Product Analytics

Behavior assumptions and forecasts for non-maturity deposits, time deposits and loan prepayments are critical inputs for accurate risk measurement and effective balance sheet management.  VBC offers a comprehensive suite of deposit and loan behavior analysis services that are both flexible and customizable in order to best meet your specific objectives, available data and budgets.

Non-Maturity Deposits Study

Non-maturity deposits (NMDs) are generally the most significant source of funding for financial institutions.  Understanding how deposit pricing decisions respond to changes in interest rates and how depositor behaviors react to those changes, either through attrition or balance changes, is key to managing interest rate risk.  Similarly, sensitivity of deposit balances to other stressors such as changes in macroeconomic or local market conditions are vital to identifying and managing liquidity risks.

Accurate repricing and deposit retention forecasts for regulatory IRR measurement are the foundation of all VBC non-maturity deposit analyses.  Each study includes project specific analysis and evaluation of the data time series, model specification and forecasting of these behaviors across a wide range of rate shock or other interest rate scenarios.

Our analyses can be performed on account-level or aggregated, summary-level data, including Call Report data, with results provided in a wide range of formats for ALM model integration .

Beyond the regulatory focus of our Basic and Essentials NMD Analysis services, our Advanced, Premier and Custom service levels expand the scope of assessment and forecasting flexibility to include many additional data-driven and defensible assessments including:

• Funding concentration and volatile funding assessments including surge deposits
• User-defined rate scenario forecasts such as ramps, twists, forward rates and fully user-defined parameters
• Detailed analytics to address transition related impacts of acquisitions or other unique events and appropriately incorporate them into forecasts
• Inclusion of systemic and idiosyncratic economic variables for more robust liquidity stress test assumptions
• Segment-specific forecasting such as balance tier, vintage, geography or other relevant product delineations

Non-Maturity Deposit Analysis Benchmarking

Our non-maturity deposit analysis benchmarking service provides a cost-effective complement to your current NMD forecasts.  Benchmark results can increase confidence in your existing ALM inputs by confirming the direction and magnitude of repricing and retention behaviors through an independent third-party assessment as well as offer additional perspective on behavior sensitivities across a range of interest rate environments not captured in your internal analyses.

Loan Prepayments Analysis

Unscheduled repayments of outstanding loan balances create both opportunities and risks to the overall balance sheet management process.  Additional cash flows provide liquidity, but reinvesting those funds into potentially lower earning assets create both NII and Eve/NEV IRR exposures.

In order to effectively manage these exposures, it is critical to understand the magnitude and impacts of both whole and partial prepayments across the range of loan types, payment types, interest rate environments and other factors that influence prepayment behaviors.

VBC loan prepayment studies are customizable based on project scope and the available data history.  At a minimum, the institution’s prepayment experience (whole and partial) is quantified and calibrated across required regulatory interest rate shock scenarios with assessments of the effects of:

• Loan type
• Fixed vs. non-fixed
• Coupon to market rate spread
• Age

From this foundation, the study can be expanded to assess and quantify other influences such as prepayment penalties or macroeconomic variables.

Time Deposit Behavior Analysis

Time deposits, such as CD’s or share certificates are another important component of balance sheet funding.  While contractual maturities are known for these deposits, early withdrawals need to be considered, particularly if penalties are minimal.  Understanding the magnitude of new volume pricing practices relative to market rate changes is critical to ensuring accurate new volume rate forecasts in ALM modeling.

A VBC time deposit study is fully customizable and can be oriented to focus only on the pricing or early withdrawal dimension or expanded to include both.  When paired with a VBC Non-Maturity Deposit Study, cross-product relationships are explored to identify and quantify the magnitude of deposit transfers from time to non-maturity and vice versa.