Deposits Matter More Than Ever

Bryan Peckinpaugh: Hi podcast listeners. This is Bryan Peckinpaugh stepping in for Mitch today. We've got some special guests with us. With me as always is David Catalano from Baker Hill. And joining us today we have Tim Keith and Rick Claypool from a partner of ours, Infusion Marketing. So Tim, I'll turn it over to you for for a quick introduction on yourself and then Rick, if you can give us. Uh, a little bio and background on you as well. That would be great. And, and tell us a little bit about who Infusion is, what you guys do. And we will jump into, I think, an interesting conversation about the current state of the market and why deposits matter maybe more than ever. So, Tim, if you can, uh, yeah. Do a quick intro for us.

Tim Keith: Yeah, absolutely. Again, I'm, my name's Tim Keith. It's great to be on. Thanks for having me. I'm the CEO of Infusion and also double as the Chief Marketing Strategist for the Baker Hill marketing team. Baker Hill has been a great partner, uh, for us for five years now, and we've been able to work together to, to help a wide range of institutions all across the country.

Infusion has been around 15 years and we work with community financial institutions, community banks, and credit unions on some really unique forms of analytics and data-driven marketing. We have two really unique data sets. Uh, our National Normative, which is a set of statistics on how consumers and businesses use banking products.

It's updated every day with fresh data, so that allows us to do some really unique benchmarking. And then we have a campaign tracking database built on over a hundred million marketing contacts. Where we can keep our finger on the pulse of what's working, what's not working, how are customers in different segments responding to different types of, uh, marketing offers.

When you put the two together, they become a very powerful, predictive way of assessing opportunity and building out marketing plans. My background, I’m one of the founders of Infusion, so the last 15 years of my life, been with Infusion. I do have a banking background as well. Worked in corporate marketing at AmSouth and, uh, ran the deposit business at First Tennessee Bank and actually was there the last time we had a sustained rising rate cycle, so that was interesting. Deja vu with what's going on now. Otherwise, I've worked with somewhere around 300 plus clients over the years on, on, uh, this type of data analytics and marketing.

Bryan Peckinpaugh: Awesome. Thanks Tim. So Rick, if you could also tell us a little bit about what you, uh, do in support of the partnership we have with Infusion. That'd be great.

Rick Claypoole: Thanks, Bryan. Glad to be here today. So, uh, I'm a client strategist, basically, for all intents and purposes. Uh, I manage relationships, uh, once they are under contract and up and running. Uh, my role primarily is to listen to our clients, hear what their strategy is. I interpret their data, map that, and marry that with my, uh, professional experiences in financial services.

I'm trying to listen to what the data is telling us and come back to our clients with a plan. Work together with them to kind of settle on objectives and then develop programs and take those to market on behalf of our clients. My background is, is heavily in the banking space. I spent 25 plus years, uh, working primarily at, uh, regional super regionals, et cetera.

Um, my first 10 years were in credit policy and finance before I moved over product management and marketing head stops at PNC, National City, Compass Bank, BBVA and Cadence Bankcorp. All along the way and have been fortunate enough to have a very, very wide and diverse set of experiences. Everything from strategic brand management to segmentation to, uh, leading leadership roles in retail banking, small business banking, uh, and a lot of time in product, and a lot of time, frankly, with the challenge of gathering low cost deposits, uh, which is really where we are today in the marketplace.

Bryan Peckinpaugh: Absolutely. I think that, and that's a great segue, Rick, and, and certainly a pleasure for, for David and I to have you guys join us today and, and provide some of that, that insight that, that you guys are known for to the listening base of our podcast. So tell us a little bit about what you guys have seen. You know, starting in Q3, Q4 it's been quiet on the deposit gathering front, uh, for quite a while. And man, did we see a shift happen and, and now it's all, all guns blazing to, to drive that profitable de deposited growth that you were talking about, Rick. So, so Tim, if you talk us a little bit about the macro environment that you guys saw shift in, uh, 22.

Tim Keith: If you go back a year and you asked these various credit unions, banks, if they thought they would have a liquidity issue within the next year, they would look at you like you were crazy. because the industry was flush with deposits from the residue of all the stimulus on the consumer side and then PPP funds sitting, uh, in bank accounts as well, that has changed so so fast. I think, you know, a lot of bankers heads are, are still spinning. I, I'd say the banks even more because commercial lending has been solid. and it just eats up more funding quicker. And so they've run through the liquidity quicker than, uh, some of the credit unions who are, you know, making smaller dollar dollar loan, auto loans, things like that.

