7/29/2019 What is Core Deposits

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CORE DEPOSITS

Core deposits, by definition, are those deposits that either dont bear interest, dont reprice in

tandem with market rates or reprice more favorably than market rates at the time of repricing.

Accordingly, core deposits are traditionally a lower cost of long-term funding directly affecting

bottom-line profit. Generally, core deposit inflows will have a positive effect on the banks interestrate risk profile and bottom-line profitability by enhancing margins, noninterest income and

potentially the banks ability to compete for and retain loan customers.

(Source: The Value of Building Core Deposits in a Lagging Loan Demand Environment; January

2010; Author: Brian Mischel)

Core deposits are defined in the Uniform Bank Performance Report (UBPR) User Guide as the sum of

demand deposits, all NOW* and ATS** accounts, MMDA*** savings, other savings deposits, and time

deposits under $100,000. Core deposits are generally stable, lower cost funding sources thattypically lag behind other funding sources in the need for repricing during a period of rising interest

rates. These deposits are typically funds of local customers that also have a borrowing or other

relationship with the institution. Convenient branch locations, superior customer service, dense ATM

networks, and low or no fee accounts are significant factors associated with the inertia of these

deposits. However, in some instances, core deposit accounts (e.g., time deposits) might exhibit

characteristics associated with more volatile funding sources. Conversely, deposit accounts generally

viewed as volatile funding (e.g., CDs larger than $100,000) might be relatively stable funding sources.

Refer to the Examination Treatment of Liquidity (UBPR Ratios) section of this chapter for discussion

of ratio analysis involving core deposit ratios.

(Source: FDIC Risk Management Manual of Examination Policies; Section 6.1 Liquidity and Funds

Management)

* NOW Negotiable Order of Withdrawal is a checking account at a bank or thrift that earns interest. The account holder is allowed to

write checks or drafts against the money in the account and may withdraw any amount ofmoney from it on demand.

**ATS - Automatic Transfer Service account is a deposit account that allows the transfer of funds from a savings account to a checking

account in order to cover a check written or to maintain a minimum balance.

*** MMDA Money Market Demand Account is an account, such as a checking or savings account, that pays a certain (low) interest

rate to the holder and from which funds may be withdrawn on demand. Money market demand accounts are included in most counts

ofmoney supply.

Core deposits = All deposits (including CASA) above 1 year + net worth

(Source: Liquidity Risk Management & Basel III on Liquidity Standards)

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