Florida Banking December 2025/January 2026

Balancing Liquidity and Lending How Financial Ratios Shape Executive Benefit Strategy in Community Banks NFP EXECUTIVE BENEFITS, LLC

JOE SCHAEFER VICE PRESIDENT, ATLANTIC REGION, NFP EXECUTIVE BENEFITS, LLC “ 71% of banks say executive benefits remain important, but

report holding compensation steady due to economic uncertainty, while enhancing benefits that don’t strain liquidity. This recalibration has led to increased adoption of NQDCs, which offer flexibility, tax advantages and retention power. These plans are often designed to mirror the bank’s financial health, with vesting schedules and payout structures tied to performance metrics — including capital ratios, asset quality, and yes, liquidity. Structuring Plans for Compliance and Sustainability To ensure regulatory compliance and avoid adverse tax consequences, executive benefit plans must be structured in accordance with IRC §409A. This includes: • Clearly defined payment triggers (e.g., retirement, disability, change in control). • Prohibition of acceleration unless permitted under Treasury Regulation §1.409A-3(j)(4). • Proper documentation and operational consistency. Accounting for these plans typically follows ASC 710-10, which requires accrual of the present value of future benefits over the executive’s service period using the interest method. This ensures the liability is recognized in a manner consistent with Generally Accepted Accounting Principles (GAAP). Bolstering Succession Planning Non-qualified deferred compensation plans are often structured as an unfunded promise to pay, meaning the bank contractually commits to

In today’s banking environment, financial discipline is more than a regulatory expectation; it’s a strategic imperative. Two key metrics — loan-to deposit ratio and liquidity ratio — not only reflect a bank’s financial posture but increasingly influence how executive compensation plans are structured and financed. Bankers know loan-to-deposit ratio (LDR) measures how aggressively a bank is deploying its deposit base into loans. A high LDR may signal strong earnings potential, but it also reduces liquidity and increases exposure to credit risk. Conversely, the liquidity ratio gauges the bank’s ability to meet short-term obligations, reflecting its resilience in stress scenarios. When these ratios are tightened, either due to elevated lending or constrained liquidity, banks may shift their executive compensation strategy. Rather than increasing fixed salaries and bonuses, institutions lean into non-qualified deferred compensation plans (NQDCs). These plans allow banks to retain and reward key talent without immediate cash outlay, preserving liquidity while aligning incentives with long-term performance. Lending vs. Liquidity: A Strategic Tug-of-War

According to NFP’s 2025 Executive Benefits Trend Report,

must be balanced against financial constraints.”

Executive Benefits in a Disciplined Environment

According to NFP’s 2025 Executive Benefits Trend Report, 71% of banks say executive benefits remain important, but must be balanced against financial constraints. In fact, 52% of institutions

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