2018 Conference

Chris Scislowic:    Chris Scislowicz from Accenture. I run North America's credit practice, overseeing all the work we do in commercial retail and mortgage lending. I've spent the vast majority of my 20 plus career with Accenture focused on lending; and, have the distinguished pleasure, today, of moderating a panel with these two gentlemen here on my left. So, I'll let them introduce themselves. 
Derek Thornton:    I'm Derek Thornton from People's Bank up in Bellingham, Washington. I'll tell you a little bit about our bank and about myself because we kind of have a unique viewpoint. We are family held, privately run. Have been for almost 100 years now. We're 1.6 billion in assets. We kind of have a lot of Ag., a lot of rural market, as well as go down to Seattle and get a lot of Metro, commercial real estate. That whole thing. So, we kind of have a wide gambit, as well as some of our Ag. is diverse. Some of it's crops. Some of it's dairy. Some of it's Maritime lending. So, you think of Deadliest Catch, those guys.

Chris Scislowic:    Yeah.

Derek Thornton:    We deal with those guys. For better or worse. We have a really different market, in that we can –
Chris Scislowic:    You can have them, by the way. 

Derek Thornton:    Insurance. Insurance is an important thing in that industry. Our bank is unique in that perspective, in that being [inaudible 00:01:12] held and family run, is that the CEO is also majority shareholder. So he can walk in and say "Hey. You're doing something." And, we say, "Yes, sir. Yes, we are." It doesn't matter where it's efficient or not. So, we've got to find a way to work through all of that. 

My background is also unique in that I worked in retail for about seven years. I've worked in credit administration. I've worked in commercial lending. I've worked in small business lending; and now, I'm in finance for the last few years. So, I can understand when a lender says "Hey, this isn't gonna work. Or, this will work." And, I can also understand the credit [inaudible 00:01:38], but we've got to fit it in this box. I get to work with all of those viewpoints and try to make everyone play nice with each other. 

Derek Ragland:    Derek Ragland. President of Commercial Banking at Woodforest. Background for me. Joined three years ago, really to change our commercial banking. We had more of a community bank look and wanted to grow that. So, experiences for me before that … I spent 17 years at SunTrust in middle market banking, most of the time. And, business banking. Ran that for them the last four years that I was there for the U.S. Then joined HSBC for nine years. During that time was Global Head of Business Banking out of Hong Kong for a few years, and then Chief Operating Officer for Commercial Banking in the U.S. And, had the middle market team reporting to me at the same time.

So, a unique perspective also for us in that, have a bank that's been established for a long time … very much retail focused at Woodforest. And, had the opportunity to walk in and say "Knowing what I know at that time. Twenty five years in banking. What would I do differently? Knowing all the things we have to collect. How would we go about it, and how could we re-design an organization for, what I wanted to be, a very fast growing organization spread across the entire country. Where before, it was really just focused on Houston."

Chris Scislowic:    Great. Thank you, gentlemen. So, we are going to spend about the first 30 minutes or so with some prepared questions. More fireside chat format and save the last 15 or so for questions from the audience. So, let me maybe start at the beginning. What was it that was driving your need for change?

Derek Ragland:    I guess I'll add on to what I started there, a little bit, and go first. So, for Woodforest, at the time, it was about 4 billion dollars three years ago … a little over 4 billion. Really retail focused and commercial banking was in, I'd say Houston. But, it was the Houston. It was the Woodlands, which is 25 miles north of Houston. The reason I joined was, we had one line of business retail that made the vast majority of the money and really nothing else. So, what drove it was … 

I came in and the bank wanted to grow commercial banking in a different way than they ever had before. So, using kind of my experiences in the past, it is … I kind of had carte blanche. I don't care how we were doing it before. This is the way we want to do it going forward, and this is what we want to concentrate on doing forward. So, taking some business lines that we were in before and saying "We're not doing those. We're going to focus mainly on middle market lending across the county. Yes, we have some business banking and some small business banking kind of in the hometown where we are focused." 

But, what prompted us was that, we are going to grow commercial banking and do it in a way … with bankers from all over the country, and since we've opened offices in Las Angeles, Charlotte, Fort Lauderdale, Tampa, and then down into Houston, at the same time … So, if you're going to do that, how are you going to control bringing people in from all over the country? From all different banks across the country? Doing it their own process. They may be a thousand miles away from you. In my mind it was, "I have to get systems that are scalable. I have to get processes that are scalable, and that keep people in line, in the right way. And, make it more efficient for them." So, that's what prompted us to start.

Chris Scislowic:    Derek?

Derek Thornton:    Yeah. We got a very different … cause we are very small. We're not going to grow fast. We're six to eight percent a year. We're the most vanilla bank out there. We don't deal with … We're not doing mergers and acquisitions because we are family held. We're not looking to buy anybody else, and we're not looking to sell. We go, "Okay. If we're not going to acquire or be acquired, we can't grow that way. Our only other option is standard growth." Just growing to grow doesn't make you anymore efficient. Doesn't make you any better.

So, we looked at it and said, "We've got five different commercial lending groups. We're not spread over states. We're spread over 30 minute, 45 minute drives. But, how do we get that same culture and standardize everything?" Cause, I call ourselves a teenager bank. 500 million … You can do everything on a one off basis. We're starting to go where we can't do everything on a one off basis, because it's just too costly. 

