Improving loan officer productivity

Terry W. Anderson

How often have you taken part in or overheard conversations that touch on the weighty issue of loan officer productivity? This concern for both lenders and managers has not diminished since this article was first published. These authors conducted an informal survey of their colleagues and discovered some very real examples of techniques to improve productivity on several levels. As always, much of this could have been said yesterday but was, in fact, said a dozen years ago.

The atmosphere today in banking is more competitive than ever; margins are tighter; the competition is tougher. The result is that many lending institutions have changed or enhanced the traditional role of the commercial lender so that now he or she is responsible for not only making loans but also for acquiring and developing profitable customer relationships by hooking other business products.

Changing Roles

This change in roles has resulted in myriad new titles to describe that position--from commercial account officer to customer relationship manager. For ease of reference, we use the terms account officer, loan officer, and lender throughout this article. Despite these well-thought-out changes in roles, frustration has increased about the internal workings behind the lending process. Internal processes need to be examined so that account officers can minimize the time spent on peripheral activities and concentrate on developing the customer base efficiently.

More than ever, the account officer is in need of efficient, productive systems to allow him or her to tackle the challenges of bringing additional business into the bank without harming existing customer relationships.

Information Gathered on Improving Productivity

RMA asked a group of bankers representing both the lending and support side of commercial lending to determine what, if anything, has been done about this issue. As we talked with bankers in various parts of the country, it became clear that many institutions have tried, and quite often discontinued, using productivity measurement techniques. The theory was that maintaining records on the number of calls made or other similar items was not really indicative of the quality of work performed or the resulting business for the bank. Conversations revealed that there is far greater interest in finding ideas on how to improve the productivity.

Back Office Staff

An interesting sidelight, which is also key to the lending process, was that the bank's back office staff could play a large role in improving productivity. Often, a perception builds either that the quality of support is inadequate or that back office staff are uncooperative or unable to handle their assignments competently. In fact, that usually is not the case.

But because of incomplete communication or insufficient training, the rapport between the lending and back office groups can deteriorate, which eventually results in inefficiencies for both groups. Although the issue of employee relations was not the point of our conversations, it was raised often enough to indicate a commonality in the problem, making it worthy of further consideration for any institution attempting to improve account officer productivity.

Variation in Techniques

Techniques to improve productivity vary greatly. Although our article provides specific examples, it is the nature of the technique that is important. By looking at the type of changes undertaken, an organization may be able to establish some efficient systems through simple changes.

Report consolidation. One institution required four separate memos--classification, delinquency, nonaccrual, and charge-off status--for the same customer. Each report, however, required such similar information as the customer's name, address, nature of business, note number, loan amount, terms, and repayment history. The bank decided to combine all four memos into one. The difference in the memo's use is simply indicated at the top, where a choice of purpose (delinquent, nonperforming, and so forth) is provided. The officer indicates the appropriate use or uses by a checkmark on the form and then distributes the memo based on the purpose(s).

Changing procedures. The support department at another institution automatically notified insurance agents one week prior to the expiration of a hazard insurance policy. If no response was received from the insurance agent within a few weeks, the account officer was notified by exception notice for proper follow-up. Although more than half the renewals were obtained without officer involvement, a significant quantity of work was generated for the officer on those policies not renewed. A solution was for support department personnel to prepare a second letter to the insurance agent in the same amount of time it took to prepare an exception form for the account officer. By generating the follow-up letter directly to the insurance company rather than involving the lender, the support department has enhanced lender productivity.

Another institution tackled the insurance issue from a different perspective. Its loans are graded on a scale of 1-7, the first four grades of which represent varying degrees of passing quality. A study of the loss history on their 1-4 graded loans revealed that it simply was not worth the time and expense to follow up on and obtain insurance coverage. Therefore, it is no longer required.

