Independent Banker - January 2023 - 32

PORTFOLIO
during the high times to sustain us
through the low times. Changes we
would make in a downturn would be
more related to industries that may
be harder hit and not adding more
exposure in those areas.
Justin R.
Proctor
downturns or unforeseen events? Is
the collateral value going to hold up
in a downturn? What it is valued at
today is probably decreasing. How
does that affect the security position
of the loan? Are there financials
of good quality that the bank can
rely on? Touch base with existing
customers. Go visit them. Talk to
them. Ask lots of questions. Ask
what the customer needs to continue
to succeed.
Duffy: When a customer is
struggling, bankers need to work
with them to come up with a
mutually beneficial solution. In
the last recession, we found that
when we worked out solutions with
our customers, we did not incur
losses or we reduced our losses in
comparison with when the situation
was adversarial. We also found that
the sooner we tackled a problem, the
outcomes worked out better for the
bank and the customer.
Proctor: Communication is vital
during a recession with customers
who are struggling with revenue and
cash flow issues. Being able to have
conversations early not only helps
credit issues from escalating but also
provides reassurance that the bank
will be with their business every
step of the way. A recession is an
opportunity to gain customers for life
by helping them through an economic
hardship and avoiding foreclosure.
Has your bank made any specific
changes regarding lending,
credit analysis or underwriting in
anticipation of a more challenging
economic climate in 2023?
Duffy: We are stricter on our
coverage ratio policy on commercial
real estate loans due to the increasing
rate environment, which in turn
will ensure that borrowers can
weather higher monthly payments.
We have also increased our stresstesting
scenarios to a higher level to
understand what could happen in a
worsening economy.
Proctor: We're ensuring that our
lending staff understands the lending
environment we are entering into
and avoiding any unnecessary credit
risk. We're also emphasizing that
exceptions to loan policy should be
limited and not sacrifice loan quality
for loan growth.
Austin: We feel very good about
our analysis and underwriting
processes. They have to be as strong
Community banks work hard
to build strong relationships
with their customers. What
conversations should lenders be
having with customers who may
be struggling?
Proctor: Conversations with
struggling customers should
emphasize that we, the lender, are
here to help as much as we possibly
can during the lean economic times.
Compassion for the customer's
situation is a positive. However,
it is also important to emphasize
the expectations of quality
communication between both parties.
Austin: The key is the
conversation. Be proactive in
reaching out to existing customers,
especially those who may have
struggled in the past. We can't wait
for our customers to come to us with
a problem. By then, it is probably
too late. Does the customer have any
cash reserves? How can they conserve
cash? Where can they save money?
How can they become more efficient?
Do they have good financials or
financial advisors and CPAs who can
help guide them?
Duffy: Lenders should sit down
with their borrowers and find out
what issues are keeping them up at
night and also understand how their
company is being affected by the
economy. They also need to ask their
borrowers what the bank can do to
help and remind them that the bank
is there to help and to communicate
any issues early.
Beth Mattson-Teig is a writer
in Minnesota.
32 // ICBA Independent Banker // January 2023
Independent Banker - January 2023

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