So, what can we do to get better and become more efficient in our process? And also, standardize the process just for the better end user. From our customers perspective of, "I can walk into any commercial lender, and okay, I know I'm going to get the same pricing. I'm going to get the same idea." Instead, I walk in to you today and I get two and a half. I walk in to you tomorrow and it's three and a quarter. So, how can we standardize those things were the questions we were trying to answer. 

Chris Scislowic:    Okay. With those challenges in mind, then. How did you move forward? Maybe talk about your buying process. Your decision process. 

Derek Thornton:    Yeah. So, our commercial pricing was a sheet that said … On commercial real estate it's X percent margin over whatever the FHLB index is, and it's a range. But again, you come into one lender it can be one thing and another lender it's going to be different. 

So, the first thing we wanted to do was get a pricing model. Which is where we went into precision lending. We looked through several different pricing models and different options out there. One of them was probably more technically accurate. But, at the end of the day we're not trying to get accurate. What we're trying to do is make a different decision. Use it as a tool. 

Again, we have a lot of Ag. And, that perspective … what they'll tell you is it's all about the relationship. So, you can't come in and say "We've got to price this next deal at this without seeing the rest of the relationship." So, when we went through in making this decision we said if it doesn't have the relationship piece to it, we're not into it. 

That was where we looked at precision lender first and said, "Okay. Something simple we can do. Something that will be useful for us. But, it's going to take time." I think the thing that we've learned is that, pricing and all of this efficiency stuff, it's an evolution. It's not something you can change overnight. At least, for a bank our size. And, make it just happen and all of a sudden we are more efficient. You look back a year and a half, two years, and go, "Okay. We've improved in that area."

Derek Ragland:    For us, there are multiple things on, what was the buying decision. One is, how are we going to use the price? And, it made me cringe and probably you will, too. When I came in and asked, "How do we do our loan pricing?" It was, "We tell the client to go out and find the lowest rate they can. Come back. Tell us what that rate was, and then we give it to them." So, not a good pricing model. I knew I had to make a change and have an organization. It was not a sales organization before.

So, that was number one; and then, number two, our process for the lending side was just papers being sent back and forth and handed to each other. Everyone had a scanner on their desk. When I walked in I thought that was weird. Everyone was scanning every single paper and sending it back and forth to each other. So I knew holistically I needed to solve two things. If we are going to grow and be in multiple locations … and now we are about a 6 billion dollar bank.

But, if we were going to grow and do that … How could I set up processes that would enable that growth? Again, and control it. And, how could I change? We did a study of 130 banks across the country, similar size and characteristics of us back then – three years ago, and where were we? We were 130th out of 131 in pricing. So, knew that there was plenty of room to go up on that one. 

But, you can imagine bringing that in to an organization that has no pricing discipline whatsoever. And, it was all whatever someone said that day or whatever the client said was the lowest rate. I don't think we even verified what that lowest rate was at the time that was coming through. So, that was a dramatic change that was going. We looked at several options out there. 

I guess I had the benefit of working prior employer at HSBC. So, our in house model … That, frankly, was extremely painful and never gave you the answers to anything. And, I'd see people taking numbers out, putting numbers in. Trying to figure out if I have to get to this return what would it be? So, as we looked at many different models, I didn't want people wasting time trying to figure out the answer. Thus we see on precision lender, if you are below it gives you the answer … Add 27 more basis points or bring in half million dollar deposits or add this much in cash management.

I was actually trying to recruit one of my old bankers from HSBC over, and I had him in my office. I said, "Here, let me show you the new pricing model." And, I went through and he was like, "Ah." I'm like, "What? You don't like it?" He's like "No. All the time I wasted at HSBC with our in house model is killing me right now. And, how much more efficient it is."

Having that past experience, I kind of had in my mind what I wanted on both that and the lending process for the growth and the direction we were going to go. Really want to make sure our process was in great shape.

Derek Thornton:    Yeah, I'll add to that, too. Having been on the lending side of it is, it has to be user friendly for the lender or they won't use it. That's my experience. Lenders aren't lazy, but their lazy. If you don't make it easy for them. They won't use it. It doesn't matter how technically accurate it is, if all the finance and credit admin. People, make the geekiest model out there, and it's right. If the end user doesn't use it, it won't matter.

So, that was one that was a big piece for us, too. It's what, three clicks and you can have a loan priced if you really want to be that simple to it?
Chris Scislowic:    From that sense, can you talk a little bit about maybe … How did you convince the organization it was the right product, it was the right tool? Any resistance you met? And, how you overcame that?
Derek Ragland:    I'll go. For us, we were going to transform commercial banking. As that came in, I said, "I want the right tools." For those you present in the meeting this morning and looking at … I said "We're going to grow, and we are going to add a bunch of people. And, I'm not going to bring bankers into a bad process. And, I don't want to …" We're private, so little bit of benefits of that. I went to the board and said, "I don't want to go out and bring all these bankers on and tell them things are going to get better. I want to buy the tools first." Which is the exact opposite that we have to do in public companies, right? You go out and I said "I want the tools, I want the bankers, and then I'll get you the clients and the revenue." You ask a public company and they say "get the clients, I'll give you the bankers, and then you might get the tools."

I acknowledge that. But in this process, we want the right tools for everybody cause if I'm going to convince someone to move from, you know, some of the top ten banks in the country and come to a $5,000,000,000 bank, how do I do that? It's got to be around process, efficiency, you know, I saw what they were living everyday. Much of also what you saw in that presentation this morning, you know, we piled more onto RM's around credit process – that was before – now we've piled more onto them around KYC and pricing and everything else. 

