Sunny Skies and Fighting Alligators

I had a wonderful time reconnecting with our customers in Denver in early May. At the sold-out Regional Training event, we unveiled one of our largest and lengthiest development projects to date. Shortly after the conference, we officially announced the release of Version 19.0 which incorporated a number of new and important enhancements focused on credit analysis of commercial loans.

In addition to credit analysis enhancements, our equally important mission for the future is improving our ability to integrate with 3rd party vendor solutions designed to extend the Square 1 Credit Suite into supporting hot button areas of ALLL-CECL (ALLL) and Portfolio Stress Testing (PST). Each of these areas are currently on the minds of our customers in order to comply with FASB changes and regulatory demands. ALLL and PST each require large sets of loan and collateral type data to drive calculations and modeling.

Most of you are scrambling to find or locate data, sometimes located in multiple systems or not at all. Did you know that Square 1 Credit Suite, as an extension of your core, is the likely the single largest repository of customer, loan and collateral data in your institution? We have learned in 20 years of business to try not to be jack of all trades and master of none. This is why we have determined to integrate and partner for ALLL and PST.

We finalized our PST vendor selection with Young & Associates, Inc. to build an extract of data to drive the PST model they already have. It’s a user friendly excel based model that we found works well for our targeted community sized institutions. The PST model focus is on Commercial and CRE loan stress testing. The PST interface is planned for release in October 2017. We are in the final stages of ALLL vendor and partner selection and currently have a target date of June 2018 when we will have an integration with a 3rd party vendor partner to help drive ALLL calculations that meet CECL model requirements.

Are you using the Square 1 Credit Suite as it was designed and intended? As I visit with my customers from time to time, most of you are not aware of the fact the system was designed for total loan portfolio management. It’s not just for financial spreads or document tracking which is where most of our customers are focused. As the founder of the company and the Square 1 Credit Suite, I have had to get used to the fact that few will see or remember that the system was designed to be your platform for not just underwriting but all loan portfolio management- including collections and workout monitoring and reporting, loan and board reporting and so much more.

I think the reason this gets lost is that most users are in their own silo of responsibility or expertise with a singular focus. However, I do challenge all Sr. loan or credit officers to understand the bigger picture and find ways to utilize more of the system. Contact our Service Dept. to schedule a system utilization review. We would be happy to discuss this with you and coordinate additional training or provide additional resources to help facilitate your goals on system utilization.

As both a bank software CEO and consultant, my mission is to manage and control credit quality and credit risk management. I am always looking at the economic horizon for the next storm clouds. Certainly, there is stress in the Ag sector due to low commodity prices and a number of our customers are reacting to those risks. Ag aside, it’s been a pretty even and steady recovery in business and commercial real estate on a national level since 2008. What will trigger the next recession – war, failed bank, market correction? I am not certain other than we have had a long run of improving conditions without a correction and that always makes me nervous as I believe everything is cyclical.

From both my bank consulting practice and software business, I have been visiting with prospective customers still running on cobbled together policies or systems. In addition, the spike in the last 12 months in complacency and lack of urgency by bankers has never been higher since 2008. This is very concerning.

Are you in that boat? I hope not. Now is not the time to relax your loan policy and underwriting standards. I see stretching on terms to obtain or keep loan volume. I recommend that you use these good economic times to analyze your existing policies and internal underwriting standards. It is important to annually conduct a complete review your credit risk management processes and systems in an effort to further solidify your institutions credit risk management, particularly while we enjoy relatively quiet times.

For our prospects that read this article and as you consider a system such as the Square 1 Credit Suite, I applaud you for taking the initiative now while the times are good, to invest both time and money to reviewing and improving all policies, procedures, process and systems before the financial storm clouds arrive. However, there are too many, due to complacency and lack of urgency, who are simply taking the path of least resistance and kicking the can down the road to another time because things are working just fine.

I have heard this general response in the last year at an increasing rate. I can understand why, with record earnings and little to no problem loans, where is the urgency? But I am reminded of the past two major economic downturns when problem loans and examiners scrutiny escalated, then the excuse became – ‘we don’t have time to do the right things as we are fighting alligators’.

In conclusion, quit making excuses if you are in the camp (a large and growing camp) that will not invest or take the time to improve your credit risk management policies, procedures or systems. Now is the time even if the skies are sunny, you can worry about it another day, or because you are up to your elbows fighting alligators. There is always a reason no matter the conditions faced.

We are truly grateful to be your vendor and we will never be content to sit on our application without investing in the future of the product that you have licensed. The future is here and we are ready to continue to serve your growing needs for commercial and agricultural lending, loan portfolio, and credit risk management.

Thank you,

Duane Lankard
Suntell CEO

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