Um, so we have more credit unions that are still liquid and, and then some that are more in a defensive mode trying to protect what they have versus those. And we, and we do have some that are trying to grow as well. I think what we've seen is something unprecedented. We've never seen this amount of increase. in this short a period of time and there's no playbook for it. It's not even that we, we haven't used those muscles in a while. We've never used those muscles. Un, unless you were in the seventies. Maybe somebody did. I don't know. But, uh, even in the best of times, my feeling, it's always been the consumer deposit portfolio is the least strategically managed component of a balance sheet.

Um, mostly most of the pricing is, oh, well what are they paying down the street? You know, and therefore we need to feel like we need to match that and that sort of thing. It's not data driven, you know, lending, you know, it's down to the basis point on the price you're gonna get based on data, you know? But deposits still behind the curve.

And this is getting exposed right now because rates have gone up so quickly and the elasticity and the pricing environment is creating some crazy pricing and a lot of overpricing. And when you look at the yield curve, the back end goes down when some of these CDs that are being sold right now are 5% mature.

It's unlikely rates are gonna be at 5%. And so it's, it's creating some really unprecedented, you know, which is a word that's been used a lot the last three years, but in this case it applies.

Bryan Peckinpaugh: I don't think we're gonna run into too terribly many that have seen this in their career. Tim, those, those folks that were, you know, leading banking in the seventies aren't, aren't really around so much anymore. Okay. Yeah. Rick, uh, what, what are you seeing specifically in some of the work you're doing with the, the Baker Hill client base and analyzing their data?

Rick Claypoole: I, I think unprecedented is a place to start with this, and again, it does get tossed around, but you have to be practical and recognize that it has been 17 years since rates have been anywhere near this high. I talk all the time with clients and say, you know, tell me what job you had 17 years ago. I bet it wasn't this one.

So the, yeah, they, how to go to market and gather deposits is those muscles are not just, you know, soft. They're, there are in many cases not used. And I think that's why you've seen so many folks, you know, go to market with CDs aggressively, high rates, short-terms, and creates stress and pressure on other peers in the marketplace.

They maybe don't, they weren't really in a need to rapidly grow deposits, but all of a sudden they are, because it's getting competitive. And it's being taken away, shares being eaten, deposit shares being eaten away with people who are overpaying for deposits. And you put all that into a mix of, again, this, this notion of being unprecedented.

This is really a unique time. Again, you've got rates that have not been where they have been for 17 years. People that don't have experience, uh, working in managing this environment. Unemployment that is extraordinarily low, historically low. Inflation that's historically high. You've got people taking withdrawals from their 401ks and retirement plans, doing hardship withdrawals at record paces, credit card debt is high.

Credit card delinquencies are quickly becoming high. And we're hearing from a lot of our clients that while they're seeing good lending, both in the consumer and commercial space, they have a lot of concerns about the credit quality and so they're slowing, some of them are in fact are slowing, they're thinking about slowing down some of their lending, which will reduce their need for deposits, and all of a sudden they might go from a situation where they're really needing deposits to, well, maybe not, cuz we're gonna change our forecast for lending growth for later in this year cuz we've got some concerns with credit risk.

It's a really, really unique mix. I think the thing that is really powerful where we, where we are helping and can help people, uh, today, is the ability to sit down with people and benchmark their results. To take them through a very deep and detailed strategic study of key metrics and key performance indicators inside of their account and balance sheet data and benchmark them.

Because no matter how well you know your numbers, the environment room right now is so different that you really need context. You might think that you've got a metric that's strong and it's not, or the inverse is true, and without the context of benchmarking, it is really hard to understand where you are these days.

Bryan Peckinpaugh: Yeah, that's a, that's a fantastic insight. Rick a and I think might be helpful for, for our audience, if, if you and Tim explain a little bit about your, your approach to benchmarking and you know, Tim, it gets back to your description of the, the normative because that is so key when, when we are in unprecedented times and we've all now said it. And it couldn't be more true. Uh, I can't rely on how I compare to myself last year. I don't know if that's good or bad without the, the insights that you can bring to the table. So if you can just give the 30,000 foot view of your approach to benchmarking and the normative, Tim, I think that would be helpful for the audience.

Tim Keith: Yeah, so we we're able to leverage a standardized database environment that's updated every day. So we get fresh data in from banks and credit unions all across the country every day. We run it through a standardization process that allows us to, uh, calculate a whole set of statistics against that, uh, data set, dump it into a database.

All that happens automatically. So the data is continually growing by thousands and thousands of data points a day. And so at a point in time we can take a client data set, run the same set of statistics, by, using the same uh, standardization model, and then compare those stats to the peer group norms in an apples to apples, but a strategically relevant way.

