Banking & Finance

For Commercial Lenders, Building Relationships is a Must

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YOUNGSTOWN, Ohio – To be a successful commercial banker requires a temperament that encompasses excellent interpersonal skills and analytical skills that usually take anywhere from two to five years to learn after being hired.

Even then, staying on top of the game entails refreshers and updates in changing regulations and technology. But some things haven’t changed.

Commercial bankers must still master the basics of credit and possess the communication skills necessary to nurture and sustain client relationships in a changed marketplace that has grown even more competitive.

Despite many similar online and remote technologies, commercial banking remains a highly personal business, say bankers in the Mahoning Valley.

“The ability to connect with customers is key,” says Frank Hierro, Mahoning Valley president of Home Savings Bank.

A commercial lender needs “the right personality and the right drive,” says Ted Schmidt, Youngstown regional president of PNC Bank.

As does Hierro, Schmidt emphasizes that the successful candidate must have a “passion for business” to succeed.

Most commercial lenders have a baccalaureate in finance, accounting or economics, but a degree in one of those fields, while helpful, is not a must.

A degree in say, engineering where mathematics and critical thinking are emphasized, is a plus.

“The most important thing is, can they be coached and developed?” Schmidt says.

Candidates from the liberal arts and other nonfinancial backgrounds have succeeded in commercial lending, but they’re at a disadvantage without a solid grounding in finance, taxes and a basic understanding of financial statements, says Bob Kempe, managing director and commercial loan group manager at the Boardman branch of Chemical Bank.

Having a good credit background and experience in underwriting is extremely valuable, he says.

“I’ve seen some commercial bankers with nonfinance degrees who have been very successful,” says Stan Feret, chief lending officer at Cortland Bank. But they face distinct challenges.

“It would be like taking a finance major or accounting major and working them in a manufacturing environment on machinery,” Feret says. “Can they do it? Probably. Do they have the background and skill set for that? It’s something they’d have to learn and pick up over time.”

Even those who graduate with degrees in finance and accounting must take in-depth training before they are assigned a portfolio. How they’re trained has changed since 1980 but the basics have not.

“Many of the banks, much more so post-recession and as the industry has consolidated, have less and less formal credit training,” Hierro says.

Online credit programs combined with on-the-job training have become the norm, even at the larger banks. Hierro worked his way up from the retail side as a branch manager, a route few commercial lenders take today, he says.

Large banks such as PNC still have their own in-house extensive training. PNC University offers 300 courses that are mix of classroom-based, virtual and self-guided study. The bank expects its students will take three years to develop into commercial lenders. “Some are quicker,” Schmidt says.

For those going into commercial banking, the focus begins with an understanding of cash flow and the basics of how businesses operate.

“Once you get those basic credit skills under your belt, then you start to develop strategies and solutions that aren’t just cookie cutter,” Schmidt says

PNC University students once began by spending up to eight weeks in classrooms. Today, much of the education is web-based, Schmidt says.

“If we can provide them the basics and the blueprint,” he says, “then we can bring them into the team and have them attend joint calls and joint meetings to really hone those interpersonal skills.”

PNC has junior associates on a three-year track during which they shadow an experienced lender, Schmidt says, who gives them guidance to develop as a lender.

“Very large regional banks are more set up for that university system where it’s more regulated,” says Cortland’s Feret. Midsized and community banks have trained their lenders within departments and relied on courses offered outside such as by the Risk Management Association, he says.

They are “perfect for banks that don’t have the depth of staffing and training personnel,” Feret says.

More than 2,500 institutions are members of Risk Management Association – formerly Robert Morris Associates – which offers courses that cover the various aspects of the industry online through RMA University.

Other courses similar to that continue to exist. Omega Performance, the American Bankers Association School of Commercial Lending and others offer training in credit and commercial lending.

As far as credit training at Chemical Bank goes, “Most of it is on-the-job,” Kempe says. Newly hired credit analysts are walked through the basics.

“You gauge their competency by the questions they ask,” Kempe says, “and as they do their underwriting, you watch to see if they’ve connected the dots.”

The numbers of clients a commercial lender has in his portfolio varies widely. And the number of times that a banker touches base with a client in a given year is usually tied to the client’s needs. Is his business static and stable with less need for contact or growing, causing more need for a banker’s attention?

“It depends on the complexity and the size,” Hierro says. “A typical commercial banker can have anywhere from 25 to 100 account relationships assigned to him.”

A banker might directly interact with some clients three or four times a year, Hierro says, while other clients might need only an annual visit. All banks have their lenders visit their clients at their workplace at least once a year and usually meet for lunch at least once a quarter.

In the wake of the Great Recession, regulators have stressed grading accounts to assess risk at least annually.

“You’re generally going to their place of business,” Kempe emphasizes. “You’re doing it in their office.”

Adds PNC’s Schmidt, “We are visiting them very frequently.”

Bankers at PNC, like those at Chemical Bank, Cortland and Home Savings, are usually “generalists” that handle customers in several industries.

“I don’t know if there’s any one industry in our market that you could make a living specializing in,” says Kempe. For commercial lenders at Chemical Bank, their portfolios consist of house accounts directly assigned them plus clients they’ve developed on their own.

“When I get a lead and I look at it, I’ll try to assign it to somebody who may have a similar company in their portfolio,” Kempe says.

At Cortland Bank, diversification is key to reducing risk in commercial loan portfolios, Feret says.

The health care and especially manufacturing industries have proven to be good clients for Cortland. Successful manufacturing companies, capital-intensive operations, “have a lot of need for banking” and are often considered the “jewels” of a banker’s portfolio, Feret says.

The number of client’s in a banker’s portfolio at Cortland depends largely on size and complexity, but the average is probably between 20 and 40 customers, Feret says.

“You can have a $40 million portfolio with 100 relationships, or you can have a $40 million portfolio with five or six,” he says.

White males have long dominated commercial banking, but PNC, Cort-land, Home Savings and Chemical Bank remain committed to pursuing diversity.

The majority of bankers at Home Savings remain male, but Hierro notes that women now constitute the majority of the credit team’s support staff.

At PNC, Schmidt elucidates the importance of diversity of all types in its corporate culture.

“We want to make sure that we have a variety of employees that have different backgrounds and different ideas,” he says. “You get more ideas and you get more creativity when you have that diversity.”

After over 30 years in banking, Feret has seen little change in the male-female ratio of the commercial lending business.

“By sheer numbers, there are more male commercial lenders than females. I’ve seen that in our marketplace and in others,” he says.

Aside from diversity, attracting quality candidates overall is getting more difficult.

“The pool of talent out there now is getting less for commercial and for banks in general,” Feret says. He sees banks losing qualified college graduates to accounting firms and more high-profile careers such as investment banking.

“Jim [Gasior], our CEO, is on a mission to actually create a culture, internship and training plan so that we can bring in graduates who look at banking as a new career,” he says.

In the Mahoning Valley, talent isn’t the only asset banks compete for. The changing business climate of the last three decades is making the already competitive commercial lending business even more so. Consolidation and the Great Recession have compounded this situation.

“What makes it more difficult,” Kempe says, “more so than 10, 20 or even 30 years ago, is there are fewer and fewer businesses, at least in this market, to go after. The numbers aren’t what they used to be.”

Published by The Business Journal, Youngstown, Ohio.