Back In My Day: Civilized War – Unequal Yoking

As we take the next step in the story, we arrive at a major theme of life on this planet found in God’s Word that continually confounds humanity because people refuse to take incorporate God’s Word into their lives. To some readers this scripture and its ramifications may seem harsh and unloving. To others, it is truth and righteousness displayed.

In 2 Corinthians 6:14 Paul urges the Corinthians to open their hearts to him again and states, “Do not be unequally yoked together with unbelievers. For what fellowship has righteousness with lawlessness? And what communion has light with darkness?” (NKJV)

The summary explanation from bibleref.org explains what follows well.

“Now he turns to a direct command: that believers in Christ not be yoked with unbelievers. The imagery of the “yoke” brings to mind the rigid harness used to keep livestock locked together and pulling in a consistent direction. The Old Testament used a form of the word to forbid mating cattle of different species (Leviticus 19:19). The Law also forbids harnessing together an ox and a donkey to plow a field (Deuteronomy 22:10).

The point of this phrase will soon become clear. Those in Christ are something other than those who are not in Christ. They are not the same—spiritually—and should not be locked together into any kind of binding relationship. Paul begins to ask a series of questions to show the absurdity of a believer in Jesus being “unequally yoked” with an unbeliever.

Paul asks: what cooperation can there be between virtue and wickedness? Those in Christ have “become the righteousness of God” (2 Corinthians 5:21). Those outside of Christ continue in their status as unrepentant, lawless sinners. The two cannot—must not—be joined together. To do so makes as little sense as trying to join light and darkness in fellowship. It can’t be done. As soon as the light arrives, the darkness must vanish.

It’s essential to realize Paul is not saying believers should never associate with unbelievers, at all (1 Corinthians 5:9–10). Believers should continue to live and function in the world, which includes contact with unbelievers (1 Corinthians 10:25–26). He has written to the Corinthians previously, though, not to sue each other in pagan courts of law (1 Corinthians 6:1–11), not to join themselves sexually to temple prostitutes (1 Corinthians 6:12–20), and not marry unbelievers (1 Corinthians 7:39).

Rather, Scripture’s teaching here is that Christians must not enter into binding, partnering agreements with non-Christians.“

God always has good reasons for His instructions.

Back to Business

Remember when I wrote about meeting with our state bank regulators along with our Chairman at the start-up of our division? The state officials suggested to our Chairman that he should execute employment contracts with me and our key people. My response was “no” to that. The Lord had revealed to me through the equipment company ordeal this scripture extended well beyond the commonly understood principle to only marry within the faith. From the point of understanding that passage better, I never worked under an employment contract the rest of my career after the equipment company.

In my mind, the principle is simply applied. I had yoked myself to the owners of the equipment company who claimed to be Christians. I learned that the claim of being a Christian does not necessarily make it the truth, although I have no authority to judge their claim then or now. I observed and absorbed their actions during my employment and they would not be considered Christ-like. Had I been more mature in the faith, I could have avoided a lot of heartache by avoidance of the situation and trusting God for his provision.

The allure to accept a yoke is increased by greed as well as hunger for power, prestige, fame, etc. Look at the yoking of all the celebrities, entertainers, media, corporate leaders, medical professionals, and so on. Most all are contracted to perform their roles. As a result, most will do and say about anything to fulfill the contracts and receive the worldly benefits. Politicians make their promises while receiving donations and receiving insider information. Their words and actions rarely reflect what Jesus wants us to say and do because the yoke they willingly accept is with the political party to which they belong. We the People are a means to the end purposes of the party and those that buy their votes.

That I was not yoked to the ownership of the bank became very important to me and others over the ensuing years. Especially as I learned more about all of the people involved.

The Phone Calls

One day that summer the major owner, the contractor, called and wanted to discuss where we were with profitability and my expectations. I put it back into his court, how confident was he that Judas could deliver on loan pool sales at or above budget? He had no answer for that. That was not why he called anyway. He told me about how he had to fire a close friend at his construction company after having worked together for 15 years because he failed to meet expectations. He then said he gave the guy a good severance package and they remained friends. I asked him if he doubted we would meet budget considering we were ahead of it at that point. He said that he was just reminding me it was important, that they had a lot on the line.

When you know your target is getting the job done, you attempt to move the goalposts and change the rules of engagement if your intent is to remove the leader.

I knew it was all BS. Step One of my eventual termination was complete.

A month later I got a call from Judas as he was working in the bank’s headquarters with the Chairman and President for a week. He said that it appeared to him that I was looking to get out, to retire soon. I told him (truthfully) that I was contemplating doing so at the end of 2008 with a consulting role to help the transition. He said, “I bet you would take a package of $… and retire.” I told him I would consider it. If it was a good package I would retire. If not I might have to crank another operation up somewhere else if ownership felt it was time for me to go.

Step Two of my eventual termination was complete, along with my counter move if they screwed it up.

Meanwhile the married contractor owner had caused a major problem chasing the skirt of the SCO’s assistant at a bank function. In addition, I got word from a couple of trusted sources on the Street that things were tanking fast in the debt markets. Not only was subprime residential getting worse, credit card and car loan pooled CDOs were in trouble as well. Buyers were pulling back from investing or were out altogether. It did not matter that our pools were performing well, the buyers were getting out of all of the debt market rapidly.

The owner who was an attorney decided to visit and discuss the issue with the assistant. The SCO and I reviewed with him and decided on a course of action. He could sense something else was wrong and asked. We decided not to share any more information with him or the other owners. They had decided to stop listening and take over anyway, which was within their rights to do as owners of the bank. They made their choice, they could live with the results.

Step Three of my eventual termination was the huddling in secret of a few key managers with Judas that I was not supposed to know about, but which was reported to me afterwards.

As we neared the end of the year, Judas began dragging his feet on closing loan pool sales in all programs. The owners and he were obviously losing their battle to lower profitability below budget to justify my termination and the delays would help them lower profit temporarily. The profitability of which was over three times what the traditional bank was making. The owners had ordered me to terminate our CPA/controller a few months before claiming he was a redundancy we no longer needed; that his function could be handled by the traditional bank. He was not surprised, just disappointed. He did not have a good relationship with them because he knew the games Judas was playing with loan sales and disagreed with their decision to sell off the treasury bond portfolio. The owners wanted him out to better hide their plans and knew we were totally in sync as eyes and ears for each other. I encouraged him to work a two week notice to transition the department and if he wanted to let some confidants know what was coming, well, I was good with it. I also told him I gave my time of employment there six months at most.

Step Four of my eventual termination was completed.

The expense reduction plan had been completed by all departments that was to be implemented with staff reductions with severance as well as outright releases of underperforming production officers in the first quarter subject to ownership approval. The moves projected to shave over $2 M in annual expenses in the first phase. The second phase would have slashed even more in 2009 with the implementation of the new credit administration and operations platform.

The plan was submitted prior to a meeting with ownership that included my SCO and NSM in mid January 2008. We arrived at the meeting for more bull in the ring theatrics. The owners and Judas completely disagreed with my assessment that the debt markets were in full retreat and that the country was headed toward a major recession. Whatever, guys, whatever. I stated that the expense reduction plan we submitted as well as expense reduction in the rest of the bank was needed to sustain existing profitability, much less grow it. They also needed to mothball bank expansion and stop making bad conventional commercial loans in one major branch location while cutting expenses where they could. They strongly disagreed and stated they believed any downturn would be short lived, that we needed to focus the division on making even more money. My NSM was floored and stated his disagreement while my SCO sat quietly. Allegiances were revealed as a result. Judas had turned the job scared SCO, the one guy he needed to keep credit administration going since he had no personal knowledge about making loans.

There was no peaceful resolution. The owners never intended for there to be.

Step Five of my eventual termination was completed.

The Last Days

I had already cleared the personal items out of my office beginning six months before. Our senior division attorney and NSM did not trust Judas at all and kept me informed. I told both to be smart and not do anything rash. If it was not going to work well for them going forward to be about finding new opportunities in advance.

I received the call to meet the owners at the airport in a meeting room about three weeks after the last bull in the ring event. We all knew what was going to happen, there was no need to pretend. I thanked them for the “opportunity” and not to bother staging anything, I had figured out what was going on many months before and would not be a problem subject to how they proceeded from there. It surprised them, so they cut to the chase. They offered the deal I could not refuse. A parachute into retirement was on the table. I told them I would review the proposal with my wife and have my attorney handle the details of the agreement if we agreed. We shook hands and headed home. Rock Star agreed completely it was a reasonable deal and was happy to have her husband home with no competition for his time (as was husband).

I simply did not trust them to be able to survive with how they analyzed situations and operated. I countered their ten year non-compete proposal with a five year non-compete on a ten year agreement with 75% of the compensation loaded into the first five years. My attorney went to work and knocked it out as I wanted it in a couple of weeks. I agreed to stay out of the way and let them build relationships with the employees and officers. None of them were on contract, so they would be free to stay or leave at their discretion.

Since there was no yoking during employment the parting was relatively easy. The yoking that occurred with the parachute required nothing of me other than not competing with them in that line of business in return for long term compensation with no other strings attached.

I was done.

Conclusion

There was no sadness, only joyous relief that it had come to an end. Family, friends and church members were a bit shocked. We assured them we could not be happier as a family. Our closest friends celebrated by throwing a party for us. As time passed and the economy began collapsing many of the people around us understood better. I knew it would take at least five years for economic conditions to become feasible to justify the effort it takes to build a similar operation. However, I had no desire or intention to ever do it again as long as the bank could make it five years.

In my heart and mind there were other, more important things to do involving family and kingdom work that I wanted to focus on the rest of my time on earth. Now I would get the real “opportunity” I had long sought that had nothing to do with chasing a dollar and building a career.

I had always viewed my role as one to bring “salt and light” into the workplace as in the scripture passage of Matt. 5:13-16. I had numerous other coworkers who believed their roles were for those reasons as well, which helped us help others. None could legitimately say that I did not try to lead by what The Word says to do even if I messed it up occasionally. However, when you do that you do so by gripping lightly on the reins. When your leadership is no longer desired, you shake the dust from your feet and move on as Jesus instructed in Matt. 10:11-14 and Mark 6:11.

The deniers and haters are left to sink or swim on their own.

With the next chapter I will fill in some areas and give the autopsy of this last small business banking employer. It will be a time of observation of Gods will at work in Goober Gump’s life without him knowing he needed it.

Be blessed.

Back In My Day: Civilized War – The Countdown Begins

To recap events; we had developed a very successful national small business lending operation that was doing business on Wall Street within a period of 3.5 years from startup working from a rural, historically underperforming state chartered bank in Podunk. We had successfully assisted our industry recover from political malfeasance in a manner that established the foundation for the SBA’s primary lending program to become self funding and sustaining, which is continuing today. We were making the owners of the bank far more money than ownership ever dreamed possible prior to our arrival. Our staff was competent and well compensated, prepared to take the next step as an industry leader as we had entered the Top Twenty in total annual loan volume with SBA’s programs along with expanding our conventional and USDA lines of business. We had developed a new, profitable spin on a SBA loan product that was being successfully pooled into CDOs. We had the support of regulators, government and a Big Three rating agency. Everybody in the industry knew our name and we had some competitors who had begun to copy our methodology for their own operations, which included my most recent former employer. That was the ultimate compliment.

We accomplished all of that without the city of our division headquarters knowing we existed beyond our annual business license renewal and despite the fact we had over 80 employees under roof in a prominent office building downtown with another 40 spread out around the country. Just the way I liked it, flying under the radar. We were developing an analytics based operating platform with our own programming staff that would be the envy of everybody in the industry that projected to be ready within a year. We had brought the owners an offer to purchase our division operations that would have freed them to expand the footprint of their bank statewide, which they said was their primary goal.

It was year end 2006 and we had turned the page to implement expanded operations and loan volume in 2007 at the insistence of the owners. The major shareholder personally told me to make as many loans as we could make. When I questioned him about capital and funding associated with same, he told me not to worry about that, he would make sure it was covered. Up to that point I had no reason to doubt it.

When I received the call a couple of months later to meet the owners and bring our SCO and NSM with me for an annual meeting to go over plans for 2007 and results of 2006, I thought nothing of it, just a routine occurrence.

The Meeting

To cut to the chase, it was a set up. A bull in the ring event and I was the bull.

The loan buyer we had recently committed to hire from Bear was there without my knowledge of his invitation. He had ingratiated himself to the owners over the period from when he first met them at his previous regional investment banking employer through my introduction. I was aware he was working with them on the investment side of the bank with the portfolio, but this was a whole different level now.

One of the ways he had increased his perceived value to ownership was by arranging for them to obtain additional Tier One capital through the issuance of what investment bankers call Trust Preferred securities. It is a quasi-capital investment used frequently during those days that was essential killed later in 2010 by Dodd-Frank. For those who want to know more about how the investment (scheme) worked please read the link.

https://www.investopedia.com/terms/t/trustpreferredsecurity.asp

The key part of the link…

“Phasing out or excluding trust preferred securities in the Tier 1 capital ratio increases funding requirements for banks and, in some cases, reducing the number of incentives for banks to issue trust preferred securities. The so-called “Collins Amendment” was proposed in the U.S. Senate to eliminate trust preferred securities as Tier 1 regulatory capital altogether.

Finally, the costs are among the disadvantages for companies issuing trust preferred securities because the trusts sometimes have features like deferral of interest payments and early redemption of shares. These nuances make them less attractive to investors and, therefore, the rates on trust preferred securities are typically higher than those offered on other types of debt, simply investors demand a greater rate of return. The costs of investment banking fees for underwriting the securities can be hefty as well.”

That information gives a glimpse at why ownership choosing this method of adding capital was extremely risky. It was also a method used by many growing banks nationwide.

The bank’s subject $15 million dollar issuance in the name of its holding company was underway with buyers committed. It was being done with the deferred interest payments and early redemption of shares rights as described above. The plan being executed called for the majority of the net proceeds to be used to buy out the 30% owner who initially resisted our division being started, who also owned a competing, larger bank and other businesses. Not necessarily a bad purpose except the actual funds would never make it into operations. There would be minimal added benefit of bank liquidity to fund their geographic branch and our division’s loan growth with less than $1 M being made available to us. They planned to eventually add deposits to fund liquidity for our lending purposes through the branch expansion and brokered CD’s that the investment banker/loan buyer secured.

The owners attempted to hot box me on profitability of our division. The lines were clearly being drawn in the sand. The investment banker/loan buyer was the fox in the henhouse. I decided to just play along and agree with them except on the profitability assertion. My SCO and NSM were dumbfounded and totally blindsided. I did not expect it, but was not overly surprised. In my years in this and most industries, greed nearly always overcame sound business principles.

