Lessons (re)Learned Part 2

by David McSwain

2As we are in tunnel vision with round two of PPP, I believe it necessary to maintain discipline inside the existing portfolio.  Personally, one of my 2021 goals is to slow down the thought train and attempt to ask better questions.  Many people have and will, for their reasons, apply for PPP.  In my opinion, windows allow us to see where clients are exposed, maybe.  A crisis is not to be wasted.  This is a great time for customer contact, possible solutions that better protect existing loans, or in some cases, we have seen, for growth opportunity.  Without this crisis, exposure could have been camouflaged.

Our people are valuable.  Many experienced and as we witnessed,  a positive Covid test can be a disruptor itself for the entire office.  Technology advancements rapidly appeared and thrust us forward to the point it has caused a new normal.  What technology do we not have today that is needed for a post-Covid world?  What skills are we missing, do we have enough employees trained in the proper areas, or perhaps do we need to look to see if we can advance into this new world and what does that look like for the industry and more particularly your bank?  McSwain Consulting has been doing remote work for more than four years now and we are more than prepared to work in the digital world.

This hasn’t been felt by all yet, but the number of competitors that surfaced through this pandemic in the form of fintech was massive.  As most of you are on some form of social media, the fintech companies surfaced rapidly over the past 12 months, in my opinion.  Typically, these companies don’t steal your worst customer, either.  So, how do we operate in this ever-evolving digital world?

Does a real estate boom in the middle of a pandemic make perfect sense?  Housing typically wasn’t built for the remote working world where children aren’t in school or they are and then they are not. People’s needs and priorities also changed. Those changes will be lasting.  Also, some businesses have experienced what they said couldn’t be done and that is a collaborative work environment where no one is in the same building.  Banks even experienced this and continue to experience based on their Covid protocol. Regulators have now been doing remote exams, as we know it, coming up on a year.

So, the real questions.  How do we continue to do business and grow in this new ever dependent digital world?  What resources will we need that we don’t have today to operate in this new world that no one knows what it looks, tastes, or smells like?  What vendors do we need, and do they have the capabilities to operate in this world?  What we measure today, is it appropriate for the times?  Has the cheese or needle moved?  Are our systems and processes adequate for today’s environment?  Some of you may already be there and that is awesome.  Some are not even close.  Either way, McSwain Consulting can and is willing to serve you well!

Going forward, what critical changes are needed in this new world?  As with a new administration in Washington, a pandemic, most of us have never experienced that has caused some severe economic damage to some industries and caused an exponential acceleration in others.  McSwain Consulting is prepared to go on this journey with you as a strategic partner in loan reviews, ALLL analysis, and testing, planning, and loan risk management.  We are here to serve.

Questions, comments? Would you like to discuss a remote loan review? Reach out to David@mcswainconsulting.net.

Should I Be Asking Better Questions?

by David McSwain, McSwain Consulting

IMG_7735As this blog is being written, the world appears to be more volatile.  The trade talks, the government shut down, geopolitics, Brexit, and the volatility of the stock market.  World leaders are meeting in Davos, Switzerland, and someone I follow closely, Ray Dalio, is warning world leaders of a global slowdown.  Now and every day, there is a headline about a company losing money because of domestic politics and the trickle-down effect hasn’t been absorbed into the markets or Main Street.

Enough doom and gloom. In my opinion, its time to shut off the noise. It’s time to reflect on your loan portfolio and look out to the horizon. It’s time to ask yourself, “Should I Be Asking Better Questions”?

One thing is for certain, the landscape is changing.  Rates have increased +/- 200 basis points and too few loan customers have re-priced into rising rates.  In the loan review world, we are seeing borrowers’ margin begin to compress for many reasons.

So, that P&L you didn’t ask for last year, should you be asking for it? 

The inspections you do once a year, do you now need it twice a year? 

The inventory report you received, do you need it more often? 

Is it time to review your loan policy to see if its adequate in today’s economic cycle? 

Did I stress-test my portfolio? 

Are my quantitative factors in my ALLL analysis still valid today?  

Is the narrative in my credit memos enough for the complexity of the credits? 

Are my projections in line with the historical trends or am I being too optimistic in the projections? 

A good loan review will reveal an answer to all these questions. It’s time to start asking.