So I needed a way, one, on pricing. Two, on KYC. Three, on credit process. How do we make it better, faster, and easier for them? So we wanted a system up front so that we could make it right instead of bringing them all into a broken process and then having lots of promises that would five years to fulfill.

Derek Thornton:    If I was to sum it up, I would say our CEO says prove it and that was probably our biggest obstacle of doing this: is we signed a short-term contract cause we wanted to be able to prove to say "okay, [inaudible 00:12:18] lender can make these claims that it'll improve this, that, and the other. We said prove it so our CEO said I want to find a way that you can buy this software, but if a year from now we don't see any change, we're not going to do it.

Okay, fine. So about six months after we had implemented, I went back and looked at our margins from before versus our margins, you know, six months before versus our margins after not the total yield. Because clearly the curve changes at any given time. But I said "just looking at our margin, what was the difference?" And we actually increased our margins by about eight to 10 basis points. 

So I went to my CEO and I said "hey, guess what? Not only do we get that, we also are now focusing on the full relationship so it's not just 'hey, this loan transaction. It's: can we get the deposits with it? Can we get their treasury management? Can we get all these other pieces to it?' And adding all that extra relationship. So I wrote a nice e-mail to my CEO and said "hey, we actually have proved it. Can we sign a longer contract?" And he said "Okay fine. Whatever. Go away."

Derek Ragland:    And that increase was similar for looking for an increase and justifying it in portfolio and getting some pricing discipline in there. Same thing.

Chris Scislowic:    Okay, well you sort of opened the door a little bit to implementation so maybe we'll change gears there. 

Obviously one of the big challenges with any large system project is determining scope. Determining what to integrate, what not to integrate. Can you talk a little bit about your decision process and ultimately what you maybe did and didn't do from maybe an integration standpoint?
Derek Thornton:    Yeah so we started we started with precision lender cause their pricing model is fairly easy. It's stand alone. You can do it with anything you want to do. You've just got to feed your core information for your existing customers. So we did that about two years ago and we started down that process. Out of the relationship [inaudible 00:13:53] piece into it and started, again, proving it like everything else. Then we decided we also wanted to get with Encino because they can kind of integrate and work together. So that was one of the key things for us is making sure that: do these work together? Having been a lender and having a desperate system of where I go. I go to this system to enter this customer's information and just so someone can say I did sales call and then I'm going to come over here and I'm going to have to enter in all the same information so I can price it. And then I have to go over here to do the same thing so I can actually get it approved. 

So having them integrate and be able to talk was one of the biggest things that we had to make sure was actually going to happen for our implementation. 

Chris Scislowic:    Very similar. And I'll start at the end with yours. I didn't want to repeat information. Had early conversations about it to make sure and, you know, having them connected so the pipeline could move through and I got tired of seeing excel spreadsheets around. Call on them every week "where's your pipeline? How much? And where's it going through? How much do you have and why didn't you take this off? Why didn't you add this? Etc. 

You know, now on pricing as well as pipeline, I don't have pipeline calls. I call people and say "great to see what you're closing this week. I love those numbers that are in there. Pipeline looks really good." Or "hey, that looks really stale, you need to take it of."

So I don't have to ask anyone about their pipeline anymore. And as far as an integration process, we did the same pattern. We knew we wanted to do both. One, to make sure we picked two systems actually like precision lender from the beginning but wanting to make sure I found a system that could integrate with. Instead of putting it in and having the double application that was there. So it held us up a little bit on going with precision lender which we've had for over two years now and decided to implement that. Again, we did it fast. We were up and running in 90 days, 120 days we had everything on board, the systems integrated, and the core built into it so that we could see every night, you know, I could see every night what's going on with pricing, see our customers that's in there. Look at the portfolio view and see my clients with the highest loans. Where are they in ranking? Clients with the most deposits. What's the highest ranking? What do we have? What division that their in?

And then it took longer for us on Encino to get, but not too long. It was still six months. So we were kind of doing them concurrently. We started precision lender, got most of the way done and then kind of at the end, overlapped Encino and had it go the last few months to go through. 
Derek Thornton:    Yeah I think one of the problems being a much smaller bank we had with implementing Encino is that we saw all of our inefficiencies and we wanted to make a workflow so lenders have to do this and then their analysts have to do this and make this a specific process. But the problem is that what we want to do is this much, but being a small bank we couldn't implement that as quickly as you guys could and so we actually bought a scope of this and then we really had to scale it back as we started implementing and it still only took us probably about four to six months to actually get Encino implementing, but we scaled that whole thing back. We implemented this portion of what we want to do. So I think, part of it, for us, was buying into that vision that it might not be everything we want it to be, today; but we see where it's going and where it can go, we just need the resources in order to be able to get it there.

Chris Scislowic:    Well, so you touched on maybe a challenge, or a lessons learned, and I'm curious with hindsight being 20/20…

Speaker 1:    Maybe a challenge or a lessons learned, I'm curious, and hindsight being 20/20, what advice you'd give, or something you would've done differently now?

