June 14, 2021

Over the past several years, financial institutions have embraced the increasing use and reliance on technology. Automated predictive, economic, and financial models have assisted them in making faster and better business decisions. Many institutions are also in the process of developing or implementing credit loss models to address the Financial Accounting Standards Board’s new current expected credit loss (CECL) standard.

If your bank is like most, you routinely review and update your short- and long-range planning. Perhaps you now have a Quick Response Team or Emergency Task Force. The pandemic forced some rapid responses that disrupted some mid and long-range plans. But maybe that’s a good thing.

The challenges of 2020 included a landslide of changes in financial services, and the sheer effort by banking professionals to keep operations running was nothing short of historic.

As I meet with lenders across the Western United States, there is a strong aversion to talking about insurance in general. Insurance is a product that nobody wants to think about until it is needed, and everybody wants to pay as little as possible for their lender coverage. There is a particular aversion to talking about insurance for lending institutions, and I often joke that we are mixing two of the most boring industries in the world. Due to the dry nature of insurance, I spend nearly all my time talking at a high level about insurance coverages. Those conversations typically reference the benefits of Unitas Financial Services’ innovative approach to blanket insurance coverages for lending institutions. On the rare occasion that I do get to dive into the intricacies of insurance coverages, I often run into a lender that uses a blanket mortgage impairment policy. Blanket mortgage impairment policies provide a similar benefit at a high level (eliminate the need to track and force-place insurance while still protecting collateral). However, they do not compare to a full Unitas Blanket Mortgage policy, especially when it comes to flexibility, getting claims paid fast, and the overall coverage.

There may be a misnomer about the value of having a relationship with a solid real estate capital markets advisor. Some bankers view them as competitors. Knowing their role can make all the difference.

Digital banking trends have accelerated due to the pandemic, and many institutions have pivoted toward digital transformation. But in the digital lending space, slow-moving institutions still face a disadvantage.

Interest derivatives can play an essential role for banks – large and small – that would like to manage their interest rate risk position. All banks must report their A/L results and all banks observe these numbers to monitor their strengths, weaknesses and capital/earnings at risk. Many management teams take a reactive approach to ALCO – stay the course unless we get out-of-bounds, or let market demand and our customers drive our asset/liability profile and hope rates don’t hurt us. Interest rate swaps can put management teams back in the driver’s seat and help protect or build NIM, preserve capital, drive fee-income and shore-up exposures. Let your lenders and deposit gatherers create interest rate risk – it is the job of management to control it. A considerable number of banks have been forced to confront their balance sheet volatility because of market unpredictability. Interest rate swaps can help management teams proactively and efficiently support future growth.