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BirdsEye View

the first two years of commercial banking

I received many responses to my article on workouts. Below is a summary of the main points made:

  1. Develop a specialized group that specifically focuses on quickly selling the assets.

  2. The group routinely

    • Monitors real estate agents for performance & effectiveness
    • We established an incentive system for the real estate agents to "incent" at a higher rate their showing "our" properties over others
    • Quickly determines if a real estate agent isn't performing; if they don't, quickly dump them and move to another
    • Assign each REO agent a portfolio typically geographically centered that they manage ; expect them to daily call the real estate agents to determine what the market is doing, how their properties are showing, and negotiate pricing with those real estate agents where necessary (and negotiate incentives too)
    • Focus on short sales when that makes sense
    • Offer "alternative" financing aggressively wherever the owner is both wants to keep the property AND has a probability of approval for a new financing plan
    • Consider an early partial charge off ; bulk it up somewhat to account for declining equity ; get these off our books as quickly as you can
    • Hire "field agents", (FNMA MAE is a good source); these guys are experienced and stay in the field. They visit properties and try to make personal contact with delinquent owners. They ascertain if the owner wants to "keep the property" and make initial quick assessment what the probability of that is along with their ability to get refi'd. They also are empowered to see if the owner is interested in a "short sale". They also determine what the real valuation of the property is rather than solely rely on the BPO to establish value. They determine if the property is abandoned (if it is there are different implications in terms of how we handle it re foreclosure speed).
  3. Consider "gimmicks" to make contacts with delinquent customers who may be avoiding you, such as:

  • Send them a complimentary cell phone with 1 hour of free time on it but to activate it they have to call a toll free "800" number which just happens to be our collections group
  • Send wedding invitations with your return number, again your collections number,
  • Send announcements they've won a prize and need to call a "800" number to claim it, your number of course, and then send them a prize of sorts
  • Send other types of leaders to try and get a first contact too.
  • Some banks did discuss seriously among ourselves whether the above was misleading in a dishonest way or not. At the end of the day the conclusion was that while the practice is unappealing, it was a way to try and help a customer who might be avoiding us largely due to embarrassment over the situation.

There is software (PMP by equifax) that will allow you to champion-challenge our calling campaigns. E xamples of the software functionality and decision rules are:

  • anyone delinquent > 5 days and < 10 days
  • delinquent amount > $150 and < $500
  • having 2 delinquencies or more in the last 12 months
  • and for the above we want to
  • autodial them 3 times per day between 8am & 5pm 3 days a week

With this information you can then design a challenger campaign that might vary slightly in the selection of the variables, such as the number of times we call them, or the times of day we call, then we can objectively assess the effectiveness of the two differing strategies.

You then select the most effective campaing strategy and adapt that in your production environment and then begin designing the next challenger campaign. It would be relatively easy with this capability to design a champion / challenger campaign that would compare two respective groups using exactly the same variables which isolates the variable exclusively to the specific groups.

On a personal note, Gil, 17, graduated high school last Saturday. He will be attending UCLA this Fall. Arik, 14, will be graduating junior high this weekend. I am very proud of both of them!

Have a great week,

Anat

Article synopsis: A rookie commercial banker wrote this piece. He has done an amazing job describing the key learnings he took from his first two years as a commercial banker. These lessons are relevant to every relationship manager, and especially to the new ones.

THE FIRST TWO YEARS AS A COMMERCIAL BANKER

Nick Fox, a newbie commercial banker at Sterling Bank of TX, wrote an outstanding piece about his life as a commercial banker in training. He offered 20 helpful hints that I'd like to share with you. This is particularly topical since so many banks have re-instituted their credit training programs as the mega-banks stopped theirs.

Take excellent care of your administrative assistant. A good AA cvan make or break you. Make sure your AA knows the customer so well that the customer feels they have two people to call when they need something.

Make sure you get along with all of the employees in your office. When you are new to an office, they know the customers better than you. You want them to provide excellent service to your customers out of respect for you. You will also need the Relationship Bankers, Tellers and the Office Manager's help with operations.

