Clark Blackwell

I've read several conflicting opinions in AR about responding "I don't know this person" to requests for links / connections on Social Networking sites. It appears that a significant percentage of networkers believe in simply going for the big "connections" number. In my opinion, the appropriate term for that type of networking is "A mile wide but only an inch deep".

Early in my banking career, a customer who was a retired real estate broker taught me Dale Carnegie's technique of "carrying a compliment", which is significantly more effective than complimenting someone first-person. In other words, "My banker, Clark Blackwell, speaks very highly of you." is much more effective and smacks less of blatant flattery than "Based on your reputation in the community and your obvious business acumen, I'm interested in being your Realtor.".

Carrying that concept into Social Networking, we can and should send raw leads to anyone and everyone, but none of us are able to provide / receive a genuine referral except to / from those we trust. Almost anyone can build rapport with me; few are capable of earning my trust. Like it or not, we are judged by those with whom we associate. If I view your 548 connections and see that more than one is someone whose level of service or integrity I have personally been less-than-satisfied with, I will view you in the same manner. Conversely, if several people whom I know and respect do business with you, that indicates to me that you share that person's integrity, work ethic, and sense of urgency.

Does this mean we should only link with people we already know? Not at all, since that would be a complete waste of time & technology. We should link with those we don't know who are linked to those people of integrity we DO know, selectively leveraging the power of "degrees of separation" since none of us can ever know everyone else. If all of us are going just for the numbers (inch-deep, mile-wide), the whole process becomes as time-wasting as doodling on a desk.

As the old HR saying goes, "I've never read a bad resume'". I'm certain that many networking sites specifically advise only linking with people you know and trust. It's sound advice.

As a result of diligent networking, today I met with a prospective customer at his place of business. The prospect's reason for mentioning to our mutual friend that he was looking for a new banker was threefold: 1) The desire to do business with a bank where he feels as if he has "a banker", instead of one at which he's just another number; 2) Uncertainty with how his present bank will emerge from a recent acquisition; 3) A preference to boost cash flow by reducing the monthly installment on his owner-occupied commercial real estate, based on the probability that an overall rebound may not happen until 2011.

Based on a "quick & dirty" review of the company's cash flow (very strong) and the principal's personal financial liquidity (impressive), it's clear that this is a bankable deal. When I close this transaction, it will be a profitable new relationship for Crescent Bank, a new customer & future referral source for me, and a victory for the person who sent the referral.

Happy Monday!

As I watched last night's presidential address to Congress, I couldn't help raising an eyebrow when President Obama made the statement, "Banks are afraid to lend right now, even to each other. Banks are afraid to do even a car loan." Our Commander-in-Chief should have qualified that statement by putting "Mega" in front of "Banks". As recently acknowledged by almost everyone, community banks participated very little (if at all) in the house of cards that was the securitized mortgage market.

Though there's plenty of uncertainty & thinly-disguised fear among myself and my friends who are community bankers, we're still in business and we're making no plans to stop making prudent lending decisions. A few examples:

1. Last week I closed a residential spec construction loan. Have I lost my mind? On the contrary, the borrower is highly creditworthy, is continuing to sell homes, and is an excellent customer. And no, I'm not a "rogue lender" who did this under my own authority. Loan Committee approved the transaction based on its merits (i.e. business as usual).
2. Yesterday I received committee approval of three separate requests for loans to fund various types of business expansion, which represents Crescent Bank's commitment to continue to do business with entrepreneurs who are the lifeblood of ANY U.S. economy.
3. One of those loans funded the purchase of a truck for use in the borrower's business. Yes, wonder of wonders, Crescent Bank is NOT afraid to make a car loan.
4. Yesterday I said "no" to a request from a long-time customer, a seasoned real estate investor who was seeking financing to roll 1031 Starker funds into an established commercial property with a bond-rated NNN tenant. The good news? My only reason for saying no was that the real estate was outside Crescent Bank's market area. Had it been in our market, I have no doubt that we would have been happy to make the loan. I referred my customer to a community banker in that market and I have little doubt that the transaction will close.
5. Today I'm meeting with a Certified Development Company (CDC) to discuss details of a proposed SBA 504 loan to fund construction of a new office for a local dentist. Since Crescent Bank is on SBA's Preferred Lender Program, there is a high chance that we will approve that transaction.

Am I nervous about the market? Yes. Do I hope and pray for a turnaround as soon as possible? You bet. Out of business? Nope. Remember, we're a community bank.

