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runoff. Interest currently paid on deposits and how When performing a CDI valuation, it’s important
the costs of these deposits will change need to be to consider attrition from initial deposit loss once COMMUNITY BANK
considered. the deal closes due to:
▸ ▸ Depositors not wanting to stay with the acquirer; EXPERIENCE
Next Steps. If a bank and its competitors are aggres - ▸ ▸ Attrition due to possible changes in interest
sively pursuing deposits, it may need to consider a rates paid and other policy changes; and/or CORRESPONDENT
higher deposit beta. This is the degree to which in- ▸ ▸ Ongoing attrition
Since future attrition can have a large impact on BANK EXPERTISE
the value of deposits acquired, it’s useful to have a
SINCE FUTURE ATTRITION CAN HAVE A LARGE IMPACT decay study performed on the deposit base being ac-
quired (see chart 2). These studies can reveal attributes
ON THE VALUE OF DEPOSITS ACQUIRED, IT’S USEFUL TO of the deposit base such as deposit behavior by ten- Fixed Income Securities Sales
HAVE A DECAY STUDY PERFORMED ON THE DEPOSIT BASE ure and type. For example, there may be a dispropor- •
tionately high rate of account closures for short-term
BEING ACQUIRED. IT PROVIDES STRONG SUPPORT FOR deposit tenures. This type of study provides strong Bond Accounting & Safekeeping
support for important future attrition assumptions. •
IMPORTANT FUTURE ATTRITION ASSUMPTIONS. Loan Hedging (ARC Program)

ank acquisitions can pose unique challenges •
terest paid on deposits changes with market interest and regulatory risks. A transaction’s assets Commercial & Industrial Credits
rate indices, such as the federal funds rate. Deposit will be scrutinized, so it’s crucial that banks
betas have risen with the Federal Reserve’s tighten- Bhave the value of core deposit intangibles •
ing monetary cycle. properly measured in order to facilitate a smooth International Services
The most significant assumptions for this analysis and successful acquisition. H •
typically surround the deposit runoff—or attrition—
chosen. Deposit accounts will be closed out over time Donovan Trone with Moss Adams has been a valuations Clearing/Cash Management
for a number of reasons, including mortality, migra- consultant since 2011. He performs valuations for mergers •
tion and changes in competitive services. Since the and acquisitions, financial reporting, corporate planning, as Asset/Liability Management Reporting
number of individual accounts on the transaction well as for financial instruments such as debt and derivative
date erodes over time, the deposits are considered a securities. He can be reached at 916/503-8168 or donovan.
decaying asset with a finite useful life. [email protected].
512.681.4452 800.848.8573

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