There are, of course, exceptions: Loans graded 5-7 and all real estate loans. Accordingly, all borrowers are required to have insurance initially. However, after the initial loan is made, risk-rated 1-4 borrowers are excluded from verifying insurance annually. Insurance is still required, but it is presumed to be in place unless the bank is notified by the insurance company that the policy has expired.

Another bank now encourages companies that borrow regularly for working capital purposes to apply for a specific line of credit based on a grid note. Once this line has been granted, borrowers have access to their lines by contacting the commercial note department directly rather than their lender. The resulting efficiency has been noticed by both the bank's lenders and customers.

Correcting Procedures/Misunderstandings

Account officers at one institution were notified that a financing statement had expired after the five-year statute of limitations date had passed. This, of course, posed irritating problems and occurred because the loan accounting system did not have the information set up correctly. By adjusting the information on the system, the tardy notification problem was resolved.

Lenders at a large regional bank structured with regional note centers were receiving reports from the loan accounting system almost a week late. The reports were printed on Wednesday night, sent to the regional center on Thursday, and distributed Friday. Because of internal mail service, many lenders did not receive this information until Monday. To solve the problem, printers were placed in the regional centers, enabling the reports to be run off at the centers. The distribution process was shortened by one day, thus providing lenders with current information on a more timely basis.

Improving Communications

Credit applications at one bank were not consistently taken from endorsers and guarantors of loans because the task was viewed as burdensome. On investigation, it was revealed that many lenders had not realized this task was required by Regulation B. By providing this background information, lenders and customers were less resistant to providing application data.

Staff Realignment/Restructure

Another common and often useful approach is to restructure the staff and its job descriptions. At one midwestern bank, each account officer has an administrative assistant. The officer makes customer service decisions, sells other products, and is backed up in these tasks by departments that provide analytical and review support. The administrative assistant handles the documentation and follow-up activities, as well as the follow-up chores related to insurance needs, past-due loan reports, past-due financial statements, etc. This person also helps put presentation sheets together for loans being shown to loan committees.

Another bank has created teams of account executives, account officers, and administrative assistants. The account executive has the most experience and is expected to spend 70% of his or her time servicing and selling to customers. The account officer is the backup. He or she "works the credit," that is, prepares documentation, undertakes the analysis, determines the credit structure, and along with the account executive presents the credit to committee. These two are assisted on a more clerical level by the administrative assistant, who handles such tasks as documentation follow-up and the details of the credit presentation sheet.

Inherent in changes such as the two just mentioned is the need for all staff members to be fully trained in their new responsibilities. While the obvious intent of these restructurings is to relieve the account executive or account officer of unnecessary duties, it cannot work well if the incumbents in the supporting roles are not sufficiently trained. None of those efficiencies will occur if lenders spend all their time following up on the support of staff's work.

How to Identify Needed Changes

Although management consultants certainly can help a bank identify problems, perhaps the method used by one southeastern bank would be just as useful. That bank was conducting leadership training programs for members of middle management. As part of the curriculum, the students had to develop a study to demonstrate their newly acquired leadership skills. Inefficiencies with some of the bank's systems, combined with observations by lenders about frustrating situations, led the program lenders to comment that lender productivity issues could be one area in which to practice their leadership.

The result was a committee of representatives from each major area that could affect the lending process. Senior management made a commitment to assist in organizing the task force and to implement the task force's recommendations.

At initial meetings, a list of concerns and needs was developed. This was followed by a written survey distributed among the various commercial departments of the bank. The task force then collectively studied the results, categorized the issues by number of references to a specific problem, and then tackled the creation of solutions for many of the problems.

While undertaking these tasks, the task force kept in mind the need to review all forms, procedures, and reports as well as the specific duties of an account officer, focusing on what that individual should be doing and identifying which tasks could be delegated. The team looked at methods to improve internal communication and tried to reduce or eliminate the sources of frustrations and poor attitudes that can abound when inefficiencies occur on a regular basis.

