Pushing the Envelope


Risk management is an important investment, and a differentiator

By Kevin Forristall

At TS Banking Group, we like to think unconventionally … and better yet, challenge ourselves not to think like a bank at all.

Several years ago, banking asset-liability management expert Tom Farin said there are a lot of “urban banking legends.” We could hardly agree more. At TS Banking Group, in Treynor, Iowa, analytical empiricism trumps conventional wisdom. After more than seven years of building an analytics team, our community bank uses a long list of analytical models ranging from industry-leading platforms to those that are entirely proprietary, all with the purpose of allowing us to adequately understand risk and find opportunities.

Some of TS Banking Group’s in-house models are truly novel creations (such as our Community Bank Capital Stress Testing Model), while others seem novel yet are purely new applications of existing methods from advanced finance textbooks (pro forma capital duration analysis). Whether internally developed or a third-party solution, we have a strong conviction these models should be run in-house with third-party validation and support.

Third parties ultimately don’t have enough tribal knowledge, skin in the game or total balance sheet perspective to be the primary modelers. There are a few times when the 80/20 rule applies, yet there are others when being 98 percent accurate still isn’t good enough.

Another key differentiator is that risk is measured on a micro-level but managed on a macro-level. For instance, we quantitatively measure and analyze the interest rate risk of every single instrument on our bank’s balance sheet; yet the management of interest rate risk is executed on the marco-level. This prevents us from telling clients we need to match fund their loan, or that in order for them to take out a long maturity loan they need to engage in some complicated and legalistic swapping mechanism. The marginal risk introduced by each transaction is measured individually and assessed in the context of total balance sheet risk and return. Any unwanted mismatches are predominantly hedged on the capital markets side of the bank, not on the client side of the bank.

In January 2014, we implemented a sales-managed environment using an outside staff-training firm, the Anthony Cole Training Group LLC in Cincinnati, with our client-facing sales employees. After developing strong branding standards, new product releases and realigned departments, we needed the “troops on the ground” to integrate our prospects and clients to these areas. Our salespeople have discovered more effective ways to qualify prospects, ask better questions and effectively coach others on their team.

In addition, we have implemented a pre-hiring assessment tool to gauge a job candidate’s skills and desires in sales and determine if he or she may be a fit for the TS Banking Group culture and sales managed environment.

We also have progressively reengineered two areas of the bank, one being the TS Wealth Management & Trust Group and a second being the TS Ag Finance Group. We anticipate the growth from these business areas will make for a great story in years to come. TS Banking Group has the largest state-chartered, Subchapter C-corporation trust department west of Des Moines, which has grown from $10 million to now $290 million in assets during the past 10 years.

Challenging the status quo is a necessity in today’s market, because in the business world analytical empiricism trumps conventional wisdom. In striving toward new frontiers, we see opportunities to fulfill our calling of developing long-term community prosperity through our driving principles of faith, family, farming and financial stewardship.

Kevin Forristall (kforristall@tsbank.com) is the chief investment officer for TS Banking Group, a community bank holding company in Treynor, Iowa