NEW YORK (TheStreet) -- Investors for years have been hearing about regulators' push for banks to beef up their capital ratios, but liquidity is also a major concern for rapidly growing community and regional banks.
Any bank CFO worth his or her salt has an emergency liquidity plan, to make sure loan pipelines will be funded, even if new lending activity picks up much more than expected. This is the major liquidity concern for most banks, since runs on deposits are very rare in the U.S.
"Over the last two weeks of bank earnings announcements we heard from several banks that they are increasingly focused on improving overall liquidity metrics and in particular the loan-to-deposit ratio," Sterne Agee analyst Matthew Kelley on Friday wrote in note to clients.
During the company's earnings conference call with investors on Jan. 23, Susquehanna Bancshares (SUSQ) CFO Michael Harrington said the bank's "trend in average earning asset growth for the year will likely be lower than past years, given our desire to lower our loan-to-deposit ratio." Susquehanna's ratio of loans to deposits was 105.5% as of Dec. 31, increasing from 102.5% a year earlier, according to Thomson Reuters Bank Insight. "Our goal is to drive that ratio below 100% in 2014, Harrington said.
Susquehanna's outlook for limited loan growth was the driver for sell side analysts' lowering of earnings estimates for the company, as well as the recent underperformance of the stock, according to Kelley.
Being forced to limit your loan growth because of inadequate deposit growth is a rather depressing process.