I reminded them that our net income was three times theirs while still expanding operations to provide more in the future as we built our pipeline to cash in with loan sales. They conceded the point since they knew none of my team was under employment contract. They ended the probing with a “Well, you spoiled us with the previous year’s profit.” Yeah, OK. They wanted changes in our divisional executive compensation plans to incentivize more for profit than asset growth after having pushed for asset growth constantly (which continued) and approving the initial compensation plan. That demonstrated clearly they did not truly understand banking overall. In banking, increased profits follow asset growth if all things remain constant. Which they were not. The investment banker/loan buyer leaving a lucrative opportunity on Wall Street to join a community bank should have been their first major clue they were being used and unlikely to receive rapidly increasing profits.

It was also really easy to see at that point the division was perceived as mercenaries in their minds and when our contributions were deemed not enough or having met all objectives, we would be gone.

We agreed the compensation change could be arranged. They seemed happy that it could come to a successful resolution. Within a couple of weeks I submitted a plan for it and they accepted, which included strong bumps in salary to offset the reduced income upside and a potential reduction in executive incentive pay at present levels of profitability.

These things never end well when greed and hunger for power takes over. They had been willingly manipulated by the new guy who told them what they wanted to hear. However, he was regionally bred from west TN and went to the prominent private college there. He ran in the same Memphis area financial and social circles they did.

Over the course of the first half of 2007 he convinced them to sell off their bond investment portfolio to make room for more loans. He increased the amount of brokered CDs to fund liquidity. He did all of the classic things that a few in our divisional leadership team saw at Temecula that led that bank down the path toward destruction. He did not think I was on to him and I never shared with the other divisional leaders my conclusions. They did not need the distractions or the worry. There would be plenty of time for that later.

I had reached the point I was over it all. I remembered fondly the years after the equipment company disaster as our family unit rebuilt our lives and the blessings the Lord provided while I worked from home and directly helped small business owners. Working one on one with them was my first and deepest love working in the business. The employment politics, Wall Street, lobbying of politicians, dealing with regulators, etc. were draining my zest for life. I had nothing left to prove or accomplish in what the Lord had placed before me and now the fruits of our labors were beginning to show signs of spoilage.

Parallels

In that same year I was still hurting over the recent death of my father. Best Kid had graduated from HS and was enrolled in the local community college, chasing boys more than studying. My wonderful mother-in-law was in the middle of her ten year battle with dementia and Rock Star was on the road constantly tending to her personal needs and financial affairs, which included time spent as a volunteer working with the residents at the assisted living center where MIL resided. I was Pastor/Staff/Parish chair at our church and as such had been met immediately with the attempted suicide of our worship leader whose wife had gone lesbian. The same worship leader that a few weeks after he had been hired had presented a video of a homosexual Jesus and his merry disciples at a Wednesday night service while the senior pastor was out of town. The same senior pastor had not been informed it would be shown as part of the WL’s “message” to the congregation, but also who had not cared enough to inquire about what the WL planned to present.

There was also a mini-pedophile invasion into the congregation that year through a misguided decision to operate a Celebrate Recovery ministry without having sufficient trained volunteers from membership to staff and control. Our family had opposed having the ministry for that very reason. I was then having to act as an ear for rightfully concerned members. One of several CR participant pedos was later arrested that summer for being observed in a nearby Wendy’s performing the dirty on a wheelchair confined handicapped child in a restroom. It was the second time he had been sent to prison for the activities, where he still resides today. One family from the congregation then came forward and said the same guy had attempted to groom their teenage son. A large group in the congregation demanded an audience with the District Superintendent, who subsequently attempted to placate instead of respond appropriately to their valid concerns. All of them left the church permanently. The Senior Pastor was transferred out a few months later. When it was all said and done, a third of the active members were gone in weeks, which killed the church’s mission, finances, and perception in the community for years. Yet the CR ministry remained with a promise to do better from its leaders because we did not have enough member votes to terminate it. It finally died a natural death several years later as the congregation continued to dwindle in size.

Lesson learned: Do not attempt to do even well intentioned endeavors without clear revelation from the Lord while counting the cost and commitment required. I thought we were a congregation that would know to do what the Bible says to do. What made it worse is the conference UMC leadership had approved its implementation and provided no oversight at all through the years of its existence.

Back At The Ranch

The investment banker/loan buyer will be hereafter referred to as Judas. Not because I see myself as Jesus in this story – perish that thought immediately. His reference as Judas is because he did what Judas did. He sold his personal integrity for thirty pieces of silver to the worldly authorities for personal gain. That he would forever regret that decision later would be a lesson this Judas would learn in the ensuing economic collapse. I knew what he was doing, just as Jesus knew what the real Judas Iscariot was doing in secret. Observation of internal activities, comments from loyal coworkers, and the huge debt market bubble beginning to burst on the street told me. He claimed he could move all of our pipeline of loans at budgeted premiums. The truth was becoming apparent in my conversations with buyers and other market professionals that was unlikely. The owners may have bought his story, but I did not.

Have you ever been in a situation where you sensed it was not going to end the way you preferred, yet knew you had to follow it through to its conclusion? This was it for me.

At this point in my life I was totally burned out with the game playing by people in authority who thought they knew more than they actually did. It was always such a pathetic, fruitless exercise. Chasing after money and power at the cost of your integrity never satisfies and eventually leads to destruction. The drama of it all made me think of the following for years afterwards.

I knew I could take the core staff and leaders with me to another employer and do it all over again as there were many potential employers who would have jumped on it. I even had local options, one of which BIMD readers were informed of earlier in this series with a certain basketball coach’s (now ex) husband. However, it would mean going much slower with the economic meltdown on the horizon. I just did not feel the Lord leading me in that direction and I knew I was not much interested in it personally unless he did.

So after prayer and consideration I chose to play out the existing “opportunity” for all it was worth and head to the house when it inevitably collapsed. I would wait there for future assignments from the Lord, if any.

With our continuing business operations, Judas had to deliver buyers for our loan sales in his role. I cut off Bear Stearns as a buyer in early 2007 and not because we had hired Judas. It was because they low balled us on pricing the next $100 M loan pool sale. Big Dog called personally to push for the sale during which time he expressed concern for my personal mental health for not selling to them. Seriously. The guy confirmed everything I thought he may have been during my visit in his office. That he stooped that low to call hillbilly land for business told me how desperate they were becoming. However, when I informed the owners why we would not want to do business with Bear when they were offering half what we could get from others buyers, they doubted it was the right decision.

Geez. Still have trouble understanding how they ever owned a bank.

The buyers we primarily turned to during the period were insurance companies, Aegon Insurance in particular, and credit unions who needed earning assets. Meanwhile I asked the SCO to tighten credit parameters on the new 504 program loans and do less construction related requests despite the bank owners demanding more profit as well as more loan volume. It was time to slow the flow in that program as the reducing numbers of loan buyers were getting very picky and pricing lower.

In one meeting with Aegon on the activities in the national debt markets I found myself fully agreeing with the highly experienced and accomplished Aegon buyer to the dismay of Judas. The Aegon buyer still committed to purchase a small pool of $50 M due to the safety of our loan product, however, he said he was retreating from buying overall as he detected very rough economic seas ahead. We followed up that meeting with another with the CFO of Stanford Federal Credit Union (yeah – that Stanford), who flew in to see our operations. With their purchase commitment we had concluded our loan pool sales needs for the first half of 2007 on budget.

Conclusion

This is a good stopping point to absorb the progress of the story before we begin the last chapters. The theme will become increasing apparent, so I might as well leave you with a scriptural metaphor of sorts that leads to an analogy that is defined by an apparent paradox. Yeah, I know, too much information.

As Christians we are instructed to not become unequally yoked with non-Christians. This is Paul’s instruction to the Corinthian Church found in 2 Corinthians 6:14.

“Do not be mismatched with unbelievers; for what do righteousness and lawlessness share together, or what does light have in common with darkness?”

Yet, as Christians we are also instructed to remain salt and light in a world troubled by sin and evil per Jesus in Matt. 5:13-16

“You are the salt of the earth; but if the salt has become tasteless, how can it be made salty again? It is no longer good for anything, except to be thrown out and trampled underfoot by people. You are the light of the world. A city set on a hill cannot be hidden; nor do people light a lamp and put it under a basket, but on the lampstand, and it gives light to all who are in the house. Your light must shine before people in such a way that they may see your good works, and glorify your Father who is in heaven.”

How can we do both in the world today? We will pick up on this to start the next chapter. Blessings to all.

Back In My Day: Civilized War – Greed Revealed

As we left the previous part, our Bear Stearns loan buyer had made the overture to the bank owners to buy our division. We had proven our value to a well known Wall Street investment banking company. The owners green lighted their review of our operations after confidentiality/non-disclosure agreements were executed.

Legally representing our side in the new line of SBA 504 business was an accomplished Chicago area attorney who had handled the previous two loan pool sales for us. During the process we learned he represented the large, international Morgan Stanley operation through the years. After being involved in the sale of our two pools he asked me if I would be interested in having a conversation with them about our lines of business. I indicated we would once we had accumulated another $100 M pool. It was the summer of 2006 and we projected to be ready to do another in the first quarter of 2007. For now it was time to see if Bear and the bank’s owners could make a deal.

NYC Here I Come

Big cities give me the willies and NYC breaks me out in hives. I have never faulted others for loving it and I can understand the attraction. However, when I walked those streets and dealt with the people on the Street through the years I felt like I was in a very strange land. My stays could not end quickly enough. Sort of like how Jim Croce sang…

I had long moved past ever desiring to progress in my career to working on the Street. Thankfully the visits were short at this point in my life. We even have close family on my wife’s side living on Long Island on the south shore in Islip. Doesn’t matter. Love them and wish them well. They can have it.

Due to the congestion and commute time being shorter I flew into Newark. Our loan buyer was there to pick me up and we headed to the hotel to check in. We had a full schedule over two days and it started that very afternoon meeting hedge fund managers that purchased Bear’s Collateralized Debt Obligation (CDO) securities. We were prepared and the meetings went well. The primary points of the conversations concerned our underwriting methodology and abilities to process loan closings quickly and correctly with our own legal staff coordinating title companies and attorneys. They were reassured of the later when I explained we had previously hired a rising star of the Jones Day law firm from their original Cleveland, OH headquarters who was born and raised in east TN. I toured through each operation briefly to get a feel for their capacity and appetite for what we did. That evening the loan buyer and I enjoyed a good steak dinner at a local hotspot and turned in for the night.

The next morning it was off to meet with the Bear execs. Their 47 floor world headquarters had opened a few years before on Madison Avenue. It was very impressive. I was given a short tour along with brief introductions to some of the managers on the Asset Based Securities (ABS) side. Lunch was held in the corporate dining area before formal meetings with the ABS execs as well as a couple of the corporate execs/Board members. It was during the private meetings that followed with the ABS execs that worked with the CDOs with whom we had most involvement that things got squirrelly.

Could not resist…

Dem yankees would never catch the humor in that one.

The first thing they did was call in their favorite shoe shine guy. As we all sat around in the top dog’s office he had the guy shine their shoes and wanted him to do mine. Which was weird because the exec commented that he noticed I was wearing new classic J&M wing tips. Apparently this was a ritual they did several times per week before or after lunch. Frankly, the way they acted and treated the shoe shine guy was off putting to me. That the big dog even noticed my shoes said more about him than it did me.

We started talking business and they probed my brain for secrets to our success and what our expectations and needs were. He asked how much loan volume we could provide annually from Knoxville in a somewhat skeptical way, as in what could the hillbillies in the south ever have that we would want. I responded that we could do as much as they were willing to fund. He acted surprised and looked at the loan buyer, who nodded and said, “He’s not kidding.” The buyer told him what the current global market for the product was, which was expected to grow strongly with the appropriations resolution that I helped negotiate. I told him we had every aspect of national operations covered with quality managers and staffing that were well trained and an operations platform that could deliver. We had a great relationship with elected officials, SBA, USDA and regulators. I then reminded him he probably already knew that from the Fitch and consultant’s reports he had been provided.

He started laughing and looked at my loan buyer. He said, “You guys are two peas in a pod.” He softened his attitude a bit and thanked us for the business we were giving them. He told me he looked forward to pursuing a deal. We moved to the office of the exec over the department in which we had involvement. It was one of the people named in this article:

https://www.newsmax.com/Finance/FinanceNews/subprime-Wall-Street-banks-Bear-Stearns/2013/08/02/id/518381/

Although I briefly met a couple of the other people mentioned in the article, it was this guy who handled our business:

https://www.newrez.com/press-news/newrez-president-baron-silverstein-honored-with-housingwire-vanguard-award/

https://finance.yahoo.com/news/newrez-expands-access-affordable-home-202800872.html

It was during our conversations, which were cordial and much more down to earth with just the three of us, that I was asked a loaded question about a different industry than ours, but whose loans were included in the same CDOs as our loans. Baron knew that there were large residential mortgage pooling operations as their primary lines of business that also were licensed to do SBA and USDA loans. He asked me my thoughts about several sub-prime residential mortgage lenders such as New Century, American Home and Bayview Financial. I had limited knowledge of New Century, however, what I knew was not good. I knew nothing about American Home. I knew a great deal about Bayview. Bayview was a major bottom feeder in our industry. They were sloppy, incomplete, probably fraudulent underwriters of credit. We would not hire their former employees. I told him that in my opinion their no-income verification subprime residential mortgage loans would be a major issue if Bear did not bake in very high loan loss provisions into the tranches as well as more room in the mortgage interest rates the loans charged that they bought. Many of Bayview’s appraisers of properties were bad news, the values would be inflated to make deals happen. We knew about the appraisal value problems from taking second mortgage positions on the homes of small business owners as collateral in our financing. We had our own issues with obviously inflated values from many of the same shared appraisers. In addition, without personal income verification they would be exposed to unqualified borrowers buying overvalued properties in overheated markets. I specifically remember telling him to run from them.

The blood rushed from his face and he turned white as a ghost. Oopsie. My loan buyer sat quietly and observed. Baron recovered and began talking specifics about our operations, but you could tell he was still clearly shook. We discussed he and his spouse’s recent visit to our area to the classy, elite Blackberry Farms and finished our business with each other, which closed out the meetings with Bear.

The loan buyer spoke briefly with everybody while I waited. We then walked back to the hotel and he began laughing uncontrollably. He said Baron had run back to the Big Dog’s office to tell him what I said about Bayview. He said they had been buying large volumes of pooled subprime residential mortgage loans for their CDO tranches they sold to the hedge funds. My response was that if they did not want to know honest answers to their questions they should not ask.