Derek Thornton:    Yeah, I think it's asking the questions of, when we say something isn't coming with us, so we made the decision that we didn't actually get Sales Force as well. For a bank our size we couldn't justify the ROI, it was way too much of a cost. And so, we said, "Okay, we don't want Sales Force," they said, "Great, we can still make it all work together," we said, "Okay," and as we started implementing, we go, "Oh, well this doesn't work now," and it was not on them, it's not on us, it's a little bit of both of asking the question, "Okay, you tell me that we aren't getting this piece to it," we have to ask the question, what does that mean? No, really, does that affect something over here, and we don't realize it affect something over here until we were implementing, and they go, "Oh, well if you had Sales Force it would've worked together this way." So, I think that was one of the things that we really had to learn and work through. Again, that's not a PrecisionLender, it's not an [nCino 00:17:57], it's all of us can work on communication, but that's the one piece that I would make sure if you're ever looking at getting all of these together, talk to the analyst, talk to the data scientist, make sure that everything works together the way you think it does.

Derek Ragland:    [inaudible 00:18:12] I don't have any big regrets on any of the installations, or going through changes, wish we could've done it faster for both of them, that's out there. Don't change too much, keep it as normal as possible, don't customize as much, especially at the first rendition getting it through. I would say, on the nCino piece, which really touches the entire bank, you gotta make sure you have your processes down and the way you want to do it, but there's a lot of good examples out there on what's the right process. Because, once it's in place you can't change it. You can, I mean, it's flexible and it can change, but you don't want to go back and change it. You want to make sure you have your workflow the right way. So, I would just say be very sure of your workflow. We took some extra time on that, thankfully, I'm very happy with the way we did our workflow, because we flipped a few things that, frankly, I think other people do. May not be able to have done that in another institution, but we changed some around, help with the process. So, spend a lot of time on your workflow.

Speaker 1:    So, on your lending transformation journeys, how did you [inaudible 00:19:14], or how did you avoid boiling the ocean?

Derek Ragland:    That was a tough one. On PrecisionLender side for us, we stuck to what they had done before, and the way they had done the implementation, so that wasn't as big of a deal. As far as changing the entire process, you can boil the whole ocean and get caught up in changing your process. So, we ended up, I'd say, having a big wishlist, and probably lopped off the last 30% of that and did kinda phase two implementation on what did you want to do, and for the workflow process, I would say we just stuck to the lending side, where up front I wanted to do some more cash management, and deposits, and other pieces, and you start thinking about all these other workflows that can happen. So, if you have an nCino workflow process, you can go, "Oh, I can, with the real estate, order appraisals, I can have a workflow that goes and does this, and orders the appraisals, and come back," you can, but you can get boiling the ocean if you start doing that and coming back. So, get your loan process right, know that you've got the workflow through, come back and do another phase with the other pieces associated with it, and not ancillary, that's the nice to haves, not the must have at the beginning.

Derek Thornton:    I have a quote on my whiteboard that says, "Don't let perfection be the enemy of progress," and I think that's the biggest thing of, just keep on looking … again, I said it's an evolution, so you have to look back two to three years, and looking back now of what we were doing in the conversations we were having, versus what we're having today, and they're different. But, I can't tell you when that change happened, it wasn't an overnight, it was six months, nine months of repeating the same thing over and over again to my lenders. And, one of my favorite stories is one of my lenders came in with a commercial loan, he's in our metro market, which is kind of one of our newer markets. So, he's got this big loan, and just prices it with right at target, barely meets it, thinly priced, and he got drilled, rightfully so. He didn't ask for deposits, he didn't ask for any of the rest of the relationship, that was all he wanted was a transaction, and that's not our style. We're not transaction driven.

And so, three months later he comes into the loan committee, and he said, "Hey, I have this loan, and I have it priced this, but if the customer brings in $250,000 in deposits, they get this rate. If they bring in half million dollars in deposits, they get this rate." And, they started they started chewing him about the same thing. I said, "Hold on, you guys have to give him credit for this, right? We told him you can't do this, and now he's coming in and doing that." But, it was a three to four month process of talking to him, and you have to change that idea in his mind of, I just want the biggest transaction, I just want the biggest loan because that's what I get paid on.
Speaker 1:    Well, that's a great segue into maybe incentives. So, maybe talk about how you set up the platform to incent the right behavior, as opposed to the wrong behavior.

Derek Ragland:    Yeah, I think part of what you're talking about is kind of an ah-ha moment for them, and I saw the same thing going through with my team. Before, right, I told you the example of lowest possible price, they'd have to ask someone for the price every single time, go and get approval for a manager or somebody to make that happen. So, we set the system up to empower the RMs to do, here's your parameters, here's your hurdle rate, and the ah-ha moment for them is it turned from a pricing discussion to a relationship discussion. So, they actually wanted to have the discussions with their client sitting in front of their computer, maybe over the phone, and talking to them about the relationship. 

So, I saw a couple of examples early, they may have been trying to price a term loan at, let's call it 4% fixed for whatever, five years, at the time, and that was under hurdle 4.27, it needed to be, so you need 27 more basis points, and they had the client on the phone, and I walked by, and he's like, "Yeah, if pricing's important, the lowest rate isn't here, but we're more about relationship, and if you bring me this much in deposit accounts, or we can get your cash management, I can make that 4% work for you, that's a magic number for you." So, they ended up having relationship discussions about what else are you going to do with us, instead of it 100% being focused on pricing. 

