{"id":1004388065,"date":"2020-02-05T09:20:01","date_gmt":"2020-02-05T17:20:01","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004388065"},"modified":"2020-02-05T11:24:11","modified_gmt":"2020-02-05T19:24:11","slug":"when-banks-commercial-loan-production-goals-dont-match-market-supply","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/when-banks-commercial-loan-production-goals-dont-match-market-supply\/","title":{"rendered":"When Loan Production Goals Don\u2019t Match Market Supply"},"content":{"rendered":"
\"\"

Adam Seery   Image courtesy of Harvest Small Business Finance and Harvest Commercial Capital<\/em><\/p><\/div>\n

Imagine this: You\u2019re the president of a large ($50 billion-plus) or mid-size ($20\u2013$50 billion) bank. The last five years have yielded year-over-year 10\u201315 percent loan and deposit growth. Revenue is up, losses are non-existent and shareholders are happy. The board has scheduled a meeting to discuss your strategic plan for production goals in 2020. Here are your options:<\/p>\n

A. Increase loan production and deposit goals 10\u201315 percent 
\nB. Keep goals flat for sustained growth
\nC. Reduce loan production and deposit goals 10\u201315 percent <\/p>\n

What would you commit to?<\/p>\n

If you didn\u2019t choose \u201coption A,\u201d you\u2019d be crazy. It\u2019s been easy to accomplish year-over-year growth for the last five years. Also, when was the last time you witnessed a strategic plan where loan production projections went down? <\/em>Since the recession ended, banks have had the luxury of consistent increases in inventory and loan opportunities.<\/p>\n

The issue with choosing \u201coption A\u201d is it relies heavily on continued market growth and the ability to gain market share when loan inventory and deposits are currently down across the board. When the bank president commits to 10\u201315 percent growth, so do the bank\u2019s employees. The negative ramifications can be substantial. A few of the repercussions when pushing unrealistic loan goals onto your team include:<\/p>\n

Quality of credit diminishes<\/h2>\n

When deal flow is not hitting projection numbers, side conversations start happening. \u201cHow do we make that deal work?,\u201d \u201cBring back that deal we passed on last week,\u201d \u201cIs there a way to make this fit?,\u201d \u201cLet\u2019s make an exception on this one.\u201d<\/em> Banks would rather stretch on credit than not meet loan production numbers. If you believe that internal compensation is not related to production, you\u2019ve been living under a rock. Compensation is always<\/em> tied to production, <\/em>even if it\u2019s not stated publicly.<\/p>\n

Pressure from the top hits the sales force<\/h2>\n

Again, it\u2019s not just the executive team that sign up for a bank\u2019s yearly production. That burden is mostly put on the sales force. If loan inventory is not there, deals will start to appear that don\u2019t normally belong in that bank\u2019s credit box. Now the bank is in a larger quandary: Do we approve loans outside our credit box (see No. 1 above) or do we decline loans from the sales force that we\u2019ve asked to produce loans? Remember, sales incentives are paid on closed business. If the sales force can\u2019t close deals, they will send those deals elsewhere and maybe start looking for new employment. <\/p>\n

Negative morale internally<\/h2>\n

Employee happiness comes when goals are hit and production records are being set. How does this change when production is below budget by 20 percent? That translates to daily pressure from management, rushed decisions and potential layoffs. Stress, anxiety and pressure\u2026is that a fun place to work?<\/p>\n

Loan losses\/defaults<\/h2>\n

What\u2019s the quickest way to lose your job in banking? Make a few bad loans. Loans in default increase the loan loss reserve to the Allowance for Loan and Lease Losses account. The additional funds used to throw into the ALLL are treated as a P&L expense, which takes away from a bank\u2019s net income. In a downward cycle with multiple defaults, that number can grow by millions, which in turn reduces the bank\u2019s bottom line net income by the same amount. This does not account for losses that maybe incurred from liquidation, which could add to the overall loss.<\/p>\n

In closing, when producing loan volume estimates heading into a flat market, keep in mind the downfalls related to overstating realistic production goals. Sometimes reducing expectations can actually provide dividends to the bottom line, especially when that year-over-year expected growth was never there to begin with. It\u2019s the long-term approach to lending that will keep banking institutions healthy moving forward.<\/p>\n

Adam Seery is the COO of Harvest Small Business Finance and Harvest Commercial Capital, finance companies specializing in owner-user, conventional, SBA 7a and 504 loans nationwide. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Lenders are faced with the dilemma of whether to adjust production goals up or down or keep them flat, notes Adam Seery of Harvest Small Business Finance and Harvest Commercial Capital.<\/p>\n","protected":false},"author":923,"featured_media":1004323586,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[],"class_list":["post-1004388065","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint"],"acf":[],"yoast_head":"\nWhen Loan Production Goals Don\u2019t Match Market Supply - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/when-banks-commercial-loan-production-goals-dont-match-market-supply\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"When Loan Production Goals Don\u2019t Match Market Supply\" \/>\n<meta property=\"og:description\" content=\"Lenders are faced with the dilemma of whether to adjust production goals up or down or keep them flat, notes Adam Seery of Harvest Small Business Finance and Harvest Commercial Capital.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/when-banks-commercial-loan-production-goals-dont-match-market-supply\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2020-02-05T17:20:01+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-02-05T19:24:11+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/05\/Adam-Seery-12-18.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"618\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Adam Seery\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/\"},\"author\":{\"name\":\"Adam Seery\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/#\\\/schema\\\/person\\\/5ae9578ebd25fdbb96fd3656457060bd\"},\"headline\":\"When Loan Production Goals Don\u2019t Match Market Supply\",\"datePublished\":\"2020-02-05T17:20:01+00:00\",\"dateModified\":\"2020-02-05T19:24:11+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/\"},\"wordCount\":698,\"image\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/wp-content\\\/uploads\\\/sites\\\/46\\\/2019\\\/05\\\/Adam-Seery-12-18.jpg\",\"articleSection\":[\"Viewpoint\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/\",\"url\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/when-banks-commercial-loan-production-goals-dont-match-market-supply\\\/\",\"name\":\"When Loan Production Goals Don\u2019t Match Market Supply - 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