My intention was to fly back to Knoxville the next morning, however, with business matters completed I checked on flights as soon as I got back to my room. I was pleasantly surprised that a redeye direct flight home had a seat available. I made the arrangements, packed up, caught a cab and headed to Newark. I called the loan buyer and thanked him for all of his efforts. He promised to fill me in on the results in a couple of days. He felt good about how things went.

The Offer

The loan buyer called a couple of days later and gave me the name of a Bear analyst I would be working with for the acquisition discussions. He said they definitely wanted to pursue it. So I guess causing Baron severe heartburn that day did not work against us. In the back of my mind I could not help but wonder about how awful their understanding of credit was.

***** Critical Point To Understand *****

We are going to jump ahead in the timeline to make a serious point that will help with the rest of the BIMD story as well as the real world today. There is something important for readers to understand with all you see in the news about big banks in trouble and Wall Street activities. My loan buyer had correctly warned me before the NYC visit that investment bankers rarely understood the underlying credit of loans. They are profiteers and deal makers, not credit officers. The term “credit” means something totally different to them. As a result they are fully dependent upon the ratings of pools of loans by Moody’s, S&P and Fitch – The Big Three who do 95% of the ratings. The major investment banking firms did not invest big into hiring staff that had the expertise necessary to audit the credit worthiness of the underlying assets. As an example, at Bear their internal review of individual loans was random audit style by a young analyst working his/her way up the system. They took only a cursory look at some of the deals themselves and really did not know what they were seeing. The analytical staff worked off the statistics of the average performance of similar pools of loans in Mortgage Backed Securities (MBS) over time and built that into their formulas in the investments. The pressure to turn deals quickly was more of a concern than knowing the underlying quality of the securities they sold. They would take the Big Three ratings at face value and make the deals happen.

So when Baron nearly tossed his cookies in front of me that day, he was revealing he had no idea he was being fleeced on the credit of the underlying assets (loans) by Bayview that were being pooled for CDO’s and sold to Bear’s best customers in the hedge funds. As we learned from the various autopsies of Bear’s collapse through the years, this was also true with the other subprime lenders in their stable. For what it is worth, Bayview is international and still around today. They may have cleaned up their act, but I have no idea and do not care.

Think about that scenario and place yourself into the seats of the Bear execs. You are unwittingly screwing over your best customers while they are dependent upon you doing your job well with billions of dollars at stake. Not good. If you are the Bear Chairman at that time, Jimmy Cayne, you are spending your days off playing in bridge tournaments or golfing with no cell phone on you for your staff to contact. Too busy playing the dog and enjoying life to take care of business. That was a job for others to do.

So take it a step farther. Who are your customers in the hedge funds? Oops. Many of the customers are not American and not institutions. Some of the invested funds are from other business people, investors and leaders in other countries with “expectations”, especially when it comes to preservation of the capital they have invested. Some of them are not very nice people, like Chi-coms, Saudis, criminals and such.

Understanding that, we logically move one more step forward. If the parties that invest into a hedge fund with expectations of decent capital preservation and a good return on investment (ROI) learn they are upside down in their investment, they are not going to be happy. If you are responsible for this situation due to incompetence or lack of doing due diligence, you are probably preparing to make a hasty exit if you are not fired first. You may even consider doing something unethical or illegal to cover the “mistake” to preserve your income and lifestyle – or continue breathing.

That’s the real world, folks.

As a result, there is/was an unwritten rule in their line of business. You make the tranche holders of a MBS whole if it goes off the rails by refinancing it into a CDO that was combined with other assets such as bonds and other MBS investments. It is an in and out such that the holders suffer minimal to no losses on the original securities they purchased even if the ROI is watered down. Tranches are sold and the risk/reward is determined by the probability of default of the underlying investments in the CDO. The customers also understand they are not to take losses on their investments in the highly rated tranches. If they take losses they never do business with the company again. If you work for the investment bank who brought an underperforming CDO to market that suffered loss in the mid to low risk tranches; you do everything you can to eat the loss. You are not legally responsible, but you do it to protect your relationships with your good customers. In doing so, your investment bank loses money on those transactions.

Which leads back to the rating of pools by The Big Three. As I previously posted, Fitch was the one who put in the effort to understand our business and the underlying credit of the loans themselves. Moody’s was a complete zero – totally uninterested and just went through the motions. They rated our assets at BBB, the same as subprime residential mortgages. A 55% or less loan to value commercial real estate loan made to a profitable business with a good balance sheet is not a BBB risk by any measure. S&P was more interested, just not as enthused with the small global market of the product. There was not enough loan volume to gain their interest, so we never received or pursued the rating. Fitch was all over it and asked really good questions about the credit, industries, etc. When they gave the first small pool an A with a promise to increase it to AA in the next pool if the first pool was executed well, which they later honored; we knew we had our rating agency.

Bear liked Fitch a great deal, but used all three based on the desires of their customers. So when the broader market for CDO’s got in trouble in the national economic collapse a little over a year later, the execs would hide behind the ratings of The Big Three as their excuse. Which should tell about anybody that The Big Three were not all that sporty at understanding credit and the loans they rated either. They simply did not put in the work. Add in they needed contracts with the investment bankers to make money for themselves and stay in business. They did not necessarily have clean hands in all they represented.

Well, guess what happened in 2006 when Goober Gump hit NYC and Baron’s office at Bear? He arrived during the height of the shenanigans of rating billions of dollars of subprime pools of residential mortgage loans at BBB or A in the higher risk levels of the tranches of the CDO’s. In truth, many of those underlying assets were garbage in overheated markets, they just did not know it yet. Which speaks to how ridiculously bad their understanding of lending type credit was. That is until Goober in his own unusual way gave them advance warning. Which I am very sure they ignored and conveniently forgot as they began pointing fingers at everybody else less than a year later.

I hope you are grasping a reality with this story. Supposedly intelligent, business savvy people with Ivy League educations and elite contacts with other wealthy people worldwide were total simpletons in regard to understanding the real product they sold. They committed no time or brain cells to it. They simply could not be bothered with knowing more about the goose that laid the golden eggs. They were too busy killing it with pressure and greed. All of it encouraged by corrupt politicians following orders from their puppet masters, building the traps that ensnare the unwise and gullible.

Greed breeds unwise decisions. Success can breed laziness and inattention to detail. Power corrupts. Trusting the untrustworthy leads to ruin. All of that is included in scripture. Perhaps we should pay attention?

The sad thing is the real, evil worldly powers of this world know it and use it. They establish the systems and orchestrate the situations that lead to the melt downs. They create the booms and busts that lead to the excesses and failures. They position their resources to capitalize on the misery and seize even more power.

As a result; fast forward, rinse and repeat in 2023.

Return To The Story

Back at home I had numerous conversations with Bear’s assigned analyst. The conversations were some of the best I held with them. He was knowledgable and asked good questions. He was not condescending like their execs and did not lie or make things up. One day he called to give me a heads up that an offer would be going out in a week to the owners. We had reviewed and negotiated over the true cash flow of our division the previous week. They had also reviewed our projections should we be capitalized and funded appropriately. For perspective, exclusive of our profits, the rest of the bank made $2 – 2.4 M pretax historically over many years. In our division’s second full year of operations in 2005 we contributed $5.5 M pretax net income after their arbitrarily high, internally charged cost of funds, normal capital allocation and ridiculous administrative overhead charges for almost no services the bank provided. The later was intended to make the core bank look like it was doing better than it actually was. At the time of the purchase negotiation with Bear we were nearing 2006 FYE, which a few months later resulted in $7 M of pretax net income with the bank’s executive overhead increased by another $400 K. Due to projected sales growth for 2007, we had not budgeted net income to increase significantly above 2006 FYE. The net income growth would occur the following year as a large volume of construction loans went into permanent financing and the loans sold, which occurred as a function of emphasizing the SBA’s 504 loan program on commercial real estate.

The starting offer from Bear was going to be $19 M. I negotiated with him a bit and he stated their bottom line was $21 M, which I agreed was reasonable at three times annual cash flow. I told him I was not wanting to be involved, that if they were successful with the owners I would enjoy working with him and if not we would still be doing business with our loan sales.

It was a reasonable offer; especially for a bank with only $550 M in assets and a little over $2 M in net income without us. With the funds they would be able move into some major statewide markets with branch expansion while retooling their operations platform to better serve their customer bases with more technologically advanced products than they currently offered.

That is all we could do when we learned that the owners demanded Bear pay them $110 M for our purchase. The analyst called me with the results and I nearly fell out of my chair. He was serious. He said the owners were indignant in their responses. We wished each other well and said goodbye. I talked with our loan buyer and we just laughed about it. It demonstrated just how greedy and unsophisticated they were as owners of the bank. So business continued as usual as if none of it had ever happened.

As we were accumulating loans for our next pool sale a couple of months later in early 2007 the loan buyer called and said he was getting uncomfortable with how things were going at Bear. He wanted to know if we still had a home for him. He detected liquidity issues as some of the CDOs were in trouble and securities were getting difficult to sell. As a result they were lowering his pricing on buying SBA 7(a) guaranteed loans from lenders nationwide. I confirmed with the owners and we all agreed to hire him. He would be over loan sales and the bank’s treasury investment portfolio. He had other buyers for our loans and would be working for our best interests now. He would be working for us in the next pool sale to Bear, so we knew what the purchase offer should be.

This was my first concrete indication that all things were not well on the Street.

Conclusion

I hope this has helped folks understand what actually happens on the Street within some areas of the financial industry. The odd and somewhat disheartening thing is so many of the scoundrels never really get in trouble and end up being hired by a crony to do the same things they did before. They all run in the same circles and go to the same parties. Their kids go to the same private schools and they eat at the same restaurants and clubs. They talk the same talk, walk the same walk, look down on the peasants, and live lavishly. The whole thing is an incestuous mess existing in an echo chamber.

A few of the people I encountered were good hearted; they were just caught up in the mess and did not know why, how or when to exit. Many later rebounded in their careers such as Baron did. He remained married to the residential mortgage industry – the same industry that is doing the same things it did 15 years ago.

I wonder if any of them is feeling a little deja vu all over again as the economy craters and the winds of war blow harder?

Thanks for reading and hold on as Goober continues his ride.

Back In My Day: Civilized War -White Knuckle Time

It’s time to move this story forward toward its conclusion, especially with “banking” and an economy that is spiraling downward in the news.

My world was becoming one big adrenaline rush at work every week. The weekends with family, friends and church were all that kept me grounded. Over fifteen years later I still hate phones and frequently cringe when I have to use one. Being tethered to a Blackberry was just the worst. I also grew to despise flying. It had nothing to do with the act itself; when I relaxed enough it brought peace and beautiful views of our country from above. It was the airport experiences, TSA screenings, cancelled and delayed flights, taxis and rental cars, and so on that I disliked. Staying in hotel rooms during business travel is not enjoyable when you would rather be with family at home. I had rolled over the mid-century mark in age and was just not all that enamored with what the world says is the pinnacle of life.

I have linked this song before. However, it reflects what I was feeling at that point in life.

I understand, Luke.

Small Business Banking Unleashed

Our division was blowing the doors off financially. From start up to $270 million in annual small business loan production in a little over two years with projected growth of over $75 M annually for the next two years. We had grown from a group of twenty to around seventy employees during the period. We needed to stay ahead of the growth curve with our staff training and preparation. We were active in all fifty states and a national preferred lender with SBA. Customers were served well, audits were excellent, profit was well above budget, owners were happy and employees were generally well paid and with upside to their roles.

There was a really important reason for our success. We had a sincere desire to take care of our customers, who were people a lot like us. No elites, no easy streets, very little generational wealth to invest, no big business, more at risk personally. Our division staffing was a mixture of races and cultures that reflected our great country. Customers could easily identify with and relate to us.

I had spotted an opportunity for a new product with the recent resolution of the SBA appropriation and operational issues. My thoughts were centered around doing conventional first mortgage commercial real estate loans associated with the other SBA (504) program in a manner that involved pools that were converted to securitizations like currently utilized in the 7(a) loan program.

In the process our bank could share a relatively small tranche loan loss risk for any projected loan losses beyond the historical average for the industry. The investors would probably want our expertise with loan sub-servicing rights. We knew we could not be the master servicer in the Wall Street game, but we could still strip up to .25% from the interest rate and give the master servicer a share to front our operation. In essence this senior servicer would take over should we default on our responsibilities. We could then capitalize our portion of the servicing asset, take a gain into current income, and amortize it over the course of expected life of the loan as we did our 7(a) loan program accounts. All of it involved standard accounting practices for that type financing.

So, before I dig a little deeper into this subject and to assist those who either want to learn more to understand better, the following link may be helpful. There are other descriptive links into the specifics also provided within.

https://www.investopedia.com/ask/answers/07/securitization.asp

Just know that when I reference “tranche”, it is a level or portion of investment into the broader securitization. Tranches can have different maturities, credit ratings, and yields (or interest rates) within the securitization. The investors take various levels of risk and the return corresponds with the risk of potential loss they are willing to accept.

During our internal review we determined the potential tranche risk from loan defaults in the 504 program were minimal. The loans were made to small business customers for commercial real estate purchase and construction of facilities. The loans would be for a maximum of 55% of appraised market value. A SBA guaranteed second mortgage fixed rated debenture was behind us bringing total project financing into the 80-90% range. Should a default occur, the SBA would be likely to pay the holder out of our first mortgage position to gain control of the asset to reduce their losses. Even if the SBA passed on doing so, all parties involved knew it would be hard to lose money at the low first mortgage loan to value. Regulators and ownership of the bank also had the ability to reserve for unlikely tranche losses from defaults above the reserve rate baked into the transaction by using a portion of the premium income we received when we sold the loans. Again, banks who sell their loans typically do not receive premium as high as we did or accept any limited risk in the securitization to secure greater income. With our strong underwriting skills in credit decision-making we felt secure. This point will be one to remember for a future story.

Folks with knowledge of such financial activities may think that it was not an overly innovative process. However, for that loan program up to that point it had never been done that way by any lender. There had not been enough industry loan volume to justify the exclusive use of that loan type in a pool and securitization had they even thought to consider it. Historically over a couple of decades, purchasers of those loans placed them in conventional commercial real estate loan pools of mixed use and type for securitization, gave up servicing rights and assumed no tranche risk. As a result the profitability of what they did was hammered. They had to do very large volumes to make decent money at it. That meant only the larger institutions with excess funding could and would participate.