And, early on, even when they had it, they were talking about pricing to them, and then it became, "This isn't a pricing discussion, this is a how are you going to bank with us, and what can you do?" So, I think that's an important kinda ah-ha, and then your other question was around incentive form. I'm a big believer in you've gotta give them credit for the rate that they're charging, so we try to give them credit for the actual what their rate is, it's not dollar for dollar or anything like that, but we look and see where are they versus hurdles, and a lot of people say, "Oh, they're just going to price exactly at the hurdle and that's it."

So, what I tell my RMs is, "You can price right at the hurdle all you want, but the first time you walk in and ask me for something below hurdle, I'm going to say no, because you haven't created a cushion. So, the smart thing for you to do would be create a bank of extra savings out there, and the next time you need to go below hurdle, if I pull up your PrecisionLender, I'll see where you are, I'll look at it, I'll say, 'Guess what? You've done a great job, you're always above, you got a cushion in there, sure, I'll approve this one.'" And so, all of them go, and they're trying to build up a little cushion int here just in case they have a deal that they want that's going to be under, and there aren't many that are there, but there are from time to time because they build the relationship.

So, they're kinda self-policing, so they don't ever have to come and ask for that number below. So, when they come ask me, I'm like, "Oh yeah, you're above, no problem." Or, they go to their manager and do that. So, I think, in my mind, that's not a hard dollar incentive, but it's an incentive to let them control their future in a couple ways, one around the relationship, and then two around pricing. If they know, if they're building up a cushion and they can get some that are under that they really need, then they're going to do extra whenever they can do extra.
Derek Thornton:    And, we're actually changing the way we do our incentive structure and actual annual bonuses, and one piece is the ROE target, and we are actually measuring the delta between, on any new production, whether that's a renewal of a note, or a brand new money to the bank, and we're comparing that to target and saying, "Hey, are you meeting target, or are you not? And, at the end of the year, what's the delta within that," and we're giving them, if they meet target, they get a certain percent, if they're below to a certain level below that, we'll still pay them some of the incentive, and they can actually double that category as well, just so that way, because part of it, again, our CEO says, "Prove it." So, his first thought is the same thing, is all of our lenders, all that they do, they go to that target, that's all they're going to hit, they're never going to go higher than that. And so, we're trying to give … it's not a large dollar amount, but what we try and do is we hire competitive people, and if you have competitive people, even a small target out there, they're going to want to beat that. And, if you give them a reason behind for just a little bit of pay, they'll go after it because they're all competitive and they want to be better than you.

Derek Ragland:    And, our case, like I said, we don't kinda do dollar for dollar, but they know it's a factor in their bonus pool. The other thing on my story that I just told before, the other reason in setting that out there and giving that room to make that adjustment is, they, shoot, I said they want to control it and have that availability whenever they need it. Oh, and so, int he past, when we didn't have PrecisionLender, you would have your best lenders come in and, the ones that are good at selling internally would always ask you for the lower rate. Well, you didn't have the data to see, is he always asking for the low rate? In the back of your mind you go, "Well, wait a minute, he or she's always asking me for the low rate, but okay, it's a good client, it's a good reason," goes on. Well, now, when they come in and ask, I can look and say, "Are you always below, or are you always above?" And, before I had to guess are they above or below and see if they're just a good internal salesperson in addition to being maybe not as good external sales person because they're giving a lower rate.

Derek Thornton:    I think one thing we learned too, is that we used to always price in quarter increments, it's 225 over, it's 250 over, and one thing PrecisionLender's allowed us to do is … you know, we don't try and get too cute with it, but it can be five more basis points, or 10 more basis points, it doesn't have to go to that full quarter. Or, on the lender's side, you don't have to cut it down from 225 to two, can you go 215? And, having that ability to kind have that negotiation now, I don't know why we always stuck to quarters, but this has given us at least a little bit better way to go to five, 10 basis point increments, which has been really nice for us to have that conversation, too.

Speaker 1:    So, we're talking a little bit about change management, so maybe talk through … two part question. One, what did you do during sort of the implementation, the rollout, to drive adoption, and then post rollout, maybe what are you doing now to ensure it's viewed as a positive experience and a tool rather than a policing tool?

Derek Thornton:    Yeah, I think two things is, one is we required it. It's part of the lending process is, if you want a loan book, before you get loan docs, you have to print out a PrecisionLender printout, and so you can't get it past our loan services, that's the gatekeeper. So, when you require it that way, everyone buys in real quick because they have to. And, what was the other thing I was going to say with that? The other piece is that the system we came from before nCino, the fact that nCino's built not that long ago, you click on it, you go, "Oh, that looks way better than what we had before." And so, just having that user interface look better, that's one key right there, people will buy into it going, "At least it looks like it's new. It looks like it's something that can change and was written this year instead of 20, 30 years ago." And so, they can understand that while it's not perfect now, it has the ability to be, and it will be.

Derek Ragland:    Yeah, back to the mandate, so PrecisionLender for us, mandate, even before we had nCino, I mandated all of them, went through it, when we were still doing our manual credit package, I said you have to copy it, put it as a part of the credit package and send it so that it can be seen what's the cross-sell that's promised, what's going to happen, what was the pricing, what were the factors. So, that was mandated through, and then also the same with nCino. I said, "There's no other way to get a loan done, period. So, you either put it in there, or your loan's not going to be done," and loan ops has been instructed not to book anything off an email for you. And, I think we only had a couple which I approved personally because one off reason to do that, but otherwise we didn't have any others that went different directions, because we stuck to it.

Derek Thornton:    Yeah, with our old system it was, we'll figure out a workaround if something doesn't work, and workaround became a …

Derek Ragland:    Way of life.

