Tag: loan review

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.

Kill the Monster While It’s Still Small – Don’t Wait Until It Becomes Godzilla

by David McSwain

A consistently scheduled external loan review program will help to do exactly that. Problems do frank-3not magically appear overnight, they grow without being noticed because the problem gets played off as an isolated situation. Then the creep sets in as motion and momentum begin. Once this process reaches maturity, it is very difficult to overcome, especially if it has gone unnoticed for an extended period of time.

For example, a loan or group of loans tied to a particular industry start to experience cash flow problems.  Those problems manifest in past due loans and/or overdrafts.  We take swift action to correct the situation without really understanding the true nature and severity of the real problem. We are able to get the past due loan resolved or the overdraft covered without asking the key question: WHY?  The problem reoccurs and now it has our undivided attention. Unfortunately, we still have not recognized the underlying loan portfolio credit quality deterioration that has been growing and evolving. We should recognize that a single troubled credit does not constitute a systemic problem. However, the weakest loans should be a wakeup call that there may be problems larger and more complex than one or two loans that are experiencing difficulty.

Finally, we look up one day and we have several problem loans. Now our laundry is aired and loans with similar characteristics from an underwriting or industry perspective start causing pain.

A consistent and regimented program of external loan review is an important line of defense against the monsters that may be lurking within the bank’s lending function. Waiting for the eve of the next exam is like waiting until Godzilla is at the door before action is taken.

Three signs that you may have Godzilla in your bank are 1) rapid loan growth in any one call report bucket 2) creep in past due loan over the past few quarters 3) an increase in TDR loans.

For more information about Loan Review, ALLL Review, CRE Stress-Test or to schedule a consulting meeting for 2019, contact McSwain Consulting at 405-880-1039 or email david@mcswainconsulting.net. McSwain has battled a lot of Godzillas and knows how to deal with them.