Since I firmly believed then and now in working smarter, not harder, I felt that we either needed to dig deeper into this hybrid proposal or not participate in the 504 loan program at all. Our investment banking loan buyer from a respected regional investment banking firm loved the idea. He immediately set up meetings with the brass at his company and they started analytical work to see if it was viable and how there could be a win-win for all parties. We were a national small business loan origination machine, they could be a significant back end profit contributor for us if this worked as designed. They could then sell the program to other lenders nationwide as well as into other business segments and do well. All of it would enhance the overall viability of the endeavor in a growing niche.

The need to do this to grow our operation was fueled by necessity. When we compromised in our industry appropriation negotiations, we gave up a profitable method of financing commercial real estate through our bell cow 7(a) program. It was inevitable it would happen eventually, so giving on the issue at some point was expected industrywide. As things stood we were just brokering the 504 conventional loans to pooling banks for a 1% origination fee, who in turn sold the pools to Wall Street brokerage firms for securitizations where the big money was made.

We needed a replacement for the no longer available income stream or else we needed to slow our expansion and sell the owners on being satisfied with how things were. We knew they had big dreams of bank expansion statewide and were pushing for even more income. So, I involved them in the hybrid discussions with the regional brokerage firm to get their support should it come to fruition. As it all developed and began to make sense, the owners and their CPA green lighted it. Under current market conditions in early 2006, we all agreed our bank would receive a premium of 3-4% from typical loan pools plus the sub-servicing rights. This was about half of what we were receiving on 7(a) loan program premiums, however, we would be selling 100% of each loan into $50-100 million pools and not retaining 20% of the loan on our books that the 7(a) program required. The loans were much larger than the 7(a) program average as well. So we could make more loans to help more customers with the same funding and capital allocation using existing staff. It now made sense.

Our systems could handle such a move. We had previously moved well beyond the traditional bank’s abilities to deliver assistance other than funding and HR. The owners had authorized us to contract FiServe and their bank operations platform for our staff to book, bill and service the loans. We had built our own legal, accounting, audit, compliance, programming, etc, departments in addition to regular operations relating to delivery of loan products to customers. We were ready for this launch.

We could meet the needs of our customers, our owners, our loan buyers, the SBA’s initiatives, regulators, and ourselves. Win-win-win-win-win-win.

One of the conditions of the program’s launch was that our division’s operations would need to be examined by one of the three primary rating agencies; S&P, Moody’s, or Fitch. In addition we would need to have an initial review of operations and the bank by a prominent bank consulting firm noted for their expertise in the industry.

We accomplished all of that over about six months and through the process learned that Fitch was the most engaged in learning what we did and how we did it. So our prospective pool buyers were informed and accepted them. We provided all of the third party findings and reports to the state banking regulators, FDIC and SBA. They all approved. Our sales force was excited to have something no competitor could sell at that point.

It was “go” time.

Opportunity Knocks Once…

And then it moves on. We answered the door, invited Opportunity to come in, and now it was our job to help it bring rewards.

However, in business there is one very important truth to always remember. Opportunity can make for a wonderful visitor. It also should remain a visitor. Once you allow it to become a member of the family it can make a mess if not handled well. There are times you embrace it and make it comfortable to stay longer. There are other times you have to be willing to kick its azz out the door.

As an example the successful real estate investor knows to never fall in love with a piece of real estate. If your propensity is to do that, to not be ready and willing to part with something you have purchased at a moment’s notice; you should find another endeavor. It is the same principle that should be applied in nearly every business.

Our loan buyer dropped a bomb on me about the time we were finalizing the program with all of the related parties. He stated that he had a unique “opportunity” to join Bear Stearns in NYC and open a national small business loan program purchase desk. This would be the first time a Wall Street firm had been directly involved in loan purchases from lenders in the SBA loan programs in its history. The global loan volume was projected to grow exponentially over the years since the industry’s appropriation resolution with government, which made it more attractive on the Street. First, he wanted to know if we would sell our 7(a) loans to him there instead of to his soon to be former employer. Since he treated us well for a few years, was a noted expert in the industry, and we were not contractually linked to his former employer; that was an easy one to affirm. The second request was that he be allowed to pursue our hybrid program at Bear. It had not been legally “protected” at this point in the process by either us or his soon to be former employer. He stated he would modify it a bit that did not affect our return or risk while providing us higher premiums. He advised me to wait awhile before notifying his former employer until he had time to get it done at Bear. He let me know what this former employer was planning to pay us as the premium and that we needed to see that was true for ourselves by pricing our first $50 M pool with them. If true, it would prove they had been baiting us with one estimate and then planning to offer a lesser premium than we had originally determined was on the table when it became time to close the first transaction. He wanted to prove to us we could trust him.

He had one final request. If the Bear Stearns move did not work out as he envisioned, he wanted to retain our business at his next stop or go to work for us. Always looking for talented people to build our business, I agreed and informed the owners, who concurred. In addition to handling our division’s loan sales desk, he could also handle the overall bank’s treasury investments if he needed a home. I saw a need for our organization as well as the bank itself to mature as we grew and become more professional in a wild, wild west industry, which he could assist in accomplishing.

We all began to play our parts. The buyer’s former employer did exactly as he said they would, breaking the bond of trust that had been built. I guess they thought they had us over a barrel with no other options in selling the first pool. Of course, they were dead wrong. They not only lost over $100 M of annual 7(a) loan purchases, they lost the hybrid opportunity by doing so.

Meanwhile…

The nagging management headaches continued which extended to dealing with the owners as well. Personal egos and excesses would replace reason and respect at times. These and other situations were unneeded distractions. It was also obvious that it was becoming time to thin the herd. I asked department heads to formulate plans to trim the payroll of non-productive staff as well as make-work type job functions.

Our Bear loan buyer was busy setting up his operation and kept me informed of his progress. We completed our first two pools of loans for securitization over the next few months and sold them to Bear at a good premium. The owners were so proud to be doing business on the Street they bragged about it everywhere they went.

One day that year the buyer called to ask if I thought it would be possible for Bear to buy our division. It appeared he had been very busy selling us as well as the hybrid program internally and wanted to expand his kingdom. I would report to him if they got it done and would be contracted to operate the division autonomously. They did not want to buy the bank itself as they already owned one. I thought it would be worth pursuing to give the owners an option to cash out on our success as well as increase our unit’s ability to serve our growing customer base. I had detected the beginning of unreasonable profit expectations for the market by the owners as had occurred with other employers over the years. Greed was rearing its ugly head – again. I asked the buyer to directly approach the owners and see if they had an interest in talking.

Operationally, I had long desired to move the art of credit decision making of yesteryear into more of an analytics based method using historical statistics and data tied to proven credit parameters. Due to federal banking records retention and safety requirements, I had already compelled the credit, loan closing, and servicing areas to incorporate electronic document scanning into their operations. However, resistance to change slowed production. Eventually that would need to change as programming work for the new operations platform involving underwriting would inevitably lead to doing things differently.

Despite all of our discussions internally with some key mangers, they were still not fully grasping where all finance related businesses were headed with technology. The old school thinking in our ranks was still strong even with the younger employees, while this old guy had gone new age. Our division’s CPA/Controller was totally supportive of the move, so when it became time there would be very little defense for staying the same when the data and analysis was presented.

Conclusion

The owners gave permission for us to explore conversations with Bear about an acquisition of the division. The next step would be for me to visit with the Bear execs in NYC. At this point everything appeared to be flying high on Wall Street and the nation economically. It was time to see if there was a fit. So the flight and lodging was booked on Bear’s dime and my time allocated. Our loan buyer would be there to greet me at the airport.

We will pick up at that point in the next part. My world was about to take an interesting turn. I will also begin inserting parallel stories. I sincerely hope this is providing insight into some of the business world you hear and read about as we go. For example you can insert billions of dollars, instead of millions that ours covered, into a multitude of securitizations and industries in the debt markets that are just routine business on Wall Street.

Of course, the spoiler alert is that Bear was the first on Wall Street to fall in the economic and debt markets collapse of 2008, so stay tuned.

Back In My Day: Civilized War – Faith And Winning

Faith. James said,”You have not because you ask not.” (James 4:2-3). This verse is from the letter James sent to the twelve tribes of the early Christian churches to bring truth and wisdom from the Lord. James was all about the action of the wagon wheel meeting the road. Faith without works is dead as he taught previously in Chapter 2. He taught that faithful people endure trials, trust God for His wisdom, set aside all forms of wickedness and take care of the less fortunate.

Could our MAGA movement use this type of faith today? We have been through a lot as a people. But has it been more than the founders of this nation, who declared their independence under the wings of God, while fighting for their freedom against all odds and a world empire? They sacrificed everything for those principles. We see that their success was due to faith in God, country, one another, freedom, and liberty for all. God knew their hearts. Those founders of America put it on paper for all the world to see, then committed their actions to that end. Events and things happened that were inexplicable that led to their ultimate victory and successful building of a nation. That commitment led to our love of country today, which also leads to why we are upset and unsure of what to do to restore it as we watch the institutions we trusted crumble in front of our eyes.

From history and The Word we know the early followers and disciples of Christ did not govern nations or lead militaries in war. So, how could a ragtag bunch of generally poor people with no influence in any culture or in any government of any country in which they lived help change the path of history forever?

Faith. They believed, they acted on the belief. They lived the commandments of Christ unto death if it was required of them. They did it because they knew this earth was not their eternal home. That once it all ended here, it began for all eternity there.

Where are our eyes? Are they trained on Jesus? Are we looking to do things His way, The Way that changed history and eternity forever for every human being? If he was physically standing right in front of us as He did His disciples and followers, what would he say to us collectively as well as individually? Would he want us to go charging off in a grand gesture of power and might, or would he tell us to do the one thing that was important to the Father right in front of us of each day?

The Phone Rings For Thee

After I returned from DC and had a weekend with my family I felt recharged. I headed into the office it all started as a normal Monday. I worked through the morning routine. It was about 12:15 PM and the phone rang. It was Rohit.

He was on the Senate floor and had been in negotiations over our industry’s needs much of the morning. He said he was making progress, but Sen. Kerry was causing “mischief”. They were having to give some to gain some in not only our area, but in several other unrelated negotiations over different things. That was delaying the successful conclusion. He was calling me to ask for the bottom line of what we needed.

That was above my pay grade. I told him we would need to get our association director on the line with us to flesh that out and he agreed. But there was a problem.

Our landline phone system was in the middle of an upgrade that week. I could not teleconference. Rohit was calling from the Senate floor, it did not work well for him to try it from his cell either. The old Blackberrys had the ability to teleconference when they did not drop the calls, which was often during those days. I could not take that chance. I asked him if I called our director with my Blackberry and relayed comments between the phones would that work for him? He said that would not be a problem at all. He just needed to know the acceptable parameters, so he could finish it all that day or the next.

Which is exactly what I did. I had Rohit on the landline in one ear and our director on the Blackberry in the other ear. One would say something and I would repeat it for the other. They could actually hear each other somewhat. I added my thoughts when asked. We developed a rhythm and knocked it all out in less than 10 minutes.

Goofiest thing I ever did in business. Probably the most important thing I ever did in any position I ever held as you will learn as we continue the story. We gave a little on guaranty and lender fee charges to gain some additional room on the appropriation going forward as it would help the program’s viability and not materially harm its attraction to small business owners and lenders.

Boom!

Rohit told me it would be couple of days before he got back to me if nothing came up. Those couple of days went by with no contact. We were beginning to wonder as Thursday rolled around. Then the call came. Rohit got it done. It was agreed to exactly the way we discussed it. Which also meant Sen. Snowe and Rep. Velasquez had come through in conference. He said Kerry had tried to pull some last minute stunts, but they shut him down and held him to previous agreements. Did I tell you I never liked that guy?

Score!

He said I could contact the association’s director to inform and that he would follow up with him in a few days. The Omnibus would go through its vote in a couple of weeks, but it was bipartisan supported and no problems were anticipated. I called the director with the news and also told him the ball was in his court, I needed to get back to work on our stuff.

My satisfaction was enhanced by the fact we did hit three of four as I hoped in Sen. Snowe’s office that day. The sacrifice of the piggybacks worked.

The Heritage Foundation, who W listened to and supported, would have preferred to kill the SBA as an agency altogether. They had stated as much and lobbied for that to happen. It was obvious that Barreto was inserted as the director of SBA by W as a tool for that purpose. To verify that was the intent, the facts are that SBA’s workforce was downsized by 30% in the Bush years during a major growth period in its loan programs usage.

What happens in any enterprise that lays off 30% of its workforce with increasing demand for its services or products? Yup – supply and servicing gridlock. Just as they planned.

The smaller businesses being supported by the 7(a) held no interest to them. They played dirty to hurt a large segment of small businesses and Americans they were to serve. They did not care. So much for believing in the RINO/globalist wings of the GOP even BIMD.

All of the political turmoil and conflict over the issues were driven by…

Scarcity Versus Abundance Mentality

Every Christian who has studied much of the Bible knows to what I am referring. One of the many wonderful things Jesus did was to guide us into the understanding of abundance. Satan wants us to experience the opposite. He wants us to suffer and have less. When we fall for that we see things as being scarce, that we better grab all we can for ourselves, and not follow Biblical principles to share with others. This leads to death and destruction.

Many people simply do not understand that God has already won the war. His ways always take precedence. Yet, the ignorant go along with losing and believe the loser.

In the SBA example above, it jumps out at the reader who was who. Who wanted to kill an agency of government that worked to promote small business growth in America? Who supported larger business and wanted to see less competition for their preferred businesses?

Which is why, despite my disagreement with many positions on other issues, that I had so much respect for Sen. Snowe. She went to the mat for us with her leadership and influence because she did not align with the faux conservative Heritage Foundation politicians, which were and still are just globalists. Rohit and Sen. Frist as majority leader pulled the strings to make sure everybody stayed in line after handling Kerry and the Senate Democrats. We gave our opponents a win on our least and their most valuable parameter. We felt the two programs and related customers could both do well and peacefully coexist. The other side would have preferred to kill all of it, but settled for enhancement of their pet program.

Ultimately the deal got done because the Lord blessed it. It was the right thing to do for America and the right people who were not self serving supported it. It worked together for good. Which would be proven BIMD as well as today.

For what it is worth, the word “abundance” is used over 230 times in The Word. It is found from Genesis to Revelation. Must be a pretty important principle for us to understand, right?

You can identify many of the enemies of God, of America, personal adversaries and so on by observing their words and actions relating to scarcity and abundance. My Mamaw lived in poverty all of her life, but always seemed to have enough. She used to say that people who sold scarcity were connivers.

On With The Show!

