Banker To Banker

D&O Policy Coverage For Banks

The risk of being an officer or a director at a bank is huge compared to other industries. How well does your D&O (director and officer insurance) protect you against the FDIC? If there ever was a time to perform a risk check the time would be now, as case law and legal actions are now rich in current precedence. While insurance policies have improved, not all of them have and many banks are still exposed.

Ditch the Peer Group Analysis

It is likely every quarter you look at a set of peer group metrics and compare your bank. “Bank ABC produced a 16% ROE. How are they doing it,” you ask. Your CFO responds that they are doing it by booking more C&I loans. You then commit the organization to booking more C&I loans. Do you see what happened there? Your strategy is to copy a competitor. It is done thousands of times per day by banks, as we tend to mimic deposit/loan pricing, branches, marketing and positioning.

 

Branch Design

Surpassing Commerce Bank (NJ) almost a decade ago, Umpqua is now recognized as a leader in providing one of the best branch banking experiences in the world. Customers and employees delight in delivering a superior financially-oriented experience that is unsurpassed by most retail outlets let alone banks. In fact, bankers come from all over (we recently met one from Russia that last time we stopped into a branch) just to see the experience firsthand.

Real Estate Risk

Last week the RadioShack earnings announcement and restatement that it will close 1,100 locations sent bankers scrambling back to their credit files to see if the beleaguered electronics chain composed any part of their commercial real estate rent rolls. It turns out that that for about 100 loans, there is exposure with an estimate of 36 of these at community banks. Luckily, Radio Shack has been downsizing and has gone to smaller and smaller footprints so that on average, the stores now make up less than 10% of the rentable space at these retail centers.

SBA Credit Scoring

This week’s SBA announcement that the Agency will make available borrower’s credit score that takes into account both personal and business attributes has sent shock waves through the industry. The funny part is that these shock waves were not the ones intended. The intention was to let the Nation know that Maria Contreras-Sweet, the new head of the SBA, is ready to help minority lending and that will further stimulate the economy.

Commercial Loan Risk

Do you treat all cash flow the same? That is, does a property with a 1.25x debt service coverage get a “3” rating no matter what type of property it is? If so, your bank is most likely mispricing risk which will hurt performance over time. Every waking business day, bankers have to make decisions and the ones with the best information will have superior performance over time.

 

Self-storage Credit Risk

How is your lending expertise when it comes to self-storage loans? Since the lending sector is risky compared to other traditional bank lending lines, it pays to understand not only the drivers of risk, but now since the rise of data analytics, what factors help tip the probabilities of success in your favor. This article highlights a continued trend in banking of how lenders can take a sector with a higher than average risk, and through better underwriting, monitoring and management, can reduce their risk in almost half.

Risk Management

It was the day after Christmas in 1919 when the Boston Red Sox transferred George Herman Ruth to the NY Yankees for the princely sum of $25,000. While this might have started the 86-year Curse of the Bambino for the Sox, the Yankees leveraged the Babe to their advantage. In the contract, in addition to the Babe’s $5,000 salary, the team inserted the language to pay Ruth $50 for each home run. It was a simple sentence that changed the whole game of baseball.

 

Economic Principals

Now that college graduation is upon us, we are reminded of one of the best graduation speeches we have every heard and by far the one with the highest return on time invested. We replay it here as the speech offers some basic common sense rules that many borrowers, bankers and business leaders forget.

 

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