Derek Thornton:    Exactly. And so, what we said is, "We're implementing nCino, don't use that term again. We don't want to hear the term workaround," because as we're going through implementing it, they're like, "Oh, we'll just figure out the workaround for this." We said, "No, don't use that term, we're going to find a way to make this work in the system, or this is the way it is. If we can't find a way around it, or a way to make the system work as you want it to, you gotta go through this system this way in this workflow, and that's how it is."
Derek Ragland:    And both, you have to mandate them, because they will resist and will fight as long as they … and, as soon as they see weakness they'll resist and fight more to do it. So, do not give in.

Derek Thornton:    Yeah, they were just talking about the path of least resistance, there it is.

Speaker 1:    Very good, okay. So, maybe one more question before we turn it over to the audience here. So, what's next for your respective organizations?

Derek Ragland:    So, for us, I mean to continue the story, we've hired 70 people in the last year and a half, opened … I got 18 people in Los Angeles, 12 in Charlotte, I don't know, 10 in Fort Lauderdale, seven in Tampa, and 18 in Houston that we've added kind of in that timeframe. So, what this has done for us is given me back to where I started, a way to control, and that's not a nice term, but control all these people coming from organizations, and the typical profile for who we're hiring, probably came from the top 10 organizations, banks in the country.

And, so they've walked in and seen a good process that helps them be more effective, that takes some of the workload off of them. And so, for us, we're continuing to grow, and we aren't doing small loans on this, we're doing 10, 20, 30 million dollar loans, multiple transactions at the same time, pricing all those, having the relationship pricing. They are, "What happens if we get this relationship? Well, existing clients, what happen if we leave it?" So, what's the opportunity cost if we lose and don't match pricing if that's going on for existing clients.

So, we're continuing to build out other systems. We've kinda stressed out our core, and so I'm doing a one off advance commercial banking systems for us for the lending side so that we can have all the integration that we needed, because our existing core is where we're housing everything, and that was holding us back. And, we're continuing to grow, opening some other offices, not quite as many this year, but we'll open another one and keep bringing some people on board.

Derek Thornton:    Yeah, for the PrecisionLender thing, one thing we're trying to teach our … and it's an education piece of, helping our lenders understand that you can negotiate on a thousand other things besides price, and that's one thing that we can come in and we can say, "Okay, the customer wants this rate, they have to get this rate." Okay, will they add a guarantee, will they add collateral, what else can we bring to the negotiation. Or, they won't guarantee anything, okay, well you have to pay a higher fee for that. They want to lock today, versus, and have a 90 day forward lock. Great, there's a premium for that, instead of just saying, "Well, it doesn't matter whether you lock today or you lock in 90 days, we're going to give you this rate." And so, we're trying to educate our lenders and trying to work with our lenders to negotiate other ways and say, "With everything you want, there's a price to it," and working with our borrowers, and how can we … not to take advantage of them, but it's, if you want this, you have to pay more for it.

Derek Ragland:    Go ahead, sorry, [crosstalk 00:32:23].

Derek Thornton:    Oh, no.

Derek Ragland:    The other thing thinking about is caps and floors, and doing floaters or adjustable rates. I think it's opened their eyes, too, in other ways of looking at borrowing. So, before it's, I do a transaction for you, and here's the rate. Well now it's, "All right, let's do a transaction, let's talk about your relationship, so there's a price if you just want a rate and not a relationship, now there's a separate price which is lower if you want a relationship. Oh, by the way, here's a floating rate cost for you if you want to do floating, and here's a fixed rate cost," because I think too many of the RMs just got hung up on, he wants a fixed rate, she wants a floater rate, she wants a fixed rate, he wants a … and, just made a decision ahead of time and didn't look at the economics. You know, by the way, you can do the pricing behind the scenes, and I can set up the ROEs, I can guide them in a direction, if I want more floating rate loans, I can change the ROE on floating rate loans, and by product type so that it's more attractive and we get more. Or, if I wanted more fixed rate I can do that same thing.

So, the RMs kinda look and go, "Hey, wait a minute," they see the different metrics between the two, and maybe not the ROE, but they see that one may be more attractive to the client. So, it's broadened, as you said, it's a lot more than what's the pricing decision, it's a relationship decision, and then it's, here are all the pricing options that are there. If I put a floor in, what does that do with my pricing? What if I put a cap in? What does that do to the ROE? So, a lot of different factors go into it.
Derek Thornton:    Yeah, with nCino, what we're looking to do next is we've implemented phase one, but like I said, we started with a scope of here, we scaled it back, now it's adding those other things in, and we now have a workable system. Okay, now what's the next part we want to add? How do we want to grow with that, how do we want to change, and how do we want to drive behavior with it? And so, like you said, you can add these workflows over here, but do you want that behavior-

Derek Thornton:    With it. So, like you said, you can add these workflows over here, but do you want that behavior, and is it worth it or do you wanna have another option with it? I think that's the next thing that we're looking at, of how can we grow with nCino? Because that's the nice thing about it is, it is flexible and it is growable. I mean, you can be a big regional bank, you can get the super regional anything, any size and it can still work with what you're doing.

Speaker 2:    Okay, great. We're right at 15 minutes left so let me open up to the group for questions from the audience. What brave soul's gonna be first? Yeah, in the back.

Speaker 3:    How has nCino impacted the process [inaudible 00:34:42] credit. Can you measure? It used to be a 45 day process on a commercial loan, now it's 28. Anything like that in communication channel?

