WHAT?

Brokered Certificates of Deposit are issued by individual banks and sold to retail investors across the country who typi-cally buy in smaller increments as low as $1,000. Because each investor will usually keep his or her purchase in each bank under the FDIC limit, the investors get the benefit of the guarantee, as does the issuing bank in the form of lower interest expense.

As with every part of any bank’s balance sheet, BBW Capital Advisors strongly urges our clients to consider all conse-quences and contributions to the overall risk/reward profile of the institution. Please call our offices to discuss the specif-ics of this and other related opportunities for your bank.

WHY?

There are a number of attractive features for issuing banks:

✓ These deposits are stable deposits, and typically not eligible for withdrawal except for death of the beneficial owner. ✓ Allows banks to sell larger CDs in one transaction, usually $2 million - $25 million. ✓ Provides long-term, stable, fixed-rate funding—ability to issue typically from 3 months to 10 years.✓ Increase in FDIC limits and “flight to quality” have created tremendous investor demand for CDs in recent months,

lowering the cost for issuers as investors seek the comfort of government guarantees.✓ Banks can issue callable CDs, where the issuer retains the call option, thereby taking advantage of falling interest rate

environments.✓ No collateral posting requirements.✓ Brokered CD rates have been very competitive with FHLB advance rates in recent months.✓ Lowers loan-to-deposit ratios when replacing non-deposit funding.✓ Timeline is typically only 8 days from pricing to funding.

Regulatory considerations? Recent proposals by the FDIC would raise insurance premiums on fast-growing banks that are already heavily dependent upon wholesale funding. This is not to say that the increased premiums are not worth paying in the context of many bank models, but might be a consideration for some.

(800) 977-0718

BANKER’S RESOURCE: Brokered CDs

HOW?

(800) 977-0718

DTC Eligible, Book Entry Form

FDIC insured institutions can qualify to issue DTC (Depository Trust Company) eligible certificates of deposit. Brokered Deposits are standardized in the United States. All banks and brokers use the same program, documents, and procedures to clear the deposits through DTC. Issues are deposited into the bank under a single Master Certificate of Deposit in the name of “CEDE & Company, as nominee for others.”

Available Structures

✓ Non-callable (“bullets”)✓ Callable ✓ Swapped

Types of Underwritings

“Best Efforts”—Best efforts to obtain the total amount of the issue during the Offering Period at a specified rate. This is typically the most cost-effective and widely used method.

“Firm/Guaranteed”—The rates and total amount of the issue are guaranteed by the underwriter. This method is usually 5 – 10 basis points more expensive than Best Efforts underwritings.

Pricing

Rates indications are provided every Monday morning and periodically during the week. Each individual issue is nego-tiated between the issuing institution and the retail broker networks with the assistance of BBW Capital Advisors.

Amounts

Minimum: $2,000,000 Maximum: No limit, apart from market constraints, if any.

Accounting

✓ DTC eligible CDs must be booked in your call report under schedule RC-E Deposit Liabilities and Schedule RC-O.

✓ The CD is booked for the actual amount of the CD, FDIC insured and in the Memoranda section as “fully insured brokered deposits” per the instructions provided by the FFIEC.

Interest Payments/Return of Principal upon Maturity

Interest payments and principal can be paid to DTC via wire or ACH.

Patriot Act Compliance/Customer Identification

Compliance for banks issuing a brokered CD is minimal. The due diligence required is mostly done at the registered brokerage firm level. Banks are generally required to have their Brokered CD underwriters furnish them with evidence of FINRA and SEC registration and annual outside audits which confirm the brokerage firm is completing the AML due diligence required by the regulators. This is submitted to your bank on an annual basis by the underwriter. The rest of the work is done at the brokerage firm level, which means that your bank doesn’t need to spend time and re-sources dealing with the paperwork required to open a new accounts, send out monthly statements, confirms, and the typical documentation associated with a new account.

Call BBW Capital Advisors to discuss further, or email us at funding@BBWcapital.com.