be truly informative, it must be presented in a format that’s both comprehensive and easy to use. FHLBank Pittsburgh’s Peer Report accomplishes both.

Culling data from quarterly FDIC Call Reports and Thrift Financial Reports (TFRs), the customized Peer Report compares key performance indicators – profitability ratios (e.g. ROE, ROAA, NIM), capital ratios, growth rates, yields, deposit info – to a well-defined subset of industry peers, ensuring a highly accurate portrait of your institution’s performance relative to that of your competitors.

While the summary performance data can be invaluable, added insight comes from the extensive supporting analyses that demonstrate graphically “the numbers behind the numbers.” Bar charts and line graphs show how balance-sheet composition (i.e. asset mix, securities and loan composition, deposit mix and other liabilities) and growth trends impact your institution’s overall yields, costs and interest spreads. The Peer Report is available to you by request.

Marginal Cost of Funds Analysis: Quantifies, Demonstrates Strategies
The shift in funding away from stable, low-cost deposits to higher-cost wholesale alternatives has been one of the primary drivers of the long-term decline in net interest margins among community financial institutions. While few institutions can afford to eliminate deposit balances as their primary source of funding, savvy bankers know that, under certain circumstances (such as the current declining interest-rate environment), FHLBank advances or similar wholesale funding can be more affordable than the increased costs associated with high-rate deposit gathering strategies.

A Marginal Cost of Funds (MCOF) Analysis from FHLBank Pittsburgh can help your bank quantify these circumstances and demonstrate the financial consequences of various deposit promotions and rate-driven strategies. By comparing the deposit rates offered by your institution with both your competitors’ deposit rates and the current cost of FHLBank advances, an MCOF Analysis can help guide your institution toward the funding mix with the lowest marginal cost. With insight derived from an MCOF Analysis, you should be able to better determine the true cost of a certificate of deposit promotion, for example, maximizing profitability for your institution.

Modicus: Online Financial Modeling Adds Value to Membership
Modicus, FHLBank Pittsburgh’s online financial modeling application, is yet another resource that can help you make better-informed decisions in 2008. Available exclusively to FHLBank Pittsburgh members, this complimentary Internet-based software application provides sophisticated analyses of market value, earnings and total return of various strategies using FHLBank advances to fund selected asset transactions.  

Modicus users choose from hundreds of pre-loaded par bond investment securities and loans, then analyze the impact of funding these potential asset purchases with combinations of FHLBank advances that range from traditional fixed- and floating-rate advances to option-embedded structures. In addition, Modicus allows users to choose different market-rate environments and varying stress tests (e.g., parallel shifts or twists in the yield curve), with model results output in Excel spreadsheets that can be downloaded and saved for future analysis.

While Modicus is not meant to replace your institution’s Asset Liability Management models, this easy-to-use application can supplement your pre-trade analysis and serve as an important educational tool for how best to use FHLBank advances to meet your institution’s strategic goals.

To request a copy of the latest Peer Report or a Marginal Cost of Funds Analysis for your institution, or to register for access to the Modicus online financial modeling application, contact your Relationship Manager or call Jeffrey Sapp in Strategic Marketing at 1-800-288-3400, x7356.

DISCLAIMER
FHLBank makes no representations or warranties, express or implied, as to the accuracy, completeness and timeliness of any assumptions or any other data presented in the article.

The information presented in the article  is not investment or business advice, nor is it an offer to extend credit or buy any security or financial product. Readers must not rely on any of this information when making any investment, business or credit decision.

The information used in the resources described above comes from a variety of sources and includes information that is subject to change without notice. FHLBank seeks to keep this information up-to-date and accurate, but we cannot guarantee and do not warrant that the information is accurate, complete or current. Therefore, you must independently verify the accuracy of any information provided to you when using such resources.

FHLBank products are governed by various agreements between FHLBank and its customers, as well as certain FHLBank policies and applicable regulations. In the event of any inconsistencies between information contained in this article and such agreements, policies and regulations, the agreements, policies and regulations will be determinative.

 “Modicus” is a service mark of the Federal Home Loan Bank of Pittsburgh.