Bank Culture – Creating Better Options

A common narrative with community bankers is this view that their options are limited. A challenge is often presented with just two options – make the loan or lose the loan, agree to the customer demands or not or comply with the regulators or not. When viewed this way, bankers set themselves up for a sub-optimal outcome as they turn a tactical decision into a self-created conundrum. To increase performance, banks need to realize that there are always more than two choices.

Getting Back To Brainstorming

When bankers narrow down the realm of possibilities they debate the pros and cons of the two alternatives instead of taking the extra effort to analyze other scenarios. When is the last time your bank convened 2-5 people to brainstorm a problem? A classic hallmark of a higher performance banking team is an operational cadence that includes frequent brainstorming. While every challenge doesn’t merit the time of brainstorming, we propose today that it should happen more often than it does.

It Happened To Us – Case Study

Last week a lender was faced with an ultimatum from a current lending-only customer that we needed to match no fee, 10-year / 25-year amortizing pricing on a loan from a large national bank that was at a 4.10% fixed rate. The risk-adjusted return on this loan was 10%, or below our 17% relationship target. The loan was presented with only two options: 1) Match the pricing, or 2) Lose the customer.

However, after 15 minutes of brainstorming, we arrived at the following options:

• Bring their $830k of deposits over to CenterState and we would drop their rate to 3.99% fixed
• Use our international services capabilities, as they have no love for their current provider
• Provide us a first right of refusal on their next loan
• Provide us 2 like-company referrals (the CEO was a member of Vistage) and was well positioned to do this
• Increase their maturity to 13.5 years
• Add an unencumbered parcel to reduce our risk that we would release in year 4
• Add tiered pricing that starts at 3.50% fixed that then increases to 4.00% in year 3 and 4.15% in year 5

Had we put another 15 minutes into it, we could have come up with another 3+ alternatives. In each alternative, our bank would have received a near-17% risk-adjusted ROE. There was also the possibility that we just could have done a better job at selling the capabilities and service of our bank.

Regardless, of the alternatives, here is the rub – the borrower liked each alternative and was ready to not only do each one but was willing to combine several, the result of which would equate to a loan closer to a 19% ROE.  The borrower commented that they had never been presented or even considered that some of these alternatives were important to us. 

Putting It Into Action

Problem-solving and insight often only comes from opening your mind to multiple options. Creating process pathways where team members feel comfortable with enlisting the brainpower of others is a cultural change that banks should consider developing. The same goes for practicing the art of brainstorming so that the process can be made more efficient.

Lending is just one area where creating multiple options can help. New product development, technology selection, strategy, deposit pricing and a million of other disciplines in banking could benefit.

Creating a brainstorming process at your bank not only helps arrive at more optimal outcomes but helps train staff to better leverage the collective resources of your institution. The added benefit is that most employees would feel more valued being included in more decisions and would welcome not only the challenge of solving varied problems but would garner greater job satisfaction by knowing that they are directly impacting the bottom line.

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CenterState Bank is a $5B community bank in Florida experimenting their way on a journey to be a $10B top performing institution. CenterState has one of the largest correspondent bank networks in the banking industry and makes its data, policies, vendor analysis, products and thoughts available to any institution that wants to take the journey with us.