Derek Ragland:    I'll start. I can't give you what it was because it was broken and it was horrible. But, I can tell you I can measure every bit of the process through and yes … if you were going that and wanted to see the way you were before versus now and how fast. For us, the way we've set it up is there is no paper in the nCino process from … They'll prospect, we do have sales force associated with it, so they'll prospect in sales forces leads. When that lead turns into a loan … so  as soon as the client says, "Okay, I'm interested in doing a loan with you", they push a button and it transforms over into nCino and then you start tracking it from there all the way through.

You know, so for us there's no paper up until the time … if it's a larger loan and you're going to do attorney prepared then those documents go and the attorney prepares them, the client signs them, we scan them and put them right back in the system. 

But, for example, we were sitting right in the meeting earlier in the open presentation with everybody, I was approving loans in nCino in the back of the room on my phone while we were having that discussion. I could see … I knew what the pricing was, knew the relationship and approved a loan. It will go off to doc prep … get everything, start the documents ready with an official signature when before somebody might have been chasing me and have to try and look at it and go through more detail.

But, I was able to do that and do that routinely now. 

Derek Thornton:    Yeah, we're not there yet. Having just implemented, we're probably a little bit slower just because there is that learning curve of your learning a new system. I would say our goal by the end of this year would be 3 or 4 days faster which doesn't sound like a lot but it's an extra 3 or 4 days worth of interest income. That's our goal of what we're trying to get to for this year. Then, as phase 2 and phase 3 rolls out it's the efficiency gain is not necessarily … so many of commercial loans is 'I need to close on this day'. There's not necessarily … it speeds up the process from that perspective but it does speed up the process of what you came in 45 days ago now you can come in 38 days. That's where it speeds up things a little bit.

I don't have a good answer for you right now because we did just roll out nCino.
Derek Ragland:    The other benefit I'll add is you can see how efficient people are. We have a pool of analysts that are doing spreads and everything else. We have a person in charge that assigns the transaction and they can see how many they are working on at any one time. They can distribute the work more evenly. Where, typically, your best workers are doing more then they probably should be and the others are hiding behind that.

Big help there. There's plenty of reports on efficiency, speed-up time … I know it's made us faster. I just can't give you a set day on that. But, I'm very confident.

Derek Thornton:    We've got a recent example with a Top 25 bank in the Northeast that had done a time study shortly before rolling out nCino and their average time to close was approaching 70 days. Six months into their rollout they are at 18. Pretty substantial increase. I mean, obviously, their process was very broken. 70 is certainly at the bottom of the barrel in terms of efficiency but the transformation has been pretty astounding to be sub 20 days in less than 6 months.

Speaker 4:    The bank where I work sounds a lot like what you guys described where you were, as far as price goes. I'm sure every one of us works in environments that is extremely competitive. It certainly is where I'm from. We're not quite as bad as saying … "you know, go get you …"

Derek Ragland:    Thank you. You've made me feel better. 

Speaker 4:    We're close. We feel close. It's always this is what we have to price it at and my part of the contract … listening to others a couple of days that I've been here I feel like our margins are even worse up in the Northeast. [inaudible 00:38:51] I like the idea that what you described with the pricing model … it gives the lender an opportunity to say or to understand that if I go out and get half a million in deposits, whatever, then now my deal works.

My question is knowing how competitive the environment is for all of us, when your lender goes to a customer who got a price from some other bank of X and now the lender goes back and says, "I can give you X but you have to give me half a million dollars in deposit." Or whatever it is. My question I guess is are you finding customers saying, "Well, that's still not good enough because these guys are going to give it to me without the deposits." 

I'm assuming I guess that your lenders are now having to do a much better job selling the fact that you've got to give us the deposits and that kind of thing. How would you react to that?

Derek Ragland:    They do. I'll tell you when I walked in and kind of had one big day where I pulled everyone in and said, "Alright, here's what we're going to do. We're going to do more loans. We're going to charge higher fees and a higher interest rate." They all looked at me like you're crazy. You're not going to last and in 6 months someone else will be in here running this place.

They didn't believe it. It did. It does take a little bit of time and kind of that aha shift that's there that it's a … they change their conversation with the client like you're alluding to. Instead of what is most important to them, is rate most important to you or is relationship most important to you? It doesn't change the competitive environment. They all told me, "Oh you don't understand this market. It's too competitive. You haven't been here before." Etc. Well, I've heard that in every market that I've worked and I'm sure all of you hear it in every single market.

This one is different and it's small. We have these hometown banks. This one's different, it's big. We're in the biggest city in the country and we've got all these … We've got 432 banks in the yellow pages. I'm like who went out and counted those. I actually had an RM go out and do that one time, count and tell me how many banks were in the yellow pages a long time ago.

It is a shift in their mind about how they are now in control of the conversation. I would say they direct it better than they did before around their relationship instead of just around a price and that the clients get that they have in their business … the other thing I try and do is say relate it to your business. You know, relate it to their business. You know you're a doctor, you know you charge for this, why do you charge for this or give them an example in their business. Then, they will see that. I think they are doing better selling discussions and relationship discussions where before our RM's let it be all about price and fee. We let that happen to ourselves.

It wasn't the client that let that happen. We were directing it because they felt like that was the number one thing. These are totally different conversations.

Speaker 4:    Thank you.

