That Was Then and This Is Now
By Gary L. Kruse For November 2002 Ag Lender Magazine

During the last quarter century, banking has undergone a revolution. Technology has transformed the way you provide financial services to your customers. Telephone banking, debit and credit cards, automatic teller machines and Internet banking are commonplace and electronic money and banking are evolving. But what was lending like before these innovative technologies were realized?

In the spirit of the 50th anniversary of the ABA Ag Lenders Conference this year, I want to share with you some stories about the innovations in lending that were born not from computer processing chips, rather from the smarts, care and humor of bankers throughout the years.

Handshake Lending

Before our industry's technical revolution and even before analyzing a credit request with pencil, paper and an adding machine, there was relationship-based "handshake" lending that was the hallmark of community lenders in the 1950's.

"We were country bankers like the old country doctors," said 86-year-old Foster "Foss" Daugherty, a longtime banker in Southwestern Michigan. "People were bringing in their problems and we would help solve them. It was just as easy to loan too much as not enough. The banker was interested in the community because if the community grew, the bank grew."

As time went on, innovative bankers like Jim Fast, President/CEO of Ionia County National Bank in Michigan, found ways to lengthen their market reach in the 70's with the concept of affiliations. "After our merger with Michigan National bank we could do a lot of things that a lot of the banks our size could not do," Jim said. "We had the opportunity to deal with commercial customers that we would not otherwise have had as a direct result of this affiliation."

It Must Be In The Water

Non-technical innovations continued in lending into the 80's simply through the quality of experience that was handed down through generations of bankers. Smarts, wit, humor (and humility) are all traits that innovative lenders and business people seem to possess more than not. Over the years it has helped many lenders and their customers get through the tough times and enjoy the good times that much more.

"I started working as an ag banker in the early 80's under the tutelage of an exceptionally intelligent and pragmatic manager with a quick wit and keen sense of humor," said Joe Patterson from the Bank of Colorado in Sterling. "One day during loan committee he was presenting an ag loan in which the borrower needed a sizeable operating line and a term loan for equipment. The credit was sound and there would be no problem in granting the request. Near the close of the discussion he said "Yes, I've know this borrower since he was a young man just starting out. Why, I remember when he didn't have a darn thing, no cash, no cows, borrowed equipment and rented land. Now look at him, he's got half a million dollars in debt!"

You are no doubt familiar with Dr. David Kohl's "Five C's of Lending" - Collateral-Collateral-Collateral-Collateral-Collateral. This story by Bob Phares from First State Bank & Trust Co., Fremont, Nebraska, shows us the importance of being diligent in your collateral inspections.

"Many years ago when I worked for a leasing company they had seven cars leased to an Indian tribe in South Dakota. In this case payments weren't being paid and since I was close I drove to their headquarters to do a lessor's asset check. They weren't real happy about me being there and later I found out why. Our cars were all blocked up, tires and wheels gone along with the engines, transmissions, and about anything that was of any value was gone. However, the back seat in one of the cars had a hole cut in the seat and all the way through floor of the car with a roll of toilet paper on the seat. Without painting more of a graphic picture, this certainly emphasizes how important collateral inspections are!"

And from the humility file comes a story from Vic Zenert at Community Savings & Credit Union in Alberta, Canada. "My wife and I are city kids and did not have much to do with livestock. A few years back we were invited out to a local farmer for a Saturday to process calves. We did not know what this meant other than separating calves from the cows and counting them. Well, very shortly I was in the pen with the rest of them holding calves while they were branded, de-horned, injected, castrated and tagged. We did this all day and the next time I looked around for my wife I saw her and another farm wife were processing the prairie oysters for a stir fry later that night. At supper they were served up like popcorn and the cowboys could not get enough. I had a sliver of one on my plate but could not force myself to eat it." With a chuckle, Vic added, "Everyone there got a kick out of seeing their banker down in the manure."

And Then There Was Technology

Think back over the last 10 years and what you had to do to.

• Close a loan as fast as possible.
• Minimize total application, processing, and underwriting costs.
• Select best value documentation and compliance products for a specific loan.
• Re-use existing customer information for future decisions including portfolio monitoring.

Roger Pescinski, AVP of Lending at Community Business Bank in Sauk City, Wisconsin remembers back in the early 90's when he worked for a Farm Credit Services group that prided themselves on being tech savvy. "My one boss reluctantly put a fax machine in the office on a trial basis. Since it was a trial they didn't dedicate a separate line to the fax so we had to constantly switch the incoming calls manually between phone and fax."

Roger went on to say, "These days I wouldn't care if you took regular mail (he called it "snail mail") away from me, but don't even think about taking away my e-mail, fax, or voice mail," Pescinski said. "Most non-believers of technology have either adjusted, adapted, or retired. An Internet-enabled pc is absolutely essential to every office employee here. We need to keep ahead of the next generation (teenagers) who are leaving high school with a computer education equal to a bachelors degree of the early 1990's and are pushing us older folks to keep ahead."

The most pressing issue for many lenders is to adopt the latest, most sophisticated technology in order to reduce costs and improve processes. This has created a significant movement in financial services to outsource certain tasks to Application Service Providers (ASP) or companies that provide software and software-related services at a commodity price. A recent survey finds that, on average, financial institutions' are devoting about one-quarter of their entire IT budgets to outsourcing.

The newest generation of software for new e-finance processes often ties together loan origination and underwriting systems, customer data, and loan product and service tracking. All authorized departments within the financial institution are able to access, process and communicate with what appears to the individual user as a single system. With each day, more institutions are shifting to electronic processes and capitalizing upon emerging Web applications.

"During the early 90's I developed over two million dollars of FmHA guaranteed loans with a number of different farm customers in a short period of time using a software program," said Gerald Blazek, VP of Ag Lending at Peoples Exchange Bank in Belleville, Kansas. "The guaranteed loans had a two fold benefit; it improved the bank's position with regulators and gave our customers a ray of hope. We could not have accomplished all this without the technology."

Even Uncle Sam is caught up in today's technology revolution. Under the 1998 Government Paperwork Elimination Act (GPEA), federal agencies like the Farm Service Agency (FSA) and Small Business Administration (SBA) must make their services available electronically -- whenever possible -- by October 2003. When you consider the proliferation of technologies like e-signatures, digital certificates and even e-money, this e-government thing will no doubt be realized. One thing to know, especially for the techno-shy, is that there are some things you don't need to see being made. One is sausage.the other is e-technology.

It is has been said that historically lenders are slow to embrace technology. Perhaps, but over the last 10 years I have witnessed a steadily growing convergence of lending and technology. I know that for the last seven years, hundreds of our lender customers have trekked to our annual lending and technology conferences with the desire to keep up with what's going on in our industry. They consistently engage opportunities to dialog with each other, government agency reps and industry pundits like Dr. David Kohl.

Good people and innovative ideas have fueled our industry since day one. Today those innovations are converging with some truly exceptional technology innovations that have put us all on a fast track to better quality lending and customer service.

Gary Kruse is Chairman/CEO of ECI, developer of Equity Manager financial analysis and decisioning software for lenders. You can review all the information that was provided at ECI's recent conference, including a PowerPoint of Dr. David Kohl's session. Visit their Web site at www.eci-equity.com/ convergence2002.htm or contact them at 800-264-0787 ext. 200.

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