A couple of weeks later everything passed and W signed it into law. There was hardly a whimper in the press about it as it was sandwiched in with many other items. However, it was over as an issue. Included in it was a larger appropriation for the agency for future fiscal years. Our elected officials seemingly saw the light and gave us and our customers the consistent delivery we lacked while controlling the fees paid by borrowers and lenders to a manageable level.

Only a handful of people knew about how it got done in DC and even less knew about the phone incident with Rohit and the director in my office. Only Goober Gump could have experienced something like this that could have been disastrous, yet, somehow turned into a big deal.

During the next year I was asked by the director of the association to go on the Board. I literally had no time left to do so. So I recommended my NSM and he agreed. My guy was younger, experienced, very competent and did not mind the travel. He is still on that Board today, sixteen years later. He has grown his career into an industry leader.

N’awlins

It became time to attend the industry’s conference and trade show in New Orleans in the spring of the next year. Rock Star and Best Kid could not go because of school, so I was traveling alone. Our three owners were coming separately to experience it for the first time.

What happened upon arrival was bizarre then and still is to me. I do not want to appear self serving or aggrandizing. I prefer to stay under the radar and did even BIMD. However, I will discuss some of it here to illustrate a point that we need to be ready for when our number is called no matter how big or small the calling may appear to be. We need to stay grounded and faithful. It all fits together in the magnificent mosaic of Yahweh.

For this part of the story I will just go point by point.

I checked in at the front desk of the Wyndham downtown. They said my room had been upgraded. I asked if that upgrade could be given to my CEO and his wife since I was traveling alone. They and my CEO both declined. So I took the room key and headed to the elevator.

I immediately noticed in the elevator it was on the top floor. It turned out it was the only suite or room on that floor.

I did not go in. Oh my, I thought, what have they done? So, I rode back down the elevator and went to the front desk. I told them there must be a mistake, the room key was to the Presidential Suite. No, the desk clerk replied, it was mine for the duration of the conference, that I should enjoy myself and if I needed anything to just pick up the phone.

I could not believe it. A $4000 per night suite for one hillbilly. It still did not register why this had happened.

This guy had stayed in nice lodging before, but nothing this opulent. Several thousand feet of space, huge dining room with a 24 seat formal dining table and big kitchen, fireplace in the formal living room, grand piano, six bedrooms and seven bathrooms, and on and on. All with a beautiful view of the city and river with just me in it. Ridiculous.

I called my wife and told her that I wished she and daughter were there with me, that it did not feel right without them. She told me to enjoy, make photos, and stay out of trouble!

Sleep did not come easy that night. That whole scene ain’t me. My style is more like sitting on our screened deck watching an east TN sunset with Rock Star before hitting the sack even BIMD. I ended up using the suite for meetings with prospective employees after giving the owners a tour.

Surprise, Surprise

After breakfast the next day the director gave his opening remarks. There were about 400 people from the industry in attendance and the mood was good. The economy and industry were rocking, the mood was good.

On the agenda was an item that said Special Recognition. It still had not dawned on me that something was up, but it was. A short time into his opening remarks the director said he wanted to recognize the efforts of all those who helped with the recent legislative efforts to restore the program, but one person in particular he wanted to come forward to accept a special award from the association in gratitude of his efforts.

Uh, oh. Goober Gump heard his name called. It finally dawned on me what had happened. Our association had paid for my lodging and travel expenses as a gift of appreciation.

I remember being shoved up the aisle by my CEO to accept it. It seemed like such a long walk. Fortunately, I only had to mumble a few words of appreciation and give credit to those in attendance in our industry as well as the director for all they had done. I was in shock as I returned to our table. The owners were smiling ear to ear. They had been in on it.

One of the first to congratulate me at the lunch break was the DC lobbyist. He told the director what had happened with our visits in DC. You just never know.

The downside was everybody became my friend at the conference after that, even competitors. Funny how that works. If you have money to lend or invest, fame, or perceived power and influence; everybody becomes your friend. It is all so fakey and superficial.

The second evening of the conference a few of us decided to take a walk through the Quarter to stretch our legs since it was just a couple of blocks away. I had heard wild stories, but not seen it for myself. The stories are probably true. As an example there was a young woman standing on a pedestal beside the entrance to one bar, wearing only an accordion that she played – across the street from an old, historic church. The party pros in our walking group who frequented the area in the past knew which side streets to not go down, which was concerning. How did they know and what happened there?

They acted like they knew…

I lost all interest in ever choosing to visit there again.

Conclusion

The conference ended and all of us headed home. I received a hero’s welcome at the office, which was humbling. It did give me the opportunity to explain how the Lord wove it all together and that I was just a messenger that he used. He deserved all of their praise.

As the summer was winding down one evening I turned on the news on TV to see a report about a newly forming hurricane in the Gulf of Mexico with the name of Katrina. It looked like it was becoming huge and heading toward Category 5 status. Its tracking was being predicted on a path toward… N’awlins.

That hotel and its Presidential Suite were about to become ground zero in a weather war zone. An area of the country I planned to never return to became one I did return to with emergency relief and construction teams from our church and other relief organizations. More on that later.

The highs and lows of my time in N’awlins brought to mind the famous quote by Charles Dickens, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

Stayed tuned, the seas will turn choppy soon enough for Goober and team. Change is always the constant. Our outlook helps to determine how well we deal with it.

Just let Him look out for you, too.

Back In My Day: Civilized War – Trying Times

Per Thomas Paine, “These are the times that try men’s souls.”

I did not steal the use of that line from SD. This story had already been written and I am not changing it because it is applicable. Over the coming weeks you will read about what many continue to question and presuppose that happens in DC and Wall Street. I am just one person who lived through some of it. Magnify it exponentially with many differing perspectives over many years.

I will be leaving the name of our team’s new employer out of the story. The name is not relevant to it and I prefer to not expose any of its past employees to unwanted contact. I will use the generic name of the company whose products Wile E. Coyote used, Acme, to identify the bank going forward.

This is story is a little longer than I plan going forward as there was no stopping point that made sense. So please bear with me, there is a payoff.

Acme Small Business Begins – Uh, oh…

It was two years after 9/11 and our team was being assembled in our new offices in the same building that housed us with TVB. Everything was going according to plan and our sales force was beginning to gain traction with customers. My SCO, NSM and I were traveling to various SBA and USDA program offices around the country as time permitted, building relationships and securing SBA preferred lender status (PLP), which was earned through doing things right over years. I had been called to Nashville to meet with our bank Chairman/CEO and state banking officials to inform them of our operation and plans. The meeting went very well and we were cleared to continue nationally with our program with no restrictions. Full steam ahead was the plan. Except there was this little problem that cropped up…

https://www.latimes.com/archives/la-xpm-2001-feb-27-fi-30755-story.html

W was the POTUS and he had a nasty habit of hiring incompetent cronies to important cabinet and agency positions. Which is what happened with the above by hiring Hector Barreto to head the SBA. Wanting to make inroads into Cali politics and solidify his hispanic base, W hired an empty suit who had been his co-campaign chair in the state as well as him being vice chair of the Hispanic U. S. Chamber of Commerce. He had zero government experience, much less SBA experience. Unlike today, it was a time when the annual federal budget appropriation passage still meant something to elected officials.

SBA became a target for exclusion from adequate budget appropriation. Many RINO political forces parading as conservatives (sound familiar?) within the GOP Senate were pushing everything toward the globalism. The Dems in the Senate were not helpful at all, just wanting to throw a monkey wrench into it all. Our industry was growing as the safety of government guaranteed financing had become more attractive to lenders with the quiet fear and unknown of a country at war. Small businesses that needed capital were directed toward the programs we promoted, so overall credit quality was good.

The rising demand meant the annual federal budget appropriation for guarantees was drying up quickly. More lenders than ever sought the credit protection of the guaranty. Despite the respective banking industry involved in the programs applying pressure toward elected officials, nobody in the Senate would respond. Requests and complaints to the SBA fell on deaf ears and Barreto pretended to know what he was doing with the media, when he clearly did not. In early 2004 he announced plans to decrease the maximum loan sizes by 50% to slow the volume and make the remaining appropriation last longer. He also announced major changes to loan credit policy parameters that were backbreakers. One involved excluding refinancing of existing debt on more favorable terms, another was reducing loan to value ratios on collateral of loans, and a third was the elimination piggyback loans. I will not bore you with explanations and implications of each. Just know that each were considered important to the industry and customers as things stood. All of Barreto’s changes were meant to throttle the loan volume in a draconian way, like running into a brick wall. He was not competent enough to know the repercussions. He was simply doing what somebody else up the food chain wanted him to do.

This next part may sound ridiculous to the reader with what we all have seen today. Two decades ago, over 50% of our nation’s employed population worked for small businesses. So, you would think the politicians would understand they should pay attention and take care of their needs, especially following the uncertainty of 9/11. All they needed to do was increase the appropriation to satisfy the needs of the industry and customers for the balance of the fiscal year. The amount was, are you ready for it, was…

$25 million.

Yup. That’s it. Consider all the wasteful spending in federal government. I cannot begin to describe how stupid it all was. They were $25 M from helping thousands of small businesses succeed which would continue to increase the tax base for decades.

The SBA 7(a) program collects fees from borrowers and lenders to cover the projected costs of the program including servicing underperforming and defaulted loans. That $25 M was the projected shortfall of average guaranty funds paid out to recover versus fee collection from borrowers and lenders for that period of time remaining in the fiscal year based on historical performance. It would provide for $2-2.5 B in loans nationwide BIMD in a period where the related 7(a) loan program did $7-8 B per fiscal year. That would carry the industry through without Barreto taking any action. Yet, no elected official in either political party in the Senate would take the lead and sponsor it. None. Some did not know, some did not care, and others wanted our industry to die. There will be more on that last point as we progress in the next story.

It could not have come at a worse time for us. We were in our first full year of operation. Our partial previous year produced a breakeven beginning. That was an excellent performance and testament to our team. However, we now needed to turn a budgeted profit for the calendar fiscal year while our elected officials and the SBA had undercut our industry as well as all of the small businesses that needed capital through their programs.

The director of our industry’s trade association contacted the larger and more accomplished lenders, including me, to hold a conference call to form a plan of attack to remedy the issue. Desperate times call for desperate measures and all of us were becoming desperate. The association employed its own full time lobbyists who had proven ineffective. Each person on the call offered suggestions and informed the director what they could do, which included contacting their elected officials. When it became my turn, I made my suggestions. The director asked if I personally knew, or knew anybody else who could contact GOP Senate Majority Leader Bill Frist of our state. He said they felt they had the support of key leaders in the HR, but the Senate was unresponsive. There were only two of us on the call from Tennessee, a prominent industry investment broker in Memphis who purchased and pooled some of the guaranteed loans the industry closed as well as me. I knew three of our four owners were major GOP backers. So I offered to talk with them and see if we could get a message to Sen. Frist.

A couple days after contacting them I received a call from my Chairman/CEO who provided the phone number of the chief Senate floor aide of Sen. Frist. He told me he was expecting my call. Impressed and thankful, I made the call to a super nice, sharp and helpful guy who took time to listen and ask intelligent questions. This guy…

https://policyondemand.pwc.com/Biographies/Biography/8

We discussed a plan of attack. After the call I contacted our trade association’s director to inform, who then took care of all travel arrangements and the appointments. For the first time in a while we were hopeful.

Which led to Goober Gump going to Washington DC – again.

Days and Nights in Babylon

After having a prior visit to DC being for the purposes of worshipping and spreading the Gospel, this time I felt like Daniel walking into the Lion’s Den. I shrugged it off, somebody needed to do it, might as well be me. Rock Star, daughter (affectionately named “Best Kid”) and co-workers were proud of me for responding to the challenges, so I had already won.

The trip and agenda had been carefully arranged by the director. Upon arrival and check-in at the Hyatt, I had dinner with the two lobbyists; one each for the Senate and House (HR) as well as a couple of other lenders who were meeting with key HR officials. We discussed the lobbyists’ past attempts and what they had learned. The Senate lobbyist was a bit of a beta snob who commented on liking my tailored suit and asked why I wore a buttoned down collared shirt with it. My hillbilly instincts almost got the better of me, but I brushed it off. He was going to walk me to the offices for the meetings the next day, so I remained cordial.

The next morning after breakfast we met and walked to the Russell Senate Office Building. As we entered this nearly century old landmark of our federal government, the history of who had walked through its corridors and negotiated the nation’s business was not lost on me. However, it was time to focus on the task. Our first scheduled meeting was with Senator Olympia Snowe, Maine’s other faux moderate Senator with Senator Susan Collins.

https://www.womenshistory.org/olympia-j-snowe

Senator Snowe was Chair of the Committee on Small Business and Entrepreneurship (SBE), which would be our ticket to a larger appropriation as an industry. She was the key. If she agreed, we would be gold eventually after all of the horse trading was finished, which was Senator Frist’s job using Rohit. She was relaxed, cordial, and had a confident air about her. She fit the part of a stately Senator. She also fit the part of a self made woman of note. Her story is inspiring for what she overcame early in her life to rise to that position.

The meeting included the lobbyist, one of the Senator’s aides to take notes, and me. I felt no nerves, just resolve to tell our industry’s story in more of a ground report style and answer any questions she had. I knew I was in the Lord’s care and had asked him to speak the words that needed said through me.

After greetings and small talk, the lobbyist made some brief technical remarks about legislative and agency needs involving the budget. He then demonstrated some respect and asked me to take over. I referenced Senator’s Frist’s interest and his staff’s involvement with our issues. She immediately responded that we were in very good hands, that she thought the world of the Senator as well as Rohit with whom we were working. She stated that they had worked together well on many projects and bills, that their interests were generally aligned. In fact, if she had been a schoolgirl, one might have detected a crush on our Senator. I told her that Tennessee residents were proud and honored to have him in the role he handled for our country.

Sen. Snowe proceeded to ask questions that indicated some homework was done on the subject. I was able to provide the answers as well as insight from the lender and borrower side of the critical nature of consistency in the program’s policies as well as application. I gave her a bit of appropriation funding issues history over the years of my involvement and could tell she was becoming concerned. Being a Senator from a less populated state where the vast majority of businesses were small and would be qualified under SBA and USDA loan programs, she understood completely. I then explained some of our nation’s more prominent international businesses were assisted by SBA financing in their early days; such as FedEx, Apple, Nike and Intel. I finished with more truth, that none of us could predict the next small businesses that would grow to become industry leaders that would employ thousands of Americans while lifting the nation’s tax revenues, but that it would certainly happen as it always had when conditions were consistent and fair. As an underdog at one time in her own life, I think it resonated.

