Magazine article Independent Banker

De Novo Portfolios

Magazine article Independent Banker

De Novo Portfolios

Article excerpt

New banks rely on solid investment returns to start off

De novos sometimes feel like the Rodney Dangerfields of banking. They start with minimal assets and are not in any of the banking industry's recognized listings. As a result, they must take it upon themselves to find vendors for many of their products and services. In some cases, vendors ignore new banks because they are "too small to mess with."

In the securities industry, de novos are usually assigned to rookie brokers because experienced brokers prefer to deal with banks that generate larger securities transaction volumes.

Recognizing the "lack of respect" afforded new banks, a group of IBAA Securities Corp. registered representatives has developed special analyses and reporting systems geared to the unique investment, and asset and liability needs of de novo banks.


The characteristics that set de novos apart from established banks include explosive growth in deposits or loans. De novos may have an overabundance of liquidity, but they also require judicious investing that allows them to fund loans at a moment's notice. Investment funds may also represent most of these banks' earning assets, and their earnings are vital to shortterm health.

In the words of Steven Young, senior vice president and cashier of Front Range Bank in Lakewood, Colo., "Our deposits grew 150 percent faster than our most optimistic projections, while our lending activity grew at less than half of our projections. Deposits moved to us quickly, but loans had to wait for anniversary dates or fiscal year-ends. We needed an investment portfolio with a fairly good return that we could depend on to fund imminent loan growth."


A good cash flow report helps manage a hard-working portfolio with short-term loan funding capabilities. Many de novo managers favor the IBAA Securities cash flow report because it projects investment cash flows under a variety of interest rate projections. …

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