The result of this in-house team approach was that the lenders were able, after changes were made, to spend more time on developing profitable customer relationships and implementing the proper credit structure. Many routine tasks that did not require the lender's direct attention are now handled by specified support persons or groups.

Best of all, a spirit of teamwork has developed between the lenders and the back office staff. Each now better understands the other's job and they all find it easier to keep in mind that they have a common goal of exceptional customer service. These new attitudes, combined with the reduced number and frequency of reports and related paperwork, have resulted in greater efficiencies at this institution.

Conclusion

Account officer productivity, like the loan process itself, does not reflect just one person's activity but rather that of an entire group of related functions. Improvements in productivity also are improvements to the support staff's role and to the ultimate profitability of the bank.

See below and next page for author perspectives, 12 years after!

RELATED ARTICLE: Ah, Those Were the Days...

Some things never change--the average commercial loan is still around $1 million, the typical small business loan is $100,000, due diligence never goes out of style, and there are never enough hours in a day. But others do, and the effect of technology over the past dozen years since this article was written is nothing short of phenomenal.

A walk down Memory Lane does not necessarily fill bankers with nostalgia. Consider that in 1990:

* The concept of a loan application was generally linked only to consumers, who anxiously waited for days or even weeks to hear if they'd been approved.

* Commercial loan requests, regardless of size, were subjected to an evaluation of purpose and repayment ability to create viable loan structures. Usually, this was a lender's task, and the process could take days.

* Major banks had spreadsheets on their mainframe systems, and many a young banker in a smaller institution still learned to spread a statement by hand, writing the numbers on a preprinted form. A mid-sized company with a basic financial statement could take a lender up to half a day to manually spread and run basic ratios.

* Huge manuals filled with preprinted forms, each with its own set of instructions on its individual purpose and type of loan for which It should be used. Most of the time, we used the right forms.

* Many hands and minds were Involved In the booking and ongoing maintenance of a loan. Basic loan information was repeatedly entered into a variety of systems to track collateral, payments, loan terms, and so forth. No wonder we had bankers' hours--we all suffered from writer's cramp.

Yes, those were the good old days. Today, it's conceivable to pick up a dozen eggs and a few thousand dollars in the same trip. Small business loans are routinely scored in minutes, using specialized software, allowing lenders to focus on larger credits. Banks use predetermined checklists of appropriate documents and, even more important, doc prep software designed to print correct forms as needed. Errors from incorrect language and usage are history, and a tree near you is pleased to know there's no more stock of outdated forms lying around. Front-end software lets us enter basic loan data once, eliminating the potential for missing and incorrect input. Data is accessible not only to those handling collateral but also the loan accounting system.

So why aren't we sitting around with our feet up? Though it's still hard to definitively track loan officer productivity, Kempton Shields [SunTrust Bank] recently observed, "We must be more productive now, since loans, deposits, and fees continue to grow but employees are fewer."

Productivity Thoughts: An Update

Over the past 12 years, loan officers have been expected to spend mote and more time on the sales process. Meanwhile, the product array continues to expand--loans and deposits have been joined by trust services; personal mortgages and other consumer products; mutual funds, stocks, and capital market products; and on across the financial services spectrum. Loan officers are now responsible for cross-selling these products, either directly or through referral.

We're not thrown into this without help, of course. Technology and automation continue to provide newer computer systems, improved internal information availability, enhanced Internet uses, voicemail, e-mail, and more. In short, we're pretty well equipped to deliver the productivity expected of us.

However, many of the keys to success are the same as they were years ago; opening the locks has just become more complex. Let's look at three of these keys: proper training/implementation practices, excellent communication skills, and teamwork.

Relationship managers have had to learn numerous additional software systems since 1990, including automated credit approval packages; sales calls; loan documentation exceptions; client profitability; risk ratings; related products in trust, consumer, or mortgage; e-mail, voicemail, and so forth. Success is not ensured just by the initial training; rather, it comes as we figure out the detailed nuances and shortcuts that come from everyday use. Productive folks also spend time exchanging good ideas (shortcuts) with others, so that everyone in the office can benefit from these successes. Thus, improved productivity involves continual interaction with others.

