Guaranty State Bank is an FHLBank Topeka member institution located in Beloit, Kansas. Their President, Doug Johnson, gave us some insight into the way Guaranty creates its funding plan.
A two-year funding plan is constantly in the works, morphing with every new tidbit of information that flows their way. Good relationships with large customers keep the communication lines open on upcoming deposit balance fluctuations. Of course, some of the swings come at the same time each year, like when local public entities get their funding from the state. Incorporating that knowledge with their own internal information on upcoming loan and securities fundings and maturities paints a pretty good picture of their funding needs for several months at a time. Doug explains that “of course surprises can always come up, but we fare pretty well with the intel we get.”
Advances or brokered?
The analysis of funding sources is an important component of Guaranty’s funding plan. When Guaranty needs funding, Doug’s staff compares the rates on advances to like brokered deposit structures. Doug says “most times FHLBank is cheaper, especially after we subtract the 25 basis points for the dividend.” Remaining collateral is also a factor in deciding which funding mechanism to use. Advances are their first choice, as long as collateral is available. Recently, Guaranty’s staff has been working to identify additional collateral through their loan portfolio, which will give them a little extra room since FHLBank is a big component of Guaranty’s contingency funding plan.
line of credit
Guaranty’s loan to deposit ratio is intentionally high. They prefer to keep the loan volume high and borrow on their FHLBank line of credit to fund daily fluctuations, rather than hold liquidity in low-yielding Fed funds. Doug feels “the line of credit is a reasonable cost of funds,” so they’ve stayed the course in this manner for many years.
Guaranty limits their levels of brokered deposits and FHLBank advances to 25% of assets. Doug also likes to keep a balance of about 50/50 between fixed and floating rate liabilities, so they are well-positioned to ride out rate changes.
Reasons guaranty prefers to use FHLBank
Advances are Doug’s first choice for wholesale funding, not just because of rate, but also because the Lending staff is so helpful. “Lending is just so easy to work with, and we really like chatting with them.”
how can FHLBank help with your funding plan?
- Comparison of Brokered Deposits to Advances– This can be a difficult analysis to perform, but FHLBank can help you make an accurate comparison. Forward your brokered and deposit listing services portfolio information for a timely, accurate comparison that takes your FHLBank dividend into account.
- Collateral Analysis– Using your FDIC call report data, FHLBank staff can help identify pockets of additional collateral that may be overlooked in your portfolio.
- Raising Wholesale Funding- Choices between funding options really come down to three things – fast, flexible and friendly. FHLBank advance funding gets to you in minutes. You have your pick among a variety of structures and terms. Our responsive staff is always ready to discuss your options and then draw your advance.