At McSwain Consulting, we think its time to up your game.  We can help through a variety of services.  If you are interested in a discussion about your bank, please contact us at 405-880-1039 or david@mcswainconsulting.net or through our website at www.mcswainconsulting.net.

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You Should Read This: Bank 3.0 by Brett King

41AzJecTO+LAs I’ve written about here in my personal journey through banking from my childhood in the 70’s to present day, banking has done more than “change” or “evolve” – it’s practically morphed from a noun to a verb. As Brett King says in his book, Bank 3.0, banking is quickly becoming something we “do” not somewhere we go.
From online transactions to apps to stand-alone ATMs, the days of standing in line and getting a sucker or gum at the counter are becoming a thing of the past. My role as a banking consultant is to look for what’s ahead to help prepare banks for success, not just survival.
Find out more about Bank 3.0 here. 
From the Publisher:
In BANK 3.0, Brett King brings the story up to date with the latest trends redefining financial services and payments—from the global scramble for dominance of the mobile wallet and the expectations created by tablet computing to the operationalising of the cloud, the explosion of social media, and the rise of the de-banked consumer, who doesn’t need a bank at all.
BANK 3.0 shows that the gap between customers and financial services players is rapidly widening, leaving massive opportunities for new, non-bank competitors to totally disrupt the industry.
“On the Web and on Mobile, the customer isn’t king—he’s dictator. Highly impatient, skeptical, cynical. Brett King understands deeply what drives this new hard-nosed customer. Banking professionals would do well to heed his advice.”
Gerry McGovern, author of Killer Web Content
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David McSwain is an Oklahoma bank consultant and president of McSwain Consulting providing loan risk management solutions, loan reviews, and bank consulting services to community banks in Oklahoma, Texas, and Kansas. 

Lessons from the Road: On Change and Mindset

In general, people are good.  In general, people have good intentions and speak from the heart.  embracing changeUntil criticism takes place.  In its true nature, being a consultant is being critical.  Someone pays you for a service that is provided to be critical. The criticism isn’t meant to be rude, undermining, or even “bad.”  It’s meant to be helpful.  It’s meant to make my client better.  However, recently I learned a valuable lesson. The lesson: not all people want to get better.  

Through my “Thinking Time”, I couldn’t bring myself to believe someone such as a high-level bank employee doesn’t want to improve if they can. I pondered this for days. Finally, I went through several levels of why, trying to make myself better.  I pondered that perhaps it was the way I was presenting the information. Perhaps it’s embarrassment.  Oddly, I mentally replayed several of the conversations that took place over a few weeks.  Why were some people receptive to the criticism and why were some almost indignant?

A few days later, it hit me like a ton of bricks. The story I told myself that it wasn’t the delivery because I have been in the clients’ seat for over 20 years and I take pride in not being hard in the delivery.  I know what it is like to be criticized.  I know that it’s embarrassing to be criticized in front of your boss, your peers, and your friends.  I followed the “Golden Rule”.  The A-ha — it’s change itself.  People don’t like change!

Change can be paralyzing for some and some thrive in change.  If there is anything in the world that is certain, CHANGE is guaranteed.  This week, the U.S. House of Representatives passed S. 2155 and the President signed it. This bill gives community banks some very needed regulatory relief. This is going to be a CHANGE.

Additionally, this morning, I received a transcript of Chairman Martin J. Gruenberg’s quarterly update on the banking industry via email.  Change is in the air!  To me, Chairman Gruenberg’s message was that we are in the latter stage of the business cycle.  Change may be coming.

Now is the time to prepare for “Winter”, so your bank’s business model is sustainable for any type of downturn when it happens.  Interest Rates have been changing!  Loan maturities have extended and the business cycle is going through its processes to reach equilibrium.  When the cycle reverts to equilibrium, more change takes place.

If you are a bank in Oklahoma, Texas, or Kansas and want to prepare for “Winter”, please call on McSwain Consulting. I not only help my clients navigate change for the better but to look way ahead for what’s coming, even when it’s not so pretty. Is this a case of evolve or die? Why not embrace change and go for it for our banks…and our communities to not only survive but thrive.

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David McSwain is an Oklahoma bank consultant and president of McSwain Consulting providing loan risk management solutions, bank loan review services, and bank consulting services to community banks in Oklahoma, Texas, and Kansas.