The tracking database is compiled results of campaigns. And so, you know, we have campaign results every day coming across final campaigns, uh, completing tracking, and that's getting dumped into a separate database of results. And so with the CD pricing in particular right now, Uh, we really have our finger on the pulse of, you know, what are people offering, uh, how are consumers responding to different price points and different term commitments.

What's a trade off between price and volume and where's the sweet spot in terms of getting the volume you need without overpaying on your rate? Uh, and that's, again, that's benchmarking. Uh, that's a, that's a fundamental use case for benchmarking that directly impacts your profitability by just being able to leverage a standardized database environment that continually updates with, uh, with peer group data.

Bryan Peckinpaugh: That’s very helpful, Tim. And, and for those listeners out there that wanna learn more, I, I would highly encourage you to, uh, visit the Infusion Marketing Group website and take a look at their podcast as well. There's been some fantastic ones on these topics lately. Uh, you know, Tim, I, I can hear your voice in my head talking about those sleepy CD customers and being careful what you do in waking them up with rates and, and the, the unexpected behaviors that, that you may see from that. Uh, so, so great content that, that the Infusion team has, has been putting out. If you're interested in learning more on, on these particular topics, I, if you guys, you know, put on your fortune teller hat, look into the crystal ball. Uh, what, what do you see happening throughout the rest of, of 2023 and where should financial institutions be investing their time, money, resources to, to identify and gather these deposits?

Rick Claypoole: You know, I think, um, we're probably arguably at the top of the rate cycle. I don't think we're done, uh, in terms of, uh, Fed actions. But, you know, I don't think anybody thinks that we are into 75 basis points of increase every couple of months at this point in time. I think so arguably we're at the top and I think you see that in the yield curve that's relatively priced in.

And in fact, you see the yield curve is, you know, inverted, which obviously is another thing that is a little atypical for our environment today. The thing I think that we try and harp on the most with our clients is, you know, one is just the practical reality that there is a lot of disruption in the marketplace.

There are a lot of things you have to pay attention to. We preach very, very heavily about a relationship focus to growth, right? So anybody can put a CD out there and sometimes you have to, you know, sometimes you just have to, but we preach very heavily on this notion of growth. We preach very heavily, but it is never a bad day to be in the core checking relationship business.

Um, and so you've gotta be thinking about everything. You can't just be focused on just gathering deposits or reacting and, you know, retooling things like incentive plans, et cetera, et cetera. That's all well and good but the everyday actions you need, the relentless discipline to build up and shore up your relationship base is critically important to your success.

Tim Keith: Yeah, I, I would just add to that in terms of trend that this is actually a normal rate environment. People forget that because we've, we've had such loose monetary policy for so long, and so competition is here to stay. I'm telling you, you know, we have three years of none, no competition on deposits. It's, it's here to stay for a long haul.

I'm not convinced rates are going down in, in the, anytime in the next year. They probably level off, but, uh, I think the market is slowly capitulating to the fact that this is the new normal. And so you just gotta sharpen your, sharpen your, your tools that you know, that you haven't used. And, and data is one of the primary tools that, uh, that can drive, you know, a great strategy.

And the integration of data and marketing is also a trend that is only accelerating with the digitization of banking. Um, you think about the old rate card that's set in the, in the, in the desk at the branch. Who, who sees a rate card today? No one sees a rate card. Marketing is your rate card. It's the way you communicate what you have to offer to people who are interested, and so you've gotta get the marketing right and really change your way of thinking about how you manage your portfolio.

Bryan Peckinpaugh: Yeah. And I, I think the great news for, for listeners of this podcast, and the, maybe the punchline to, to all that we've talked about so far is, uh, you know, we're, we're uniquely positioned here. Uh, to, to offer to the, the clients and partners of both Baker Hill and, and the Infusion Marketing Group team, what we call an opportunity assessment, where we can start to, as Tim and Rick mentioned, do that benchmarking and analysis help you find those areas of potential focus under performance and overperformance, uh, that you can capitalize in 23 to, to drive these.

Relationships that, that Tim and Keith have been talking about. Uh, so we would certainly welcome that opportunity and feel free to reach out to either Baker Hill or your contacts at Infusion Marketing Group if you happen to be a direct client of theirs, uh, to, to take us up on it and see what it would take to, to drive an opportunity assessment. Let us have a look at your data, put these smart guys on it. Uh, let them build a strategy for you to exe execute against so that you can, uh, be one of those leaders in the deposit gathering space. And, uh, not sitting there, here in the back half of the year wondering how you're gonna fund those loans that you've been doing. So Tim and Rick, really appreciate your time today. Thanks for joining us. I think just fantastic insights for our customer base and listener base. And, uh, hope to have you on here in the, uh, not too distant future.

Tim Keith: Awesome. Thanks for having us.