Time Cures All Ills (Well Almost)
Have you ever been really sick? Remember how weak you felt – so weak that you just thought you could never get out of bed again. The doctor gave you medicine, but it only seemed to make things worse. Your head hurt worse and your stomach felt like it was going to fall out or maybe come back up. You thought you were going to have to die to feel better. I think most of us have been there. You see the same thing in the economy and in individual banks. If you have been in banking long enough, you have seen it too!
What do we do to prevent this? Just like staying healthy, you need a good diet, vitamins and exercise! So how does that translate into banking or the economy? Well a good diet is like a good loan strategy. You can’t live on one food group only (Don’t tell my wife you can’t live on chocolate alone!). You need diversity in your diet just like you need diversity in your income portfolio. A lot of bankers tried to concentrate on commercial real estate (CRE) only! If you lived in an area with no real estate bubble, you may have survived with little damage, but your doctor (the regulators) are probably really on your case. I am going to say to my friends in the oil producing areas that you did not have a bubble before, but you sure are developing one now. Real Estate prices have doubled in many areas and like all good things, this too will end. How many times have we heard the reasons for this boom to continue and never end? I have been in and around the oil and gas economy for over 35 years and the one thing I can tell you for certainty is that this boom too shall turn into a bust!
That brings us to the other things you have to do to stay healthy. Exercise, for example, translates into the practice of planning, testing and good old solid monitoring of the economy and the health of your area of operations and your most important customers. You need to do your homework regularly to see how the economy is doing. Don’t just listen to the optimists. Listen to the naysayers. See what they are seeing on the horizon and plan for these scenarios. I can tell you that if you regularly plan for the worst and it does not happen you will sail smoothly through life, but if the worst does happen and you were not prepared, then you probably will be struggling with the rest of the crowd, not sailing above it. Think of the HMS Titanic. Everybody knew that the Titanic could not be sunk, so why bother putting all those lifeboats on the deck or having lifeboat drills. Boy, were they wrong! Don’t be wrong. Plan ahead. Diversify your portfolio so that if one area goes bad, the whole portfolio will not follow. Do your follow up monitoring of existing loan customers. You might be surprised that in the process you may discover they have additional needs that can help your bank prosper! Also make sure that key industries in your area of operation have a good future. That often times is much easier said than done. The last bit of exercise you need to be aware of is that don’t try things you are not prepared for. Don’t try to do that gymnastics move that you have not done before. Don’t try a big loan in an area or business line that you are not comfortable doing. Let’s take, for example, a cattle loan by a big city banker. He makes big loans every day and how hard can a cattle loan be? Well, if you are not comfortable doing a cattle inspection and don’t know how to notify the auctions barns of your lien position, you might want to pass on that cattle loan. Stick to the areas you have worked in before. If you start a new area, then start small and ask someone who has done that before. They don’t have to be from your bank. You probably have plenty of friends from classes you have taken that will probably help you get through the basics. Go to a school for the loan type if you want this to be a new market. You don’t want to have to learn how to deworm the herd when the rancher decides it is cheaper to give them to you!
Now, let’s talk about those vitamins. Do you find that you feel better when you take your vitamins than when you don’t? I find that to be true almost always. So how does a bank or a local economy take its vitamins? Well this is very closely related to the exercise we were talking about earlier. Grow your capital and your reserves so that you have more than you really ever anticipate needing. It is a great feeling when your regulator tells you that you have too much in reserves. They are not doing this much in today’s economy, but those who went into the slump with extra are not getting beat up by their regulators as much as others. Again, this goes back to being prepared. I guess I will never get too far from my scouting days!
You just need to remember that the most important thing in banking is to be prepared! You don’t have to walk the little lady across the street (although that would be nice and great for the banks reputation, but that is a topic for another day!) Just remember that many people out there want your money and they know they don’t have to use a gun to get it. It is much easier to cheat you out of it. Also a quick dip in the local economy can take a big bite out of your portfolio. Just remember to eat right, get your exercise and take your vitamins!
If you have a comment or stories about what you do in your bank to develop diversity of your portfolio, let me know. You can comment at www.thebankersbroker.com or you can call or e-mail me. That is John Scott at (432) 268-3056 or John@thebankersbroker.com. I would love to hear from you. If I can help you with training an associate or marketing your bank or helping you buy a bank call me. I am here to help you!