Speaker 2:    Yeah.

Speaker 5:    Just a quick one, I wonder if either of you guys … if you use interest rate swaps with your borrowers how does that work with the nCino process? Is it inside the ecosystem or does it have to be done outside?

Derek Ragland:    We do. We use swaps in there and PrecisionLender and look at the pricing that's there. It can be in the ecosystem. It's built in and available. In PrecisionLender … in both PrecisionLender and nCino. The pricing is in PrecisionLender and the then the deal moves through nCino.

Derek Thornton:    Yep. We use … they have a couple different options. But, we use one that shows the indicative first rate for the borrower and what our variable rate is … We're still fairly new to doing swaps and educating our lenders that they don't just put in the fixed rate because that's not what the bank gets. It's taken awhile. Having a system where they can just say this is the fixed rate I want to give to the borrower and the math for the ROE still calculates on the variable and that's what the bank actually has is really helpful that PrecisionLender can do. They've worked with multiple people in terms of whoever your swap provider is they can work with to integrate to that which is really a good benefit that we've found.

Derek Ragland:    Peter, back to your question. I know we've got one more coming. To me, our number one barrier to selling are our bankers. They have beliefs and those beliefs drive what they say and don't say to clients and so I always tell them, "Don't let your belief value system be projected onto your clients." Because they may believe that a 3/4 point is high and it's all in how they're having that discussion with the client. Because they think it's high, they project that in the way they say, "We've got kind of a 3/4 point fee" versus "We have a fee, it's 3/4 of a point" and then they explain why that's there.

One of my big things that I talk to the RM's about is don't project. This client is doing this once every 5 years. You're doing it every day. They don't know 3/4 right, appropriate or not. Explain to them what the fee is, be upfront and tell them why they have it. Tell them what costs are in there and what that covers instead of being ashamed of it and trying to hide from it when they're talking through. 

That's the other part that one of the things I tried to change in addition to the system was the philosophy around you're adding value, get paid for it and be upfront about what you're charging.

Derek Thornton:    A lot of times we don't realize how much of an expert we are compared to other people. You come in and you kind of undersell yourself. Like you're saying, "Well, I don't know all the details of medical so I'm not sure I can talk to you doctor but I'm going to try." You know a lot more than you think you do. The doctor doesn't know anything about finance. You just throw in a few terms and you've already beat them in what you know. 

Speaker 6:    Yes, my question is with PrecisionLender is you've mentioned if they have deposits to use that to help affect the rate … what about new customers if they're doing like new anticipated deposits. Do you kind of discount that down or if PrecisionLender says the target rate is example … like 20.83 and they go "Okay well if they bring in …" Often sometimes if they just bring in 30, 40,000 in deposits PrecisionLender's pricing it'll jump significantly. Do you all usually accept that as y'all approval process or do you have an offset off of that outside of PrecisionLender that you are kind of looking for to handle those situations?

Derek Thornton:    I'll say two things to that. One, is that there is a dashboard that you can actually look back at and it says what are the loans that were booked and here's what the deposits were promised and have they been brought in. Now, there's an issue because if you bring the deposits in before it doesn't show after the loan was booked. There are some quirks to it but you can at least see a lot of times what was promised and what's been brought in. That's one of those things. The other piece to it too is we start negotiating with the deposits up front. When you use PrecisionLender and you integrate with nCino is you have to go through pricing at the very early stages.

You can have that conversation of, "OK you need this rate", well we're not into approval at all. We're just at the very beginning going, "If you need this rate here's what I'm going to need." The lenders can have that authority to do that up front. 

Derek Ragland:    Back to yours, so the reports, promise to deliver report … I was a big advocate for. Sounds like you were too.

Derek Thornton:    I was. Yeah.

Derek Ragland:    The reason was, for your question, I got tired of RM's coming in and saying, "I need a lower rate and they're going to bring 100,000 in deposits." Then, 6 months later, they never show up. That is out there as a way to see what were deposits for, what were they after because I didn't want to have to start chasing people down. If they're going to promise they're coming in and we're going to cut rates to do it, then they have to be held accountable for it. I think that's an important part of it.

Yes, we give credit for those right up front and then we watch in their revenue and in their scorecard too. Are they bringing in the deposits?

Derek Thornton:    The other thing we're doing as well is bringing in covenants to that and saying if it's of a significant enough size saying you're promising an average balance of a million dollars, we're going to covenant for that and there will be a fee if you don't hit that. That gives the customer a reason to have that there.

Derek Ragland:    Agreed.

Speaker 2:    We've got time for one more question.

Speaker 7:    He answered my question sort of. Are you finding success in if you don't have an operating account of half a million dollars your rate goes up by an eighth or a quarter or whatever makes the economics work. You did it by a fee but are you adjusting rates as well?

Derek Ragland:    We have that built in to our notes too. Actually, I think for the first time ever in my career, so we had that built into one we called the client and said, "Hey, you didn't move it over." He's like, "You know what? I've decided it's way too much. Just raise my fee by the rate. Just raise my rate." He knew it was in there. We told him. He just said, "Just raise it. I'm sorry. I told you I was going to bring it over and I've decided I'm not going to."

I've never had one like not fight at all. We've had some others where we've had to fight to get that to happen. He just said, "Yeah, you put it in the documents. Raise my rate." It was great. That was a good day. Finally once, it works.

Speaker 8:    Alright, thanks you guys. That was a great discussion. A round of applause for our panel.