Take care of your inherited customers. You don't want them to leave and they are your best and easiest source of referrals. You can effectively compete with the previous lender despite their "banking the customer for 15+ years" because you are always available (since you have a small loan portfolio) and you can get things done quickly for them since you are not as bogged down. You need to spend time with customers and strengthen the relationship quickly by attending" outside of ordinary work activities" with them such as sports events, etc that allow them to be themselves around you. They may not be as relaxed in an office setting.

Visit your customers often in their place of business. Don't let the only time you see them be the time they come to the bank to make a deposit. Pop in their offices occasionally to run the loan papers out for them to sign. It gives you more "face time" and it allows you to get an updated look of their business to see if their operation is still running smoothly. Also, drive around to see what new construction is taking place in the area and you might find new prospects to call on. You carry more clout, especially as a young lender, prospecting a cold call visit when you already bank the customer down the street. It gives you credibility.

Take excellent care of the referrals you get. This reflects well on the person who referred you. You want them to continue to refer customers to you.

Even if you can't make a loan to someone, help them find someone who will or work with them to improve their situation. Follow up with them; don't just turn them down and leave it at that. They may remember it later when their business has improved. You want them to remember you.

Follow up on prospects you visited. Don't just call once or twice and give up. Call every quarter until you get their business. This lets them know that you REALLY want their business.

Don't be too excited over every deal in the beginning. Many deals look great on the surface or during initial meetings. This gives the borrower "over-confidence" that the loan will be approved and only makes the let-down much harder on you when you tell them they are declined.

A quick decline is the best decline. It is much easier on the borrower. Wasting two weeks on a marginal deal is difficult when it comes to turn the customer down (not to mention your own wasted time). They will appreciate it if you get back to them quickly.

Be polite to the people in the lobby. Introduce yourself and shake their hand. You never know who they are or who they work for or who they know.

When possible, walk out of your office to greet existing customers and chat with them for a minute when they are in your area. It doesn't matter if they are your customer or not. They may become your customers some day or they might know someone you are prospecting and could possibly put in a good word for you.

Work your renewals early. Your loans are going to take longer to complete since you don't have the experience or the clout/authority to move things along. Your market CEO will ask questions or recommend changes causing you to need more time to research or go back to your borrower with questions to answer. This will take extra time and yet it is still your responsibility to get he loan renewed in time.

Work your exceptions. It is better to start working them as soon as you start building your portfolio to keep them from getting out of hand. Look at them weekly and include the coming due exceptions. Don't wait until the end of the quarter. You are too busy networking, closing loans and working past dues to be bothered by exceptions that you should have handled previously.

Look at your past dues daily. Contact them before they hit 10 days to avoid the late fee. Also, if they are routinely late, it could take you several days to reach them, and then they typically take several days to make a payment. If you look at them only weekly, you will fall behind and cause some of them to slip past due at month-end. You can help them alleviate this by contacting them as soon as possible to start the process rolling. Often customers will get the drift and tend to pay earlier over time. Check your NSF/OD daily as well.

Don't drive past businesses without stopping because they look old and dumpy. It may be a "cash cow" business. You don't know how successful they are until you have visited the business, met the owners and seen the financials.

Discover who your best customers are and focus 80% of your attention on them. Following the 80/20 rule, 80% of your business will come from your top 20 customers. You will find this to be true.

Be careful of joining community events. It is a good way to get your name out. However, don't get too bogged down with these events as they will try to take all the time you can give them by joining various committees and fund raisers. Remember that you're being paid to be a banker. You are not being paid to be the health and education committee representative for the chamber of commerce. It could take years of regularly attending community events before you start to build relationships that could lead to loans or deposits.

Make your boss look good. If you're working hard and doing well, your boss will look good to upper management and that, in turn, will bring more attention to your boss's area. This is bound to shed light your way.

ACB: always be closing. This is not as effective as ABC: Always Be Communicating. You are not an SVP with lots of experience and tons of deals in the pipeline to close. To "always be closing" deals you have to "always be communicating" with customers and prospects so that they think of you first when they need financing.

Get to know as many people in the bank as you can. You don't know anything so you need a long list of names to call for assistance. You will often have time-sensitive issues that can't wait for your boss or other senior officers on your team to get back to the office. You need other lenders to call for advice. Call them.