At this point she leaned in. That is always THE indicator that you are in sync with each other in negotiations. You may agree or disagree with each other’s position, but you know you have the other’s focus with this body language signal. I was not expecting what she asked next. She asked me what I believed were the three most important things that we needed help in getting done besides the increased appropriation amount. I prioritized them in order, which were the previously mentioned credit parameters within the Standard Operating Procedures with piggybacks as the last one in priority. It was the one that none of us in the industry expected to get done. I knew if there was one that needed to be cut for the opponents to have their pound of flesh and reduce funding needs, it should be the one we viewed as the least likely to be approved. She and her aide took notes as I spoke while asking for clarifications when needed.

I did not tell her that my personal goal was to bat three for four counting the increased appropriation. Getting the appropriation plus our most important SOP credit parameter relating to permitting refinancing would even be a win for the industry.

I sensed that it was time to go as she had no further questions; that the case was made and she was a very busy with much on her plate. I stated my personal appreciation of her time and consideration, that it was an honor to meet her and be given time to tell our story. She stood with a smile and we shook hands.

It was about a thirty minute conversation. I felt confident as we exited back into the hallway. Something inside told me I had not made a fool of myself or let the industry down, that she sincerely cared and could follow what I proposed. I had the peace from the Lord that surpasses all understanding. Even the lobbyist had become a fan boy as we headed toward the next meeting. His prissy attitude the night before had turned joyful.

Before we leave my time with Sen. Snowe, a few observations should be stated. One, the Russell Building is filled with history, however, Trump Tower it wasn’t. It sort of looked like a cluttered firetrap to me in various places and offices. It needed a good HGTV type facelift. Common areas and the rotunda are nice enough., but less than I expected. I have no idea if the interior offices have been renovated since that point. The exterior was a dozen years later. Another thing is the power of the desk in her office. The desk was old with beautiful wood that totally dominated her office. It represented the past years of the Senators who preceded her. The guest chairs were comfortable and sat low, much lower than the Senator at her desk. I suspect that it was arranged that way with purpose to exude the power of the position.

The last observation, which will mean more later, Sen. Snowe was not in the Heritage Foundation’s pocket.

Next Stop – Senator John Kerry’s Office

The Ranking Member of the Senate SBE was Sen. Kerry. That placed him at that time as the SBE’s head of the Democrat minority. I learned that of course, Sen. Kerry would not be meeting with us, that he was out of the country. Well, at least he was consistent. There have been politicians through the years I could not stomach and Lurch was near the top. He would have blown off a meeting even if he had been in town. He never showed up for SBE meetings as its Ranking Member.

Instead, we would be meeting with his chief committee aide, Kevin Wheeler. Before you wonder who that guy was, understand Kevin is a real woman, not a tranny wannabe woman. Information about her included in this press release about an award she received.

https://www.zynsys.com/sbir/articles/08poy.htm

She has made a career of working in roles associated with the Democrat Senate and HR SBE’s as well as within SBA. In summary, she’s a Democrat operative and influencer. She is listed as Deputy Democratic Staff Director for the HR’s SBE.

I already knew Kevin from past conferences of our trade association. As a result the meeting was informal, short and friendly. She was very knowledgable of the industry, SBA, the politics and the issues at hand. I simply told her the 7(a) program needed fixed before politics and Baretto of SBA killed the goose that laid the golden egg for small businesses. She agreed as she had been a proponent for years. She said she would deal with Kerry about it when he returned. Which is what she always called him – Kerry – with folks she knew. No matter, I knew Kevin would champion our industry’s interests at all times.

At this point the lobbyist was nearly wetting his pants. He was rethinking his opinion of hillbillies.

A Little Help For Our HR Friends

Even though the HR was clued in and likely to approve what our industry wanted, they still would have to reconcile the related omnibus bill in conference with the Senate. So our association’s director thought it would be good for me to have a discussion with the Chair of the SBE in the House, NY Democrat Representative Nydia Velasquez.

https://www.womenshistory.org/education-resources/biographies/nydia-m-velazquez

We finished the day with her. She was a strong backer of SBA programs for many years and still is as the current Ranking Member. I had spoken with her previously at conferences as well. We discussed why I was there and conversations we were having with their Senate counterparts on the primary credit parameter issues and appropriation. She was well aware and reassured me they were on it. I stated our appreciation and wished her well. By nature she is a serious as well as intelligent lady. We may not agree on many other issues, however, we had common ground on this one.

At this point the lobbyist was just shaking his head. Our time together was done. We shook hands and I wished him well. After that week, I bet he understood the power of wearing button down shirt collars with his suits.

One More Quick Visit

I spent the evening in the hotel, calling home and checking through emails. The next morning after breakfast I checked in with Rohit to let him know how the previous day went. He told me he would have a plan in place, inform Sen. Frist, and call me as needed. Rohit is a pro’s pro, a doer. He was not just juggling our needs, he had dozens of other fires to put out every day. I had great respect for him.

I contacted our association director to let him know that I was heading back to Tennessee. I brought him up to speed on everything and he was very appreciative. I told him that when Rohit had news for us he would call, so he should keep his his cell with him at all times. It was Friday and time to take a taxi to Reagan to hop on a jet and get back to the hills and the real world. Coming home, baby…

Yup.

Conclusion

During this Goober Gump adventure I had no discussions with anybody who was like minded with me in personal belief system as well as political matters. We shared a common bond on the need for capital for small businesses and support of the SBA loan programs, which was the purpose of our time together. I doubt any of us would choose to be friends socially, although I sincerely liked Sen. Snowe. We were all different. Some were swamp critters, some were helping swamp critters, others were fighting off swamp critters. They would have little use for a hillbilly outsider if it were not for the business at hand. I was not there to make friends or enemies, I was there to get an important job done.

It was not necessary to be friends; it was necessary to be friendly. It was not necessary for them to know everything I knew about the programs; it was necessary that they could trust the information I provided them. It was not necessary to be an ideologue; it was necessary to be pragmatic to achieve the primary goals. It was not necessary to put on airs and play the dog; it was necessary to be down to earth and truthful. It was not necessary to use precise or overly technical language; it was necessary to be easily understood. It was not necessary to bow down to authority; it was necessary to establish a bond of equals.

We all have equal value and a purpose, no matter the position or power.

Respect others to be respected. Love others to be loved. Help others to be helped. Be kind to others to receive kindness. That they all allocated me their time and truly listened to what I had to say was enough. In contrast we are in a period of history today when precious few actually listen to understand first before demanding to be understood. The multitude are screaming nonsense, activated by evil people to destroy rather than build.

We need civility and critical thinking restored. One does not have to compromise one’s values to be civil with others. It’s hard to gain an understanding and perspective of another’s position on things with so much anger. Proverbs 15:1 – “A gentle answer turns away wrath, but a harsh word stirs up anger.” (NASB)

I hope some of you picked up on a few things that might be useful going forward. Thank you for taking your time. The story continues…

Back In My Day: Civilized War – Bank Autopsy Time

It is time to provide a summary analysis of the former employers and related principals in Goober Gump’s journey from the equipment company through the beginning of the team’s control of its fates a decade later.

I will not divulge confidential financial information from past employers, just discuss the practices that were good or bad, or, that led to them making the decisions they did BIMD. I have provided other links to their publicly reported financial reporting going back in time to when we first began. In addition, you can use the link below to the FDIC website to see the current reporting of every active bank in the system.

https://banks.data.fdic.gov/bankfind-suite/financialreporting

In the spirit of Stephen Covey and his 7 Habits of Highly Effective People, of which I fully endorse, the autopsies will provide my view of win-win and win-lose in the final results.

I have also added a section on the current banking issues of the day relating to bank examinations. I will try to not get down in the weeds too far with my comments.

Bank #1 – 1994

Links are below to describe.

https://www.dailycitizen.news/news/local_news/first-volunteer-bank-rebrands-to-builtwell-bank/article_beef91a8-1275-11ed-b120-ebc57d085223.html

https://www.builtwell.bank/About/

Patti Steele is the CEO of the rebranded and expanded First Volunteer Bank of Tennessee based in Chattanooga. It is now known as Builtwell Bank. BIMD the privately held bank holding company was named Community Group (CG). The majority owner’s name was Robert Anderson, a long term solid, executive banker from South Carolina whose family were the primary operators and in ownership of a larger South Carolina bank. Robert left the SC bank and purchased a small community bank in the rural community of Marion, TN outside of Chattanooga. From that start and with that bank’s President, Sherman Barnette, he began purchasing small rural community banks in east TN. They added a financial services subsidiary led by my former CEO a few years after forming their holding company for the purposes of doing small business government guaranteed lending. It required state banking regulatory and SBA approval to exist as a service company for the affiliated banks in the CG system as it was the first of its kind in the southeastern U. S. region. During my employment CG grew to about $350 M in total assets size.

Patti was in operations at the holding company level and on the Board when I was employed there. She was the heir apparent, professional and competent with their business model. She reported to Sherman, who reported to Robert. Sherman was a sharp, good ole boy community banker. Robert was a more formal, cordial, old south plantation type with a leadership style from the past. We got along well with each other as we shared a mutual understanding of big banks as well as a love of golf. I had a good relationship with all of the senior leaders. Patti was very competent at what she did, however, her interests were clearly linked to breaking the glass ceiling even BIMD. It seemed to drive her ambitions. In recent years her Board additions have been less than inspiring and more toward feministic purposes, which reveals her politics. They did not add tangible value to the Board or business operations. It is something to keep an eye on as it can lead to losing focus of the bank’s primary purposes, which is to make money for stockholders and service the customer base well. As long as ownership remains focused on those two truths, they should be fine.

The financial services subsidiary I worked in no longer exists. When we exited, it went into decline and died. Its demise coincided with the merging of banks from being operated as affiliate banks, which is reflected in the link below during the fiscal year ending 12/31/2001. In the financial services subsidiary’s place they expanded the reach of their residential mortgage company to serve their now, 30 locations. BIMD there was only one mortgage originator in the system. While merging the bank system in the late 1990s/early 2000s, they renamed all individually named banks to First Volunteer. They have grown through acquisition of other small rural banks in other areas including northern GA over the ensuing two decades. They are old school community bankers with conservative practices, who have served their internal desires and customers well overall. They are now at $1.8 B in assets with a conservative 70% loan to deposit ratio and stay at a ballpark level of 10-11% on Tier One Capital; which is solid. They paid out a strong dividend in excess of $8 M in 2022, to the privately held ownership.

https://www.usbanklocations.com/builtwell-bank.shtml

My autopsy reveals they continued to grow through acquisitions at a measured pace while becoming who they desired to be and still are. Our subsidiary’s presence in the holding company was implemented to fuel higher profitability for a season of time so that they could purchase more small rural banks. That was a legitimate choice of ownership and it served them well. It also confirmed that our analysis was correct when they hired the SCO who began tightening credit. Our common goals and interests were diverging, so it was time to go. They would have never accepted nationwide or even a larger eastern footprint delivery of what we did. The higher compensation being paid to the team that delivered it, which was prevalent within the industry, would have created internal division. It simply would have been too big of culture shock to the rest of their employees and Board.

However, at that time it was win-win between us. They signaled their change in direction, which gave us time as a small team to change ours. We both won with the changes.

Bank #2 – 1997

https://www.sierrasun.com/news/bancwest-purchases-sierrawest/

Sierra Tahoe Bancorp was the owner of SierraWest Bank, which came into existence by name a couple of years before we joined them. Its predecessor bank was called Truckee River Bank, which was also very involved in government guaranteed small business lending in the area. The bank grew into the Reno, NV area via acquisition, which led to the name change and was similar to the name of the acquired bank.

Despite the bank’s emphasis on our line of business, Truckee River had a spotty record as a government guaranteed lender until my division CEO was hired a couple of years before our arrival. They did not do it well and had numerous losses and issues with the SBA. He addressed the issues along with his excellent SCO, who was also a fine human being. It all turned around at that point with the division being the primary driver of the bank’s net income and asset growth. The theme of good people, good results, was one that was repeated throughout my work life for many years.

When BancWest, parent of Bank of the West, announced the acquisition of SierraWest, the later had grown from just south of $600 M when we joined them to over $900 M in assets in three years. There were no hiccups with the acquisition as it closed as projected in mid-1999, less than six months after announcement. Which explained why SierraWest allowed Bank of the West to be involved in the credit approval process prior to the completion of the transaction, a reality that led to our early departure as a team.

https://www.usbanklocations.com/sierrawest-bank-23323.shtml

Since SierraWest did not sell from a distressed position, there is very little financial autopsy needed. The intent to sell was known to us in our region at employment. The bank was profitable and fit BOW’s expansion desires geographically. However, the sale to BOW did impact our futures and forced several members of our region to find alternatives. This led to the second best career move I ever made, with the first being entering this line of work with CG.

I could care less about BOW, then or now. Let Canadian bankers now deal with the effects that the criminal bankers in France created. Based on how Canada operates today, they will continue to be the money launders they have been.

As a result, I rate it as a win-lose-win with eyes wide open. A calculated risk to work there that paid off in unknown ways prior to making the move. SierraWest employees, its stockholders and our team highly benefitted from the relationship. The sale to BOW was a loss for our team. However, we seamlessly recovered with a much bigger win.

Bank #3 – 1999

Imperial Bank was the one. It just made sense as it targeted its efforts and did not try to be all things to all people. However, it had an Achilles heel. By virtue of being a NYSE traded business bank involved in the finance of venture capital related enterprises (think SVB) as well as the entertainment industry (think boom or bust movies) in two of its three primary lines of business, its annual net income was volatile. As a result it was watched by regulators closely. Provided below is summary financial data over a period of years for those interested in more details. As an example of its growth, total assets went from $3.4 to $7.5 B in just five years. You typically cannot grow a bank that fast (unless you are a cabal constructed SVB type bank) with income drivers in volatile lines of business and not have hiccups in net income, liquidity and capital formation due to overall economic pressures. Every boom or bust cycle will be reflected in your financial statement results.

https://www.usbanklocations.com/imperial-bank-18835.shtml

By the time of the transaction with Comerica, the bank had grown to over $8 B in assets. The article below is an excellent summary of the reasons behind same and acquisition. I will not regurgitate it. The acquisition made great sense to Comerica.

https://www.latimes.com/archives/la-xpm-2000-nov-01-fi-45069-story.html

The founder and Chairman of Imperial, who was active daily in its management, had hit 81 years of age. It was time. If he had waited until after 9/11 occurred, the bank would have probably gone under at some point. With the acquisition Comerica entered the Top 20 banks in asset size in America. They have doubled in assets since then, but dropped to #38 in asset size today.

