Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewfiring up your c and i business
Commercial banking, and C&I in particular, will make meaningful strides in 2017 as the economy improves and, even more importantly, business and consumer sentiments are increasingly optimistic.
As expectations from the Relationship Managers rise and competition intensifies, especially among our peer community banks, what can a bank do to differentiate themselves on non-price variables?
Below are some ideas generated from the last Commercial Banking Forum we held.
• Food truck at the customers’ site for bank-at-work and relationship building
• Branches aren’t necessary for growth. Commercial bankers have successfully used Loan Production Offices (LPOs) to achieve out-of-market growth for years. They have been even more successful in recent years as bankers have improved their selection process and customers are less sensitive to bank headquarters’ location.
As you target locations for lift-outs and LPOs, note that this tactic is especially effective in markets that are dominated by universal and large regional banks.
• Lift-outs are working better. In addition to acquisitions, which are often expensive, lift-outs of commercial banking teams have become more prevalent. Commercial bankers are more willing to switch banks for more autonomy, faster decision making, greater structure flexibility and more job satisfaction. Community bank executives have also learned that, with the right acculturation and credit mindset, bankers from universal banks can adjust to life in the supercommunity bank world. Just ensure that the loan target size and approach to credit are compatible. It’s the first step to success – or disaster.
• Use personality testing for selection and team-building. Retail bank executives have been using personality testing to match their needs with job applicants for years. Commercial banking should do the same to improve the likelihood of a strong cultural fit and mutual commitment between the applicant and the bank. In addition, personality testing can help identify your portfolio managers among the RMs and those who are better at hunting and developing business. Both are necessary for a strong commercial banking operation.
• Create a top 30 list for prospects. Most banks target the same “top names” in their market, but fewer banks focus on a specific list for long-term top prospect acquisition. Developing such a list for each banker and following up persistently will help the bank acquire more coveted customers over time. One must take the long-term view here, because it could take years – even a decade – to get a sought-after prospect. It’s a worthwhile investment when the payoff is there, which makes the list itself important to ensure that the right targets are on it.
Further, share the results in your monthly meetings and publicly recognize those who made a positive difference. Celebrating successes is a powerful motivational tool to all people, and this is especially true for your very best sales people.
• Create a top 30 list for prospective lenders – best in your market. Recruitment of the best bankers is as difficult as luring the best prospects away from their current bank. Targeting the best bankers you’d like to recruit and wooing them the same way you work on prospects and COIs is good business and good discipline. It needs to be explicit and methodical, and not left to chance or sporadic efforts based upon timing of banker vacancies or short term needs.
• Spreadsheet of new customers and where they came from (which banker). Our reliance on anecdotal information needs to be reduced. If you don’t have a strong CRM system such as Salesforce, an Excel spreadsheet will do just fine. The key is to keep track of who is bringing the new relationships in and to recognize them repeatedly. Transparency to the rest of the team is also effective so others can see what’s possible and who is leading the charge.
• Spreadsheet of COIs and what business they brought. Same with law firms. Again, this is all about information, recognition and rewards. Those COIs who bring you the most business should be the ones who get most of yours. All too often we allocate our scarce community support dollars, box seats at the sports arena, etc. based upon who we know and like personally and not based upon their contribution to our shareholders and team success. Let the facts guide you.
Jerry Lipkin, CEO of Valley National Bank in NJ, taught me years ago to create two rank-order lists: the law firms which serve us by fees from the highest to lowest, and the law firms which refer business to us, highest to lowest. Matching the two lists to the extent possible is optimal.
• Build unique recognition programs for best customers. Most banks offer their customers the usual golf tournament or round, a skybox when they have it and similar rewards. Think outside of the box here. What will surprise and delight your customers? What’s the out-of-the-ordinary thing you can do for your very very best customers that no one else has thought of? I can think of countless rewards, from front seats to a Harry Styles concert to third row on Broadway to see a great play or a musical, all expenses paid. It’s very expensive but it is unique – and unforgettable.
• Avoid the herd mentality. Try to find your own niches and develop mini-specialties that others do not have, both on the deposit and loan sides. Being a big fish in a small pond, both geographically and segment-wise, is how non-megabanks can benefit from word-of-mouth, pricing power and other benefits that market position can yield. As you seek your niches, look for segments that require customization that the larger banks simply can’t provide. Again, that’s where nimbleness, flexibility and customer focus create a competitive advantage; that’s where small is beautiful.
• P cards or commercial credit cards with P features and MIS. This is a product that creates value to your customers and is available to all banks through outside vendors. I believe it offers a significant fee income opportunity. Use T&E to get in the door. Dedicate an implementation person to it, because getting the client on-boarded is the toughest part. Do not offer this to your mass market; only to your best and largest customers who can truly benefit from the product’s features.
By the way, your own bank can be your client for a P card, which will allow the bank to collect interchange fees in your own transactions. Not all your vendors accept cards, but those who do will largely accept this new payment mechanism. Your CFO will love it!
• New name lost name quarterly report. We need to truly understand the dynamics and customer acquisition and attrition in the commercial bank. One good way to get there is by reporting monthly what we acquired, from whom and why, as well as what we lost, to whom and why. “New” must be brand new to the bank. This report both helps tighten up the pipeline as well as identify additional prospecting opportunities and pricing or operational issues which result in customer attrition.
• Give your rainmakers as many assistants and junior bankers to support them as they need. It’s better for the bank (more people known to the customer) and for the rainmaker. This is common practice in the wealth management and brokerage businesses, but is rare among commercial bankers. I fail to see why. The most painful thing for a star relationship manager is giving up some of their customers, given the huge size of their book, to a junior banker. Instead, why not include the junior banker on their team and help them learn the ropes at the feet of one of your best RMs while freeing the RM to continue to make rain while retaining their book? I think it’s an effective solution to the dilemma of “how much success is too much”.
• Lender authority. It is rare today to find banks that give their RMs significant loan authority. The risk is too high, most reason. At the same time, if your RMs are strong and experienced, giving them this authority is a competitive advantage both in terms of the customer experience as well as for recruitment purposes. Some banks have been practicing this approach for decades with great success. Others have been stung by it.
• Chart your total revenue, including Treasury Management revenue – and don’t forget your waives. It’s key to understanding the importance of TM in your total revenue profile, as well as its potential dominance as a fee income generator. It also helps to create transparency around the waivers that many RMs offer in order to get the loan. The revenue “spillage” is often quite significant.
• Think in 5 bp not 25 bp as you negotiate fees. There is no reason why we can’t negotiate in smaller chunks, especially in today’s rate environment. You can save a lot of interest income this way.
The overall theme of this article is simple: C&I lending is a great business. In my view, a strong cash-flow and guaranteed credit is conceivably better than a real estate credit. Whether we like it or not, we have limitations on CRE loan growth. Consequently, our ability to execute on C&I lending is key, and the relationship building opportunities here are vast. The list above is a fraction of what can and should be done to achieve the organic growth levels the business can reach. I look forward to hearing from you about your own ideas both by return email as well as at the next Commercial Banking Forum in November in Charleston.