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Lending & Credit

POV 01.07.2010

How do you get the most out of your employees, meet customer expectations and regulatory demands, at a cost that is satisfactory to shareholders?

By William (Bill) D. Eavenson

Many bankers try to achieve these goals but we all know that they often compete with each other. In order to meet profitability targets, there is pressure to reduce headcount. To remain competitive, products and pricing must be attractive and response or delivery times must be expedited. To satisfy regulatory requirements, controls and policies must be adequate to minimize risk. And of course shareholders expect a reasonable return on their investment. How then does management balance these competing demands? This can often be difficult when management is in the midst of solving problems and putting out fires on a daily basis. As a result, it’s often healthy to stand back and examine the big picture.

Sheshunoff Consulting + Solutions (SCS) addresses this question through a defined methodology that leverages the knowledge and project management skills of experienced banking consultants. Through its Assessment & Implementation Services, SCS can tailor a project to evaluate any and all lines of business and the credit support functions surrounding them. The approach has two phases: assessing opportunities and implementing recommendations.

Opportunity Assessment

The assessment is a one-week, on-site effort that serves multiple purposes. Principally, it permits consultants to identify key issues, opportunities, and income/cost reduction dollars. These findings result from both a review of data as well as a series of interviews. Many of the specific recommendations for change are shared with management during an exit meeting at week end. A proposal for services is delivered and discussed at this time. SCS has found that this approach helps to build credibility and define the range of benefits for the client.

Implementation

The Action Team

The keystone of our work is the development and implementation of recommendations. We arrive at these recommendations and plan for their execution by forming an Action Team. This team is composed of stakeholders from all areas touched by the engagement. The members are not senior executives but officers and personnel who are engaged in the day-to-day work of the bank. Typically, they are empowered to execute recommendations subject to review by management and compliance. Any actions that would result in expeditures or would affect departments outside the engagement’s scope would require senior management’s agreement.

This team meets one full day each week throughout the term of the project to develop recommendations and plan/monitor their execution. Although this is a significant commitment of time, SCS has found such involvement critical to success. People tend to support what they help to build and create. They also are more likely to “think outside the box” and be better prepared to examine a series of questions we believe are critical to success:

  • How can we better serve the customer?
  • How can we work smarter and faster?
  • How can we perform work for less cost?
  • What if we simply stop doing certain tasks?
  • Why is the work or task being done?
  • What are we trying to achieve with each activity?
  • Can we charge for our work?
  • Can we command a higher price?
Sequence of Initiatives

Although the use of the Action Team is fundamental to the project, the Implementation Phase is built upon a sequential series of initiatives coordinated by the SCS Engagement Manager. These initiatives are as follows:

  1. Communication. Employees become anxious relative to change. The development of a communications plan insures that they receive a clear message regarding the project’s goals, objectives, and timeframes. SCS depends on management to build excitement and passion for the work, and frequently recommends a series of Town Hall Meetings or forums as well as other published or intranet updates.
  2. Validation & Project Planning. SCS has an immediate need to validate the findings of the Opportunity Assessment through further data analysis and additional and/or expanded interviews. Furthermore, the Engagement Manager prepares a detailed Project Plan at the project start to identify all activities to be performed and their timing.
  3. Analysis & Design. This is the initiative where the Action Team becomes involved. Lead by an SCS Consultant and a bank Co-Chair, the team carefully examines all elements of the lending and loan servicing processes and fee income sources:
    1. Loan Origination – For each line of business, the steps, forms, policies, loan authorities, technology and accountabilities are considered. The goal is to maximize efficiency and turnaround while minimizing credit risk and ensuring compliance.
    2. Loan Servicing – All post-closing functions across all lines of business are examined. The objective is to house all post-closing responsibilities within a separate department in order to allow loan origination personnel to focus on production. The assessment focuses on loan boarding/set-up, exception review and tracking, collateral safekeeping and release.
    3. Technology – Since technology can have a significant impact on efficiency, current and alternative tools are examined. More often than not, core systems are not fully leveraged or configured to provide the information management needs nor do they eliminate the flow of paper. Application processing solutions, document imaging, loan pricing/profitability software, and web-based services are evaluated relative to the benefits that can be anticipated by their use.
    4. Organizational Design & Staffing Models – Once the processes and accountabilities are defined, SCS designs organizational charts for all impacted lending and credit functions with the goal of preserving needed checks and balances. In addition, SCS also prepares staffing models tailored to the institution’s needs to assist in determining adequate staffing levels. These models remain with the client.
    5. Fees and Cost Avoidance Opportunities – Non-interest income is explored from a number of angles. Initially, this involves an examination of the current fees charged including both origination and servicing fees. This assessment determines whether current fees are adequate and how well the bank is collecting them. Very often the waiver rates and collection percentages are below standard for high performing banks. Secondly, the examination also determines whether new fees should be established or some processing or third-party costs can be avoided or passed along to the customer.
  4. Implementation. Even the best conceived ideas can fall flat or create problems if implementation planning is not addressed. Many recommendations simply can not be completed in a vacuum, but must be considered within the context of larger initiatives. As a result, detailed implementation plans are developed by sub-committees of the Action Team to define all tasks, contingencies, timeframes and accountabilities. This detail serves as a road map for monitoring progress toward full implementation.
  5. Internalization. Once the project work has been implemented, the work of the Action Team should not end. Rather, the team should continue to meet on a pre-defined basis to continue the change examination process. Nothing is static, and continuing analysis is required to stay ahead of the competition. If SCS is successful, we have instilled a mindset of continuous improvement within the bank. As Will Rogers once said, “Even if you are on the right track, you’ll get run over if you are just sitting there”.

About the Author

William (Bill) D. Eavenson
Engagement Manager, Sheshunoff Consulting + Solutions
Bill Eavenson has over 29 years of experience in the financial services industry working in banking as well as consulting.  His consulting work focuses principally on lending and credit. He is particularly knowledgeable in the areas of loan origination and servicing, having worked in all lines of business. He routinely assists clients in finding operational solutions and improving profitability through reengineering, automation, and revenue enhancement.

Bill has managed revenue enhancement projects as well as process improvement engagements at a number of community banks, credit unions, and regional banks including Whitney National Bank. He has also completed research projects for such organizations as the Corporation for American Banking (CAB), a subsidiary of the ABA. In addition, Bill has been a subject matter expert and speaker at the firm’s Senior Lending Officer Affiliation Meeting.

Bill began his professional consulting career with the former firm of Deloitte Haskins & Sells. He also has worked with such firms as Bank Earnings International (BEI), American Management Systems (AMS), and Earnings Performance Group (EPG). During his 20+ years in consulting, he has held the positions of Senior Consultant, National Sales Manager, Engagement Manager, and Delivery Manager. Bill holds an M.B.A. from Vanderbilt University, a M.A. from Bowling Green State University, and a B.A. from Westminster College.