I'm a community banker and a commercial real estate lender. At the close of a recent Optimist Club meeting, a fellow Optimist posed this question: "Clark, how long do you think it will be before I'll be able to buy investment property again with a 10% downpayment?" I answered him as diplomatically as possible, but I was thinking, "If the system had been working properly and consistently, you should never have been able to do that in the first place." My point?

10% of acquisition cost isn't enough skin in the game in any economy.

We've all had it beat into our collective brain that Other People's Money (OPM) is THE way to go. All MBA's are taught that using leverage to your advantage is essential. The Robert Kyosakis of the world became Rich Dads on OPM. And, before you conclude that I'm starting to come across as a hypocritical banker, the commercial banking business model is based on attracting & profitably leveraging OPM. Am I criticizing Mr. Kyosaki and his real estate investment principles? Certainly not. But you cannot sustain a capitalistic economy on the concept of lending OPM without enforcing commonsense procedures & safeguards. Because bankers ignored many of those safeguards, OPM is now TPM (Tax Payers' Money).

A significant reason that bank policies, practices, and procedures are so highly regulated (and deposits FDIC insured) is that banks have always operated on OPM. As a community banker, I'm not lending the boss's money or the Board's money. I'm lending depositors' money. In terms of an expectation of prudence & diligence, I've always taken that as a much higher standard than if it were my own money.

With very few exceptions, the non-performing real estate loans at our bank (and I would venture to guess that this is the case at most banks) are transactions in which the borrower never had enough skin in the game. This is of course the case with the Freddie & Fannie "Liar Loans" but it happened often with commercial transactions as well. Over the past decade, bankers (and the Loan Committees we report to) giddily accepted greater and greater levels of risk because they drank their own Kool-Aid, believing there was no end in sight. At one point I actually heard a senior-level banker say, "There won't be another downturn like we've seen in the past. Greenspan's figured out how to keep the economy steady." Come again?

There should never be a point in the future in which an investor can buy income-producing real estate with a cash injection of less than 20% of acquisition cost. Most common investor responses:

1- "But it's at 80% occupancy, traffic count's 140K, and the anchor's a bond-rated tenant on an absolute net lease with a 5% annual escalation. Doesn't that count for anything?"

2- "Wait a minute. It's cash-flowing at a DCR of 1.50. The center (building, development, etc) stands good for itself."

3- "OK. I understand that's your bank's policy. Sixth Ninth already approved me with nothing down."

It's Response #3 that played a significant role in putting us where we are today. In addition to borrower experience and creditworthiness, collateral location, strong (verified) cash flow, tenant quality, acceptable occupancy, and guarantor strength. a creditworthy non-owner-occupied transaction is one in which the borrower has skin in the game equivalent to at least 20% of project cost. Bankers who violated that principle (which was pretty much everyone at some point, following the lead of Freddie, Fannie, and their immediate competitors) are reaping what they sowed.

I welcome opinions & responses from AR bloggers.

. . . by Meredith Mason Brown is a great read if you have any interest in U. S. history. I hope your experience in US History class was more enlightening (and more comprehensive) than mine. Despite an unbroken string of history teachers having done their dead-level best to ensure a lifelong lack of interest, I developed a love of history many years after graduating from college. My best example of why I despised history as a student was how briefly we covered Lewis & Clark. It was basically "They explored the west", "They came home", inevitably followed by, "What was the exact date of each event we mentioned?". Until reading Stephen Ambrose's excellent "Undaunted Courage" (only a few years ago), I had no idea of what a momentous and amazing feat they performed, nor that they did so and only lost one man (probably to a ruptured appendix).

So it is with Col. Boone. The Daniel Boone of my imagination is Fess Parker in the 70's TV series, barrel-chested & well over six feet tall, coonskin cap & fringed deerskin jacket, throwing an ax that splits a tree down the middle in the opening credits. I had no idea that Boone was a land surveyor (though he was not known for either precision or detail), stood 5-7 on his best day, and became notorious for not paying his debts.

Aside from his imprecise land surveying and his carelessness in repaying debt, Col. Boone was every bit the frontiersman. He played a huge role in literally opening up the portions of the US consisting of what's now western NC, practically all of KY, and a significant portion of MO. He fought & killed his share of native Americans, before and after becoming the adopted son of a high-ranking chief. Two of his daughters were captured by natives at one point, and their rescue was a feat of courage worthy of Hollywood. Though he surveyed thousands of acres of wilderness land with the intention of claiming a substantial portion for himself, Col. Boone died almost penniless in 1820 at the age of 83.

The book is painstakingly-researched and well written.