As technology changes, communication skills become ever more critical. Attentive listening, to fully understand others, requires us to think and reflect before responding. Often, we need to ask clarifying questions before responding. Choosing the right words in our response that demonstrate we understand what was said is important, particularly if we have a different point of view. E-mail and voicemail are necessary and valuable, but if a conversation or discussion is needed, an in-person meeting or phone call can avoid miscommunication. Differences of opinion are seldom rectified by e-mail.

The most important key is teamwork. As the loan officer's job expands to cover all the client's financial needs, and as computer systems grow ever more specialized to satisfy complex financial services for each client, it is imperative that the relationship manager be able to rely on numerous other staff members to provide high-quality client service. This should not mean that the relationship manager is dependent on other employees (obviously, neither can the RM be independent). It does mean that interdependence and working together as a team are more critical today. The relationship manager must be proactive and show the leadership necessary to motivate numerous people to help satisfy the client's needs. This process is made more difficult when teamwork must be accomplished within a group of employees who report to different managers or who are in different departments or even cities within the bank. The entire team must be in accord with coordinated planning, decision making, and prioritization of key iss ues. A winning attitude is needed, but even more important is effective communication within the group to diagnose the best solution for the client and the bank.

Being a productive loan officer today still requires good credit sense, product knowledge, and sales skills. However, these skills must now be complemented by the ability to properly use new technology, communicate well, and work interdependently with coworkers. Both the challenges and the rewards can be great.

OVERHEARD...AT RMA CHAPTER MEETINGS: ADVICE FROM THE DEVIL

The Philadelphia Chapter packed the house at a joint meeting with the Turnaround Management Association--"Hard Lessons Expensively Learned." Panelist Bob Turnipseed, regional VP, FleetBoston, provided "35 guaranteed ways to get into trouble when lending money.

1. Work alone. With all your knowledge, skills, and ingenuity you can save the borrower and his business. In you, this is doughty individualism; in others, it's unmitigated egotism.

2. Procrastinate. If you wait long enough, any problem will go away or solve itself. This is wishful thinking for some, but there are so many more important things that call for your attention.

3. Play it by ear. There's no point in a planned attack on the problems at hand. Nothing works out perfectly, anyway. Besides, there's always someone to help you out afterwards.

4. Be the good guy. Always give in to your customers demands, no matter how unreasonable or unrealistic. It may be against your better judgment, but in the banking business you can't afford to offend anyone.

5. Accept customer statements at face value. Remember that credit is based on mutual trust. How can anyone doubt the borrower when it's obvious he's so sincere?

6. Join the full-service club. Anything other banks can do, you can do better. The fact that you don't know what you're doing doesn't count. The name of the game is beating the competition.

7. Jump on command. Fast action is the hallmark of modern banking. You can consider the risks after you've approved the loan.

8. Be patient. If the borrower remains in business long enough, you may receive adequate deposit balances and sufficient income from the relationship to justify your present risk and efforts.

9. Don't impose your standards on others. A few third-rate accountants do improve with age. And verifying inventory is so time-consuming and expensive when all you have to show for it is a full certificate.

10. Stick to the figures when making your loan decisions. If the caliber of management is less than desirable, you can always install a good consultant to straighten everything out.

11. Specialize. Concentrate on loans, credits, and corporate finance. You can't afford to clog up your mind with economics, investments, or industrial trends. That's why the bank has experts.

12. Place your faith in collected balances and earnings from a loan relationship. These are more important than risk analysis. After all, there's always a friendly finance company anxious to bail you out if your borrower gets into trouble.

13. Never worry about the real purpose behind a loan request. The corporate treasurer may be toying with the truth, but that's not your concern. Spend your time figuring out the repayment source. That's really all that counts.

