Barret School of Banking

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Lesson learned…the hard way

Recently, I read an article about the Ohio State Buckeye football team and how several of the players had been asked at the NFL Combine to recount their experience of the 55-24 loss at Iowa during the 2017 year that kept the Buckeyes out of the College Football Playoff.  Basically, it would be the equivalent to being asked in an interview “tell me about the worst moment in your professional life”.
And it’s a fair question.  In a game that is mental as well as physical, the ability to distill life lessons from moments of defeat is crucial to the success on the gridiron.  Remembering that, on any given Saturday, any team can be victorious and it is a long fall from the top when you don’t execute every single minute.  You can believe you’re the best in the world, but until you work like you’re the best in the world, you will fall.
Is banking any different?
One of my banking school teachers taught me that in a bank’s lending policy you will find “prohibited loans” or loans that are “discouraged”.  What you are really seeing is a brief summary of management’s previous bad loans throughout their career.  If a lender had a bad experience with, say, hotels and that lender ever has a chance to set lending policy for an institution, the chances are going to be good that hotels will be on that list.
So, what does that mean?  It means that we learn from our mistakes.  The trick is two-fold…don’t make a fatal mistake and learn from the mistakes you make to keep them from happening.  For most lenders, the latter is the one that they have the most control.  Typically, fatal mistakes (i.e. big loans that go south) are made with several other sets of eyes on it.  That doesn’t forgive anyone but it does mean that the loan was made with more eyes on it than most.  Learning from our mistakes is the one lesson in which we have the most control.  Obviously, there are lessons about underwriting or character or cash flow testing…and those are tools that need to be sharpened and remembered.
However, the biggest lesson from a mistake that I’ve learned in my career is…be honest with yourself.  If it was a bad loan from the beginning, don’t try and talk yourself out of that fact.  Learn from that and move forward with the lesson learned and implemented in your underwriting.  Don’t try and talk yourself into saying “well, it was a good loan but XYZ happened” when XYZ are irrelevant.  Now, the opposite is true as well.  If a loan goes bad because of factors outside of the borrower’s control, be honest with yourself about that.  It might not change your strategy about risk ratings (a good tool to use in honest self-assessment too!) or work-out scenario’s but by being honest with yourself about the situation, it will not cloud your judgment and see things that are not there.
This sounds easy and should be common sense…but so many times I’ve seen lenders deluding themselves into thinking about something that just is not true.  If they’d taken a step back and objectively looked at the situation, the solution would readily present itself and the bank, the lender, and the borrower would save a considerable amount of time.
Just be honest with yourself.


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Byron Earnheart is the Programming Director for the Barret School of Banking in Memphis, TN and the host of the “Main Street Banking” podcast…the only podcast solely devoted to community banks. He has over 15 years experience in the financial services industry; 11 of which have been in banking in various roles from teller work to branch management. He spends his time playing guitar and singing in Delta Heart (the “house band of the Mississippi Delta”), writing music, cooking, reading, and enduring the University of Tennessee Volunteers athletic seasons. He is married to his wife Kelly of 11 years and has two children, John Aubrey (11) and Mary Laura (7). If you'd like to hear Byron's music, check him out on Spotify:
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