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Maverick Bank & Trust Asset/Liability Risk Management
Linda Clement
ALX Consulting
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Maverick Bank & Trust
• A/L Risk Management Ratios
• Balance Sheet Mix • Capital and Growth • Liquidity • Funding • Interest Rate Risk – Earnings • Market Risk in Securities • Long-Term Assets • Economic Value of Equity (EVE)
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Maverick Bank & Trust
• Balance Sheet Mix • Loans grew by $23.3 mm • Core deposits (net) increased $ .2 mm • Non-core + Other Liabilities +Equity $19.8 mm • Liquidity (Plug) decreased $( 3.4)mm
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Maverick Bank & Trust
• Capital & Growth (Capacity/Risk Appetite) • Tier 1 Leverage decreased as avg assets > earnings • Tier 1 RBC was stable as loans/earnings > same rate • Total RBC decreased as loans > earnings • Equity increased as earnings increased
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Maverick Bank & Trust
• Liquidity Mix (Quantity and Quality) • Short-Term Liquidity
– Fed Funds $ 0.0 mm
• Securities – AFS $ 48.3 mm – HTM $ 0.0 mm – Pledged $ 19.7 mm
• Total Liquidity as a % of assets 22.7% • Adj Liquidity (less pledged) as % of assets 13.5%
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Maverick Bank & Trust
• Non-Core Funding (Dependency) • NCF less ST Liquidity/LTA>1yr • What balance sheet changes increased NCFD?
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Maverick Bank & Trust
• Interest Rate Risk – Earnings-at-Risk • What’s the Bank’s IRR position? • What’s driving that position? • How much is too much?
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Maverick Bank & Trust
• Interest Rate Risk – Earnings-at-Risk • Why did IRR increase this quarter?
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Maverick Bank & Trust
• Components of IRR (Year 1) Rate Sensitive Cash Flows/Sensitivity/Timing
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Maverick Bank & Trust
• Core Deposit Repricing – Betas
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Maverick Bank & Trust
• Market Risk in Securities
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Maverick Bank & Trust
• Market Risk in Securities
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Maverick Bank & Trust • Interest Rate Risk – Economic Value of Equity
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Maverick Bank & Trust
• Net Interest Margin
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Maverick Bank & Trust Summary
• Bank has reasonable risk taking capacity.
– Balance sheet liquidity equals 22.7% of assets.
• However, there are no overnight investments.
• Relying on non-core deposits.
– Capital is above regulatory minimums.
• Interest rate risk is slightly liability sensitive. – NIM and earnings would decline if rates rise and vice versa.
• Economic Value of Equity would decline if rates rise and vice versa. – Change in value of securities represents about 40% of the risk in fixed-rate assets.