Twenty-nine years on the funding side of banks

Mandate

Set the bank's strategic plan after the pandemic deposit surge, decide how and where it should grow, and own acquisitions and partnerships from screening through to the integration hand-over.

Outcomes

• Limited investment of the 2021 deposit surge to US$2.5bn of short securities; unrealised losses were 19% of tangible common equity in March 2023, against a peer median near 31%.
• Led the 2023 deposit franchise review; uninsured deposits fell from 46% to 33% of the total by June 2026.
• Acquired Kessling Bancshares, a US$8.9bn bank, with 3% deposit attrition and four commercial-banker departures between announcement and closing.
• Wound down four partner-banking programmes without loss to any end user, giving up about US$12m of annual revenue.
• Closed twenty-four older branches and opened six in growing suburbs before the Kessling conversion, keeping eleven rural branches open.

Decisions in context

The chief strategy officer role was created for me in September 2021, when our deposits were swollen by the pandemic and our board wanted one executive to connect the strategic plan with the balance sheet and with acquisitions. My first months were spent on the securities decision and the case for treating surge balances as temporary. The spring of 2023 then reshaped the job: I led the deposit franchise review, changed how business lines are credited for deposits and argued for leaving the escrow and title concentration. In parallel I took the bank through a second acquisition, Kessling Bancshares, designed around a long regulatory review, and through the wind-down of four partner-banking programmes. I sit on the executive committee and the management asset-liability committee, present the strategic plan to the full board each year and report on strategic risk to its risk committee. I hold no seat on either Varrowfield board.

Reason for the move

Current role; completing the first full year of the Kessling integration and the 2027 strategic plan.

Mandate

Build an acquisition capability at a bank that had grown mainly organically, review non-core businesses and assess partnership opportunities.

Outcomes

• Closed the acquisition of Dunmarrow Bancorp (US$5.6bn assets) in January 2020 after an eleven-month review; planned cost savings were achieved, but deposits fell 12% before closing.
• Sold the bank's insurance agency for US$118m in 2018, releasing capital for the Dunmarrow transaction.
• Recommended withdrawing from three bank auctions between 2017 and 2021 where the price required deposit-retention assumptions the evidence did not support.
• Launched six partner-banking programmes from 2019, reaching about US$0.9bn of deposits by mid-2021.

Decisions in context

Our chief financial officer asked me to build a corporate development function at a bank that had made few acquisitions and had no settled way of judging them. I set screening criteria that put deposit stability and relationship-holder retention ahead of cost savings, and I wrote the first acquisition policy the board approved. The sale of our insurance agency in 2018 released capital and narrowed our focus. Dunmarrow, announced in February 2019, was my first large transaction as a buyer, and its eleven-month review taught me how a restrictive merger agreement can freeze a seller. I also recommended against three auctions in which we would have had to assume deposit retention I did not believe. In 2019 I added a partnerships team and launched our partner-banking programmes, a decision whose design I later had to revisit as chief strategy officer.

Reason for the move

Appointed chief strategy officer when the role was created in September 2021.

Mandate

Rebuild the bank's deposit and interest-rate models after the financial crisis and introduce liquidity stress testing.

Outcomes

• Replaced a single deposit-life assumption with fourteen client segments, each with its own assumed life and rate sensitivity.
• Introduced quarterly liquidity stress tests that modelled the departure of named large depositors rather than a flat percentage.
• Redesigned funds-transfer pricing in 2014 so that business lines were charged and credited for the liquidity they used and supplied.
• Reduced open model-validation findings on the asset-liability models from nine to one.

Decisions in context

Wendell Iverholt, our treasurer, recruited me from Halberd Rowe after working with me on two of the bank's capital reviews. The asset-liability models then used one assumed life for all non-maturity deposits and one stress scenario for liquidity, and internal model validation had nine open findings against them. I rebuilt the deposit model around fourteen client segments, using account histories rather than industry tables, and introduced liquidity stress tests that asked which named clients would leave first. In 2014 I redesigned the funds-transfer pricing that credits business lines for deposits and charges them for loans. The work was technical, and it gave me a working knowledge of how our commercial and private banks actually funded themselves. When the chief financial officer later asked me to lead corporate development, that knowledge shaped how I judged every bank we looked at.

Reason for the move

Asked by the chief financial officer to lead corporate development.

Mandate

Advise bank boards on sales, acquisitions and capital, and from 2009 advise buyers bidding for failed banks in FDIC-arranged transactions.

Outcomes

• Built valuations and deposit-retention analysis for 23 transactions worth about US$4.6bn.
• Presented strategic-alternatives and transaction analysis to roughly thirty bank boards and their special committees.
• Worked on five acquisitions of failed banks arranged by the FDIC in 2009 and 2010.
• Introduced the firm's account-level deposit-retention model, later used on most of its sell-side mandates.

Decisions in context

Halberd Rowe advised community and regional banks across the western states, and I joined as an associate after meeting its partners during Sorrelton's sale. For six years my work was valuation and due diligence: what a bank's deposits, loans and people were worth to a buyer, and how much of that value would survive a change of ownership. I brought the account-level deposit analysis I had started at Sorrelton, and it became part of most of our valuations. From 2008 I led deal teams and presented to bank boards, often to directors deciding whether to sell an institution their families had founded. In 2009 and 2010 our work turned to failed-bank acquisitions arranged by the FDIC, where buyers had days to decide. Those weekends taught me how quickly a deposit base can be priced, and how often its owners had overrated it.

Reason for the move

Recruited by Varrowfield, a client, to run its balance-sheet management.

Mandate

Run and improve the interest-rate risk model the treasurer presented to the board each quarter.

Outcomes

• Completed an account-level deposit study in 1998 showing that balances without a mortgage or direct-deposit link behaved very differently from the rest.
• Replaced a repricing-gap report with a net interest income simulation in 2000.
• Prepared the balance-sheet data room for the institution's sale in 2002.

Decisions in context

Sorrelton was a Tucson savings and loan with about US$3.1 billion of assets, most of it in fixed-rate home loans funded by savings and checking deposits. I joined from college to run the interest-rate model and became its manager in 1999. My deposit study in 1998 found that customers with a mortgage or a direct-deposit paycheck at Sorrelton kept their balances far longer than those without, and that the seven-year assumption in the model described neither group. The study was noted and set aside. When rates rose through 1999 and 2000 the margin narrowed faster than our reports had said it would, and I replaced the old repricing-gap report with a simulation the treasurer could defend to the board. I completed an evening MBA in 2002 and helped prepare the data room when the institution was sold later that year.

Reason for the move

Sorrelton was sold in 2002; recruited by Halberd Rowe, the adviser on the sale.