In bank sales training, one of the most talked about concepts today is the “trigger event.” A trigger event is a notable event that has occurred in a custoomer’s or potential customer’s world that has them more open to a change or to using a product. For example, a customer’s competitor announced a major acquisition. This causes your customer to think about why they aren’t looking for an acquisition.
Banker To Banker
All bankers agree that the more equity an owner has in a property or business, the better the credit. While statestically true, the real question is how much does equity matter? Or, a similar question, what is that equity worth? The answer is that it depends on how much you are talking about and what type of loan you are talking about. In the companion graph, we have charted the pobability of default with the ownership equity percentage. The solid line in black represents all commercial bank loans, while the dashed line are just commercial real estate loans.
As of the end of June, commercial real estate is the second largest credit risk on community bank’s balance sheets, composing almost 29% of the loan portfolio - just slightly behind residential real estate exposure. On a dollar basis, we are now approaching some of the highest levels in history and are on track to break the record in the next year, a record set back in Dec, of 2008.
During 2Q bank earnings calls and comments, JP Morgan, Citigroup and Wells had some interesting comments that may impact your bank. The Fed is winding down their Quantitative Easing liquidity that will remove balances from the banking system and from corporate balance sheets (that are also largely on bank’s balance sheets).
When it comes to corporate culture, many banks know that building a true and sustainable culture is like baptizing cats. It’s tough work fraught with many scratches and a lot of moving around. However, when it comes to corporate culture, Netflix is in the pantheon and can give banks insight. In 2011, their CEO, Reed Hastings, their Chief Talent Officer and others produced a “Culture Doc” (below) that was leaked and spread like wildfire among the Silicon Valley’s elite.
If you have spent some time in men’s locker rooms, then you likely know about the unspoken “naked man right away.” This regulation in the man-code stipulates that the least dressed man goes first should your paths cross simultaneously in a locker room. If you have a towel on, for example, you yield to the guy with only hair gel. This regulation permits safe passage and prevents getting hit with random body parts which is awkward at best.
Now that lending growth is starting to put pressure on deposits, community banks are starting to pay greater attention to their deposit account line up, including business interest checking. When Regulation Q fell away back in 2010, deposit growth outstripped loan growth, so there was little need to pay interest on a business checking account. Besides, many banks argued that their analyzed accounts, where they pay an earnings credit on deposit balances, was a fine substitute so there was little need.
Next to strategy, risk management remains an overlooked discipline in community banking. Dodd-Frank and related 2012 Enhanced Prudential Standards requires a Chief Risk Officer (“CRO”) or similar position to manage an executive level risk committee and report directly to either the CEO or the Board for banks over $50 billion in total assets. However, we are big fans of starting this process much earlier, around $400 million in total asset size, even if it is just a part-time position.