14. Settle for what you've got. You can never know all the facts in any borrowing situation. That's known as making decisions under conditions of uncertainty. Accept it as a way of executive life. It's very fashionable these days.

15. Stay at your desk. No customer can ever accuse you of not being available. There's no need to go out and check on any assets pledged to you in this day and age. The Uniform Commercial Code was designed specifically to protect you.

16. Get the loan on the books immediately. You can pick up any loose ends on a follow-up basis. When you take good care of people, they won't let you down.

17. Get the facts on paper in your spare time. Tomorrow or the day after will do just fine. And even if those facts, figures, observations, and conclusions never get written down, they're locked in your bear-trap mind.

18. Remain flexible. Borrowing customers are entitled to change their minds. If you insist that your borrowers keep promises, honor commitments, and meet debt schedules, you'll wind up with the reputation of being a hardnose. And someone might not love you anymore.

19. When trouble comes, move with caution and deliberation. It takes a good deal of time to pull together everything you need to know. Things need to be well thought out before you act. You don't want to be known as a panic-button-pusher.

20. Don't put much effort into diagnosing renewal loans. This costs time and money. If it wasn't a good loan originally, you certainly wouldn't have put it on the books in the first place.

21. Confine your relationship with your borrower to loan and credit problems. Leave criticism of the way he's running his business to others. That's why he has a CPA and/or management consultant.

22. Limit contacts with your borrower to getting the loan on the books and paid at maturity. Things will take care of themselves between times. And there's not much you can do until maturity, anyway.

23. Don't pester your borrower with minor details, such as insurance coverage. If he's smart enough to borrow money from you, he'll maintain full and adequate coverage and ensure all premiums are paid promptly.

24. Don't let a fuzzy picture of your borrower's operation keep you from lending. Things have a way of becoming clear with the passage of time. Before the loan is retired, you'll learn a lot that you don't know now.

25. Pick your person in the borrowing firm carefully. Rely completely on the one person in whom you have trust and confidence. He'll keep you informed. As the man goes, so goes his company. And your bank.

26. Honor your commitments. If you promised to take care of the customer's borrowing needs, do it. It's less important that they've soared out of proportion or the statement has deteriorated a little than it is to maintain your personal reputation.

27. Think positively. Emphasize the borrower's strong points in reaching your decisions. His weaknesses will be corrected in time.

28. Put your faith in the future. The past and present aren't important. Rely on future sales, future profits, future cash flow. Hope is the mother of all; tomorrow will be better. Didn't your customer just tell you that?

29. Develop a legalistic mind and put your faith in documents. We pay lawyers good money. What more could you ask for?

30. Keep your costs well in mind. Remember that checking and verifying with other banks, trade suppliers, credit agencies, and public authorities is expensive. Little savings do add up.

31. Go with the winners. Zero in on growth, especially in sales. The more the borrower sells, the more he'll need to borrow. That's how you build dollar outstandings and interest income. Senior management will note that.

32. Don't worry about taxes. You can always loan extra money.

33. Determine that one repayment source and commit yourself. If it doesn't work out when the time comes to collect, you can think up a good alternative. And if you can't, that's why we hire collection lawyers.

34. Don't tie your borrower up too tightly. He needs freedom to move his assets in and out of his business in the normal changing course of operations. If the situation gets sticky later, you can get control of assets then.

35. Have confidence in yourself. The bank's loan policies, rules, and procedures are only guidelines. They can't always apply to a specific problem. After all, the keys to success are imagination and innovation.

Originally published in the September 1990 issue of The Journal of Commercial Bank Lending, published by Robert Morris Associates. Anderson now a vice president with AVI Systems, Kansas City, Missouri (in 1990, Norwest Bank North Dakota); Shields is now SVP at Sun Trust Bank, Richamond, Virginia (in 1990, Sovran Bank, N.A., Richmond, Virginia); Tusler is now product marketing manager at Automated Financial Systems, Exton, Pennsylvania (in 1990, director of RMA national's Credit Division).

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