As a result, I rate the situation as I did with Bank #2. It was no surprise that our employer sold. It was a total win for both banks. However, Comerica simply did not have the credit culture and leadership team in our line of business. We did not drive their net operating income (NOI) up high enough to justify a real commitment in their minds. Comerica chose to reward themselves as the victors instead of the people who operated our line of business smarter, more productive, while making much more money at it. At Imperial we were not the volatile income producers. We were the second highest provider of ROI in the bank, year after year. The transaction was win-win for the banks and win-lose-win for our division and my team. It was also a very short sighted decision by Comerica to go about it as they did with our division. Like many other bigger banks, they still have no idea on what they missed.

Bank #4 – 2001

When we arrived on the scene with Temecula Valley Bank, it was a small, five year old community bank in the rapidly growing SoCal area. It had the highest 5 star rating for financial condition by industry rating agencies including being rated the #1 small bank in America by same. The Chairman/CEO wanted to use our line of business to fuel growth of bank operations into the real estate markets of the area as well as branching. He had good knowledge of what we did and how we did it from his previous stint as CEO of a larger community bank in the region for many years.

https://www.usbanklocations.com/temecula-valley-bank-34341.shtml

We knew how to scale and ramp up our operation to accommodate the smaller size of the bank. Despite its size, the management team was competent and they contracted their operations system platform to one of the larger, national providers. They could deliver on their promises.

That they immediately changed the rules to the game upon our arrival created tension and was a major red flag. I am sure bank examiners may have been concerned with the scope of our operations due to the bank size as well as there may have been pushback from the Board initially. Regardless, they lied. However, we were able to leverage ourselves into a better situation and became a successful, expanding operation.

The Achilles heel of TVB was its arrogant Chairman/CEO. That ‘I’m smarter that you’ attitude passed to the executive level credit officer, other senior management and Board. They never believed the good times would stop, until it did. With the industry overbuilding real estate in SoCal markets, their hellbent desire to play the dog and build the brand was a train wreck waiting to happen. When liquidity began to be an issue with closing transactions a couple years into our arrival, Mr. Arrogant began to significantly use brokered deposits to add to the deposit base. We could see the handwriting on the wall for our efficiency and success. When banks buy brokered deposits, which is limited by regulators, they pay higher interest rates than market to attract them. The deposits are usually CD’s with longer termed fixed rates called “hot money”. So, what do you think happens when interest rates as a whole decline due to Fed decisions? You earn less interest on loans while paying out higher interest on deposits. Not the formula for banking success I would choose.

So for your banking lesson of the day, add in what happens when the economy cools and there are less borrowings. You now have locked in higher than market fixed rates with hot money and insufficient loan demand to offset it with interest income. The core local business customer balances go down as they use more of their own funds to lower interest expense. When the hot money matures, it leaves unless you price it high again to retain. If it leaves, you lose serious liquidity with a high concentration of real estate development and construction loans on the books that are not being paid off from less property sales due to the local economy cooling. If the hot money is retained you need income drivers to offset the declining interest margins between deposits and loans. All while at the same time, you as Mr. Arrogant, have increased your operating expenses through the increased numbers of branches, related facilities costs/expenses, and increased staff payroll relating to the branches.

This makes any bank any where totally dependent on generating more fee income and reducing its operating expenses to survive if they plan to be prepared to take advantage of an economic rebound in the future. Instead of making things better for our division to provide the high premiums, fee and servicing income, Mr. Arrogant did the opposite. He had also reduced our ability to make non-real estate secured business loans that would have added diversity to the loan portfolio, which was a major desire of the regulators. He doubled down on making real estate loans in SoCal while expanding the branch network. For awhile he could brag about how smart he was… until he couldn’t with the debt market and general economic crash of 2008.

Our regional team left in the fall of 2003. My former division CEO left about six months later to begin operations of the company he started. We left TVB a few production officers in our region who were lesser performers, who began sending their loans to the credit area in Temecula. They never reopened a regional credit and loan closing operation in the east. They hired a less accomplished replacement for our former division CEO in mid 2004. He lasted a few years before leaving as the bank started into serious decline. The top credit officer retired and was replaced by a rogue, possible criminal that Mr. Arrogant hired. The bank had grown to $1.4 B in assets by this point, ten times the size it was when we were first hired. The debt market melt down of Wall Street had occurred and with it the national economy. So, let’s see what the FDIC’s Office of the Inspector General (OIG) wrote in their official autopsy. This is highly worth your time to read as a behind the scenes view of how it all works. Please at least read the opening summary.

https://www.fdicoig.gov/sites/default/files/reports/2022-08/10-018.pdf

I am confident this could be used as a case study in banking schools nationwide of what not to do. It was complete vindication for us and our line of business. With the collapse and closure in 2009, Mr. Arrogant was relieved of his duties. The force of his personality and cronyism kept him in the seat for far too long. The stockholders and employees lost out as a result.

The experience was another win-lose-win from my viewpoint. Despite the early lies, we were able to restore the pre-employment agreement and go on to be successful. When the bank first began experiencing liquidity issues, we had sufficient time to negotiate our way into an even better situation. However, we did not expect it to become necessary when we first arrived there. With the stock options and solid plan forward, we thought it would be a long term stay. We did not count on the insatiable greed and arrogance of Mr. Arrogant and crew taking over as it did. Which is a shame, but very common in the industry.

Bank Examinations

This section was not originally planned to be in this story. However, current conditions merit its inclusion. It was pertinent BIMD and especially so today.

Bank examiners are people like all of us. They have special knowledge and training. They also have personal goals, ambitions, families, friends, strengths and weaknesses. The have various levels of competency. During my years of being employed in banking, I only met a couple who had made the profession a career. I saw a good number who used it as a stepping stone into careers in banks, investment banking, insurance, rating agencies such as Moody’s/S&P/Fitch and so on. That made their motivations and attention to detail suspect at times.

I have experienced examiners openly lobbying for jobs in our credit and audit departments. I had a couple who became cheerleaders for us within their agencies. With our departure from TVB and acceptance of employment with the Tennessee bank, one state banking commission official told our Chairman/CEO that he should lock me and my key management up on long term contracts, to not let us get away, with me standing there with the two of them. I had one FDIC examiner tell me that we were not making enough loans for sale to the debt markets about six months before the crash.

Think about what my last statement infers. He was stating that we were not churning enough, not making enough money. I learned later he told our ownership and CEO the same thing in their exit interview. At that point our division was providing 80% of the NOI of the total bank; making more money than ownership believed possible a few years before. But here is the lead FDIC examiner stating we were not doing enough.

As a result of these experiences, it never left my mind that sprinkled throughout these regulatory and rating agencies were globalist cabal operatives even BIMD. It is incestuous by nature. If the banks do not do much business, the examiners have nothing much to examine. That exposes them to extreme boredom as well as job loss eventually from RIFs. Rating agencies have a similar issue. If they rate a bank, company, debt issue, securitization, etc. too critically, their client will never use them again. As an example our favorite rating agency for what we did was Fitch. They attempted to understand the business and as a result, the underlying loans in our pools. The other two majors were useless for our purposes BIMD.

So the key for both the bank and the examiners is to maintain an arms length, mutually respectful harmony between them, which happened frequently in my younger years and rarely in my later years. The later situation leads to excesses that can be nudged forward or destroyed by the examiners. Add to it that through the years I saw very few gray hairs remaining as examiners. If the role was truly a life’s profession, that a person could make a rewarding career of it; then there would be more talent and more experienced people in the role. That was not the case. The revolving door led to lower cost, less experienced personnel. As the years rolled by I saw fewer who did not fraternize with the leaders of the banks they examined. Occasionally you would see one later employed by a contract audit or management consulting firm to place their stamp of approval on a client bank or its loan portfolio as the recognized expert in the field.

There will be more discussion on this in future stories.

If you reviewed the OIG report on TVB, you could simply replace their headlong pursuit of real estate financing with what SVB did with their emphasis on higher risk lines of business in the Silicon Valley among other places. Neither took their foot off the gas pedal and pushed the brake pedal until it was too late. The end result was the same along with many of the contributing factors. It is a situation that keeps repeating year after year, bank after bank, and as a direct result of Federal Reserve and politician aided booms and busts.

The FDIC and California bank examiners had every reason and justification to pull the plug on Mr. Arrogant’s practices long before they did. But they did not, just like SVB. If we knew of serious issues as key officers of the bank in 2003, they had to know when they completed their next exam in 2004 after performing their stress tests, financial and operations reviews. These were duties they continued to perform annually until TVB failed five years later. They even categorized TVB as “Well Capitalized” from 2006-2008. Yet, they failed the next year. Yeah, OK.

I don’t view what I witnessed over 30+ years in this area as accidental, incompetency related, or an inconsistent application of regulations. I see it is as a system feature. Consider the huge implications.

Conclusion

i have disclosed a lot from Goober’s banking employment adventures over about a nine year period. With each new employer the team grew and became better at what they did. They were never forced out or terminated by the employer. Even in the more strained or incompetently managed situations where they chose to leave, the leaders wanted them to stay. They left because conditions changed from decisions made by ownership and/or executive management that signaled that it was time to look around. There was never an employment situation that they accepted when they were not prepared in their minds to walk away, while at the same time hoping they would not have to anytime soon.

They felt like Abraham and family as he moved from place to place at the Lord’s direction while experiencing inexplicable events. They learned to accept that was in the DNA of the industry. It did not have to be, it just was. With their move to the TN bank and control of operations, they all hoped that would end and they could do something that would last long term.

Remember this as we move the story forward.

Blessings to all.

Back In My Day: Civilized War – The Buck Stops… With Goober?!

As I left the last part, something was about to happen to our region at the bank. We just did not know it yet. This will be the last background story leading into more recent times and experiences.

Time To Go – Again

Our region had rocked along with TVB for a few years in a bumpy climb to annual loan volume of just over $115 M at about 175-180 transactions per year. We were making the bank good money and were up to about 45% of the division’s total loan volume. However, loan closings were being delayed by slow funding of loans and there were signs the hot SoCal real estate market was cooling some.

During this time 9/11 had reared its ugly head and the country was reeling from the shock. I still remember where I was when it all began – in my vehicle on the Cumberland Plateau about an hour west of Knoxville heading to Nashville for a SBA lenders conference. My SCO called me on my Blackberry to let me know as he knew I listened to CD’s when driving. We both agreed that more of the prophecy of Revelation was underway.

I was on that cold interstate…

Yet, the business world continued on. TVB continued to participate with developers and contractors with financing packages for residential development of lots and new homes. The homes were primarily built spec, no buyers on the hook. Their price ranged from $1 – $2 M per home. This was not unusual for that market while seeming otherworldly to us in the southeast. It also averaged about twice as many loan dollars committed per transaction than one of ours, of which at least 75-85% of our single transaction loan amount was guaranteed by an agency of the federal government that would be sold on the secondary market for a tidy premium while retaining servicing rights for an additional minimum 1% annually on the sold loan balance. We could make three or four $1 M loans for every one spec house construction loan while adding far greater income to the bottom line.

It typically would not take a genius to figure out that our division was the profit bell cow. Except it did at TVB where they were convinced that the reverse was better. Which perfectly illustrated the ego of the bank Chairman/CEO and his buds in executive management and the Board. They wanted to play the dog in the local area. They wanted bragging rights in their pond over bank stability and profitability, which would not be the desire of the national investor looking for value in bank growth stocks on the NASDAQ. One approach was for show, the other was for dough.

As an interesting educational experience for Goober and his SCO, we had difficulty grasping how subdivisions in the desert around the region were cropping up everywhere. There was no vegetation like in Tennessee and the ground was dry, sandy and rocky. Then as we drove in from LAX for meetings one time we saw a first for us. It was a dirt mine. A mine where decent soil was being extracted for use in the booming subdivisions for vegetation purposes. We knew at that point we had seen everything this old world had to offer. What we took for granted in the east was gold in them thar hills of Californ-I-a.

We noted that some of TVB’s contractor customers were beginning to default on those spec house loans and the loss of liquidity and the constraints on bank capital were making it increasingly difficult for our loans to fund in a timely manner. If the homes would not sell, the development financing would also fail. The credit committee began declining larger loan requests in our region that were of a type that were formerly approved. Production officers were beginning to complain again and rightly so. They worked hard to generate the flow of business that was being gradually undermined by the bank’s executive management and Board decisions. We also knew that sometimes management in any business will use that method as a way of downsizing without stating the obvious. There are no exit packages to pay if people leave on their own to take better opportunities. Regardless of the motive(s), the financial situation signaled major issues ahead for our division.

At this point I notified my division CEO of our concerns. He felt the bank would work out of it, not seeing there was a sense of urgency. His response was unusual. Normally he would shoot straight with me (I found out why later). I signaled to him and the Chairman/CEO that I disagreed with that assessment by selling a large block of my stock near the top in the $40/share range. At this point there were still ample buyers as the markets were not yet aware anything was amiss as regulators had given the bank a good rating in their last exam and reported profits and capital were still strong. Since I was not an executive officer, just listed as senior management, I had no legal constraints in doing so. I had only paid $5/share when executing my options. As a result I fully recovered my total investment plus made a profit while holding some additional shares for selling later in a different tax year. There was no mention of it by the Chairman and I expected it would fly under the radar since he and some Board members routinely bought and sold as well.

I was preparing without knowing exactly what was to come, just that “it” was coming. I could feel it.

^^^ This ^^^

Opportunity Knocks

While this was going on, I discussed the situation with my SCO and a key regional sales manager. We agreed it was again time to explore our options. This led to a long dance with a well established large community bank nearby before the Chairman/CEO, a man I greatly respected, informed me that he could not convince his Board and SCO to agree. He clearly saw the opportunity and recommended the venture to them along with another Board member we knew, but they did not as they did not understand the industry and were basically uninterested in working harder and smarter. Disappointed, but undeterred and facing no deadline, we continued looking and kept working. That Chairman/CEO was correct in his assessment. We could have been the profit generator that bank needed to pull out of a longterm downtrend in profitability, which was a shame. It simply scared them to being doing business all over the country in a line of business in which they had no real knowledge.

