Baker Hill Prosper 2017 - Small Business Auto Decision – Ready or Not?
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presented by Stephanie Butler and co-presented by Gary Brown of First Community Bancshares, Inc. Today, all businesses strive to be more efficient. Financial institutions are no exception. Many financial institutions decide to go the route of auto decisioning as a way to accomplish more throughput without adding staff or jeopardizing credit quality. While auto decisioning is an excellent way to gain efficiency, it is not as easy as resetting your gray area strategy. In this session we discussed best practices for tackling auto decision as well as determine if your institution is ready for this step.
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Baker Hill Prosper 2017 - Small Business Auto Decision – Ready or Not?
- 1. SMALL BUSINESS AUTO DECISION-READY OR NOT? Stephanie L Butler - Director, Advisory Services Gary S Brown - VP, First Community Bancshares, Inc.
- 2. Confidential & Privileged Document Agenda • Welcome and introductions • Definitions • Why auto decision? • Are you ready? • Summary and action items
- 3. Confidential & Privileged Document Introduction • Stephanie L Butler - Director, Advisory Services – Baker Hill • Gary S Brown - VP, Credit Administration Small Business and Consumer Lending – First Community Bancshares, Inc.
- 4. Confidential & Privileged Document Introduction Auto decisioning is not for the faint of heart!
- 5. Confidential & Privileged Document Definition • Definition of auto decisioning – Goal: System replication of manual underwriting – System generated decision • Approve, decline or review • Uses score and other factors – No human intervention
- 6. Confidential & Privileged Document Why auto decision? – Credit benefit • More consistent decisions in less time –Better customer service! • Allow lenders/underwriters to focus on credits needing more analysis • Lessen potential for disparate treatment
- 7. Confidential & Privileged Document Why auto decision? – Organizational benefit • Streamline/automate • More volume with no/minimal additional staff
- 8. Confidential & Privileged Document Definition - Stages The Four Stages of Small Business Lending Stage 1 Stage 2 Stage 3 Stage 4 Underwriting Methodology Tradition, judgmental decisioning Scoring as a tool with judgmental decisioning Scoring with Limited Auto- Decisioning • Mix of scoring & judgmental decisioning Scoring with Auto-Decisioning • Primarily score with only limited judgmental decisioning
- 9. Confidential & Privileged Document Definition - Stages for First Community • First Community was a Stage 2 bank and moved to Stage 4. • Dollar threshold for auto decisioning – $125,000 request, – $750,000 or less TCE • Most small business products The Four Stages of Small Business Lending Stage 1 Stage 2 Stage 3 Stage 4 Underwriting Methodology Tradition, judgmental decisioning Scoring as a tool with judgmental decisioning Scoring with Limited Auto- Decisioning • Mix of scoring & judgmental decisioning Scoring with Auto-Decisioning • Primarily score with only limited judgmental decisioning
- 10. Confidential & Privileged Document Are you ready? • Culture – Trust the system and process – No/minimal overrides • Decision and pricing overrides – Standardized products and pricing – No financial statement products already in place – Small business policy
- 11. Confidential & Privileged Document First Community preparation - Cultural • Familiarity with system • Policy in place • Procedures in place • Socialization to field • Overrides
- 12. Confidential & Privileged Document Are you ready? • Data analysis – Score thresholds – Other, non score factors in auto decision • Time in business • Deposits • Dollar and type of request – Validation • Score to bank performance
- 13. Confidential & Privileged Document First Community preparation - Data analysis • Bank did an internal validation • Score thresholds • Other, non score factors used in auto decision process
- 14. Confidential & Privileged Document Are you ready? • Auto decisioning reports – Delinquency by score band, override, product, etc. – Overrides by score, product, dollars, override officer, etc. – Approval and decline percentages
- 15. Confidential & Privileged Document First Community Preparation - Reports • Very manual process • Focus on override reports – Decision – Rate and Fee • Monthly management meeting
- 16. Confidential & Privileged Document Today • Where is First Community today? • Biggest challenges faced by the bank? • What would you do differently?
- 17. Confidential & Privileged Document Summary • Auto decisioning is an excellent way to gain efficiency • You must do your homework! • Prepare, prepare and prepare some more.
- 18. Confidential & Privileged Document Action items • If auto decisioning is in your FI’s future – Are you at Stage 2? • Do you have “no financial statement” products? • Are your products and pricing standardized? – Is your culture ready to trust the system? – Are you ready to say NO to overrides? • If it is not in your future, why?
- 19. GO FORTH AND DECISION! AUTO DECISION, THAT IS. Stephanie L. Butler - Director, Advisory Services Stephanie.Butler@bakerhill.com
Editor's Notes
- Gary, brief introduction
- Gary, would you agree?
- Gary, Do you think First Community fully understood the definition of auto decisioning? Did this cause issues?
- Gary, what was the primary reason First Community wanted to move to auto decisioning in SB?
- Gary, what was the primary reason First Community wanted to move to auto decisioning in SB?
- As an FI evolves through these stages, it becomes more automated. Not all FI’s want to move to Stage 4. Best Practice: Don’t move directly from Stage 1/2 to Stage 4. Best Practice: Don’t auto decision all dollars and all products.
- Gary, what stage was First Community at prior to the decision to auto decision? How long had the bank had a SB portfolio and used Baker Hill?
- What type of analysis did you preform prior to auto decisioning and during the process?
- What reports did you create?
- Gary, where is First Community today as to auto decisioning? Will the bank eventually restart the process? W