At this point it is important to state our industry’s reach during those days. In the eastern U. S. there were only a half dozen big banks and a few licensed non-bank lenders like GECC who did more volume of loans annually than my eastern U. S region of TVB did. Most of the industry’s loan volume was generated in the western U. S., with 40% of the total coming from California. Our region was providing the loan volume that ranked TVB as the #1 lender in volume in four states and in the top five in nearly all of other states in our eastern region. There was no real commitment to the industry by banks in the east. If a small business customer could not be financed conventionally they simply declined the loan rather than hire specialized staffing to process the government guaranteed loans. It seemed we were blazing a trail as it had never been done like this before in our region of the country. Even the big banks did not sell the loans as we did, they retained them in their portfolios. The benefit for them retaining on the books was the loan amount that was government guaranteed did not count against their capital, while also earning a higher rate of interest than a conventional loan. Even our state regulators and eastern region FDIC area bank examiners’ minds were blown with how our method worked. So, we understood why prospective banks would be nervous about the opportunity. We just needed to find the right situation.

We had made our team aware we were looking at options and that seemed to reassure them to hang in there with us. A month later the production officer who was assigned to TN walked into my office. He had a potential opportunity that had fallen in his lap that he thought we should pursue. He had contacts in the western part of the state that referred him business that owned a small community bank of about $250 M in assets there. The executive management was intrigued about how we did what we did. One of the four owners was a general contractor, another was an attorney/nursing home chain CEO, another was a mega wealthy businessman who owned a larger bank, and the fourth was the community bank’s Chairman/CEO. They were from the same area and lifelong friends. Even though their bank was small and unsophisticated, it was over twice as large in assets as TVB was when we started with them along with a stronger capital position. We knew it was sufficient to get the job done as well as how to do it.

I told my guy to go ahead and visit with them to tell them we were interested in talking. He was already working on a couple of referred loan requests of their clients for lodging type financing such that even if it amounted to nothing, his trip would be worth the time. Two days later the bank’s Chairman/CEO gave me a call and asked if they could fly over and visit in a few days, to which I was happy to oblige. We talked a bit and I told him to contact the Chairman/CEO of the area bank who had passed on the venture since he had offered to be a reference for us should we find another opportunity. He responded that they knew each other well from the Tennessee Bankers Association meetings and that he had a lot of respect for him.

When the day arrived I picked them up at the airport. My SCO and I had spent time reviewing their bank’s financial call report to verify they had the capital and liquidity to do the deal, which we confirmed. They had too much liquidity to be as profitable as they wanted as there was a limited amount of business activity in their rural markets. There were three of the four owners and their CPA present in the meeting. The wealthy businessman chose not to come. We gave the group a quick tour of our offices and made introductions since they were already referral sources of bank business. This was a normal practice with our customers and referral sources.

We then retreated to a business associate’s conference room in the same office building. I went through the business methods and gave them a five year financial projection to review for any questions. Their eyes fell out of their heads and huge grins crept across their faces. Their CPA became very engaged with me at that point. The others asked a few questions and wanted to know how a transition of our people would work along with timing. I asked about their missing owner. They said he was reticent about the opportunity, but stated he would not stand in their way if they wanted to do it. The three owners said that was not unusual for him as he usually dealt in larger endeavors and owned a minority share of 40% with the three of them owning the other 60%. They had the authority and Board control. The missing owner will be discussed again in a future story. But as a spoiler, he did not come because he would not understand it and his pride would not allow him to admit it.

We had a deal on the spot in one meeting. It was time to take control of our fates as a team and they were well past ready in their minds to accelerate the growth of their bank. The Chairman/CEO was a member of his hometown UMC, so we shared a common bond. I knew he was a well liked family man and respected banker as my friend, RB Summitt, had known him for years and verified it to me. The contractor owner was very entrepreneurial, which is important for our line of business. As a result they had no problem at all with expanding nationally in scope. They asked if my SCO, National Sales Manager (NSM) and I wanted employment contracts. I told them that we did not. We preferred to work from a position of trust in each other. If it did not work out for either side, we each needed to be free to pull the plug on it. They were shocked and agreed. I asked that each employee I approved for hire to receive an offer of employment from the CEO that stated a. job description, compensation arrangements, benefits and so forth. I would be titled the Division President with my SCO and National Sales Manager, who was my current regional sales manager, also becoming executive officers of the bank with asset procurement authority for new offices including the leases. They agreed to all of it. They wanted us to know they owned the bank’s computer operating system as a separate company that had a couple of dozen of other small banks contracted as customers. They wanted us to know it would need tweaking to accommodate us, so there would be no surprises.

All that was left was to implement the plan once the employment offers were signed by the three of us. Goober Gump and friends had arrived at our destination just like Goober’s brother, Forrest, did during his day.

Time To Peel Our Own Banana

Monkey see, monkey do. Figurative, but almost literally speaking. The whole small business journey since the equipment company fiasco had been just that. I had learned so much. My personal strategy to take one or more steps back in compensation and position to move forward three had worked to perfection as our growing team and I learned more and became more cohesive, thereby increasing our value in the industry. We were winning financially for our employers as well as for ourselves. We just had to remain flexible, open to change, and realize one important truth about our role with each bank employer. Which was…

We ignited insatiable greed within the hearts of owners and executive management everywhere we went. We were like cash cocaine they snorted. Seriously. Goober Gump had just become the head of a legal, figurative cash cartel.

Achieving 35+% Return on Investment (ROI) on each transaction does that in the banking industry, which typically has much smaller margins and ROIs in most lines of business while using OPM. We told them up front that economic downturns could sharply reduce our profitability, yet our recovery from it would be reasonably quick. They were informed to remain flexible and that the business worked in quarterly cycles. We could not do in reductions in force on a whim and be able to rebound quickly because the employees were specialists, training was time consuming.

Looking back, in the first two California bank employer situations, the bank’s executive management and Boards intended to sell out to larger institutions. We were just a contributing means to an end to that purpose and knew in advance of its likelihood. In the later TVB situation, we were means to a different end. They wanted to become a major player in SoCal as a traditional bank and were a long term hold as an investment. Which meant our division would have been deemphasizedexpendable just like the others if their primary goal had been achieved.

The exit strategy of selling the bank worked better for what we provided than for the later. Booms and busts of the economy highly affected its profitability and balance sheet management requirements. Being the primary driver of income would be a major issue for a small publicly traded bank wanting to be a bigger fish in the highly competitive SoCal pond. In contrast we could not afford to get caught with their financial issues messing up our delivery system because their egos would not allow them to properly manage their bank.

We knew as a team, we were never employed by the employing bank. We were employed by our industry. In essence we were contractors or even the non-violent mercenaries of banking.

I gave a heads up to my division CEO. He had been frequently absent in recent months and evasive about what turned out were his plans of starting his own loan origination, processing and servicing company in the industry that contracted to banks. I turned in my notice to him. He was very understanding and not surprised. He briefly discussed the new venture that he was starting as soon as his employment contract with TVB ran out later that year. He stated it would be a couple of years before he could offer me a role. He seemed relieved I had the new option and would be moving the eastern operation over time.

I came into work one morning as I worked out my notice and saw I had a voice mail. It was from the irate TVB Chairman/CEO who proceeded to denigrate my choice of future employer and asked me to reconsider in a strained, pissed off voice. He said the TN bank was too small and unsophisticated to do what we did. Ironic, since his bank was half their size when we started there. He then said some angry comments under his breath as he hung up the phone that I could not make out. I never returned the call. I considered it just another former ego maniac employer who disrespected the very guy and his team who had delivered serious profitability to their bank while not being willing to humble himself to admit he needed to make positive changes. He made it easy to move on and I would never be listing him as reference in the future anyway.

I left TVB in the spirit of Johnny Paycheck…

C’mon, I know you love it.

Conclusion

During the course of these stories I will periodically go back and update readers on what happened to people and employers from the past. That will be happening again in the the near future. In TVB’s case I will post a link to give readers a more technical picture of where their path of choice led and why. Coothie will be one of the few readers that would probably enjoy reading that financial and operational (spoiler alert) autopsy.

I had reached a point in life that I was tired of the lies, manipulation, and ego trips of those who felt they had power and control of the lives of others through their employment. I guess age and experiences being what they were made me less tolerant of being dependent on azzhats.

It was time for me to step out of my comfort zone. It is really easy to blame others when things do not go the way you think they should or to your personal benefit. I tried hard not to do that, to recognize the good and value of each situation. Yet, when conditions soured to the point of harming our team, the Lord had once again opened the door for that to change.

In my humble opinion obedience was the reason.

Job 36:11 – If they listen and serve Him, they will end their days in prosperity, and their years in happiness.

Isaiah 1:19 – If you consent and obey, you will eat the best of the land;

II John 6 – And this is love, that we walk according to His commandments. This is the commandment, just as you have heard from the beginning, that you are to walk in it.

And the big one:

John 14:15 – If you love Me, you will keep My commandments.

And. Here. We. Go.

I could not resist.

Back In My Day: Civilized War – Banks Are Like Carter’s Little Liver Pills

There’s an old expression that when things proliferate beyond reason that they are like Carter’s Little Liver Pills. Carter’s had an infinite number of little pills that would cure what ails ya…

Here they are 80+ years after cranking up, while still selling the same schtick.

Which leads to the following short summary history for those unacquainted with Carter’s.

https://www.southernliving.com/culture/carters-little-liver-pills

The company’s marketing was off the charts great. That many of us still remember them, their slogans, and commercials is a testament to the promotional brilliance.

It was not their only product, however, it was the primary product line of a plain old laxative to make you poop.

Banks Are Like Commodities (and Laxatives)

Sort of like the standard active ingredients in stimulant laxatives, such as Biscodynl (Carter’s) or Senna, it is difficult to discern many differences in commercial banks. They have a perception of added value, much of the time the customer cannot determine why one might suit their needs better than another, and they can make you feel like you have the runs.

In total there are over 4800 federally insured banks. In the mid 1980s the number was 10,000+ higher. So, there has been a steady decline since that point. Why? The federal government and greed of bankers has taken over. Various regulatory and tax acts have made it difficult for smaller banks to survive as well due to government (i.e. politicians) creating financial meltdowns (bubbles and busts) of various segments of the economy. Add in the profit (greed) motive of starting a bank, growing it and then selling out to a larger bank who wants the market presence.

For example, the second largest bank in the nation in asset size is Bank of America at $2.4 trillion. They have 6,314 locations in 38 states and 2005 cities. The vast majority of banks are minuscule in locational presence compared to B of A. However, most all have branch networks to increase access to customers. The global number for bank locations in America is approximately 77,000 in over 9,900 cities. This number of physical locations is not expected to grow significantly due to online banking. However, the number of chartered banks is expected to continue to decline as smaller institutions are acquired or closed by regulators. Why? Same reasons as above; the federal government and greed of bankers takes over. The politicians love to be in the pockets of big banks, so they pass regulations to make it more difficult and costly for small banks to comply. That reduces competition and innovation at the local level. Which turns urban as well as community banks into commodities.

Even with this happening, there are still more locations and methods to deal with banks than Carter’s have little liver pills. The next topic goes into the large presence of credit unions.

Community Banking Evolution

As I was entering the banking industry after graduating from college I was taught one important fact of that time. To the average customer, the teller was the bank. Of course that was nearly 50 years ago and banks were slow on the innovation side and highly regulated and controlled. The vast majority of customers never dealt with anybody else, and when they did it was the teller who directed them to the person(s) who could handle their other needs. So, who do you think were the lowest paid staff in the bank? Yep – the tellers. The face of the bank that average customers trusted most were some of the least valued by management and ownership.

Times have changed and with it the relationship aspect of banking. Yes, relationships are still important in rural market community banks and flyover states. However, even in those markets it is becoming a thing to bank electronically and only use local banks for cash, demand deposit accounts, small business services and safe deposit boxes. Mortgages for homes can even be done online now with the better rates and terms coming from mortgage companies dedicated to the purpose. Vehicle loans are generally done through dealership provided indirect financing and credit unions. Credit card applications are everywhere online and in the mail box. Other small loan options are abundant with finance companies for less credit worthy small loan applicants.

Credit unions grew rapidly during the downtrend of community banks. As their regulators agreed to liberalized rules for joining, more and more retail consumer based accounts moved to them as well as small business checking and savings accounts. They returned the relationship aspect of banking of the past and filled the void left by banking industry consolidation. There are currently over 4800 credit unions with 20,000 locations nationwide. They are not involved in commercial lending by regulation. They are regulated by the NCUA and accounts are federally insured in a similar manner as with banks and the FDIC. However, their numbers reduced by around 2500 in the past decade as the economy worsened, cryptocurrency arrived and the regulators tightened down on their practices and capital adequacy.

In reality, nothing has materially changed for customers and members with banking and credit union services in terms of access. It just shifted around changing its shape like an Amoeba, or maybe like a Coronavirus. Where it changed most was within the industry. The one size fits all as well as being all things to all people approaches – died.

The first and overriding principle to understand is that bankers use OPM (Other People’s Money) to make money for themselves and stockholders. To protect OPM (customers), banks are regulated in the manner in which they may invest the OPM. But, who controls the regulators? Ultimately it is politicians in Congress and the administration of the POTUS. Who do they work with to produce the results they seek? The federal government’s privately owned agent – the Federal Reserve.

Enlightening isn’t it? Once again, if you have not read this article by Badlands Media contributor, American Hypnotist, now would be a good time to do so.

https://badlands.substack.com/p/do-we-have-a-contract-with-the-federal?utm_source=post-email-title&publication_id=1135129&post_id=105437643&isFreemail=true&utm_medium=email

With these trends in mind that extended back in my day to the 20-25 years ago timeframe we find ourselves in this story; it finally became increasingly clear to me that to succeed and help customers meet their goals using my abilities and experience, I needed to focus on transactions as compared to relationships. The world was changing and people were becoming more selective as they learned how it all worked. Competition had increased the options they had available. In addition the politicians and federal bureaucracy were beginning to exert more control and influence with the ability to accelerate or throttle lines of business as well as entire industries and segments of the economy in the blink of an eye. As they did so they strongly impacted all aspects of society. Instead of working for We the People, they were openly working for themselves and their cronies. The rest of us were left with the scraps unless we could work harder and smarter than them.

I realized then that when the Lord saved me from my mistakes and sins, He opened the door to a career that fit the trends and my abilities exactly. I just needed to pay attention. His ways and timing are always better. Always.

Imperial

All I can say is if that bank had chosen to stay the course and keep doing what they were doing back in my day, I would have chosen to work there until retirement if that is what the Lord had in store for me. Everything was done win-win. The attitude was to develop and execute your plans, here are the tools. They had the deceased NFL owner Al Davis’ of the Oakland Raiders mantra, “Just win, baby.” The lines of business that won and were more profitable received even more access to capital and tools to grow. Let’s see, where have I read or heard about that approach before? Oh yeah, Matthew 25:14-30 and The Parable of the Talents.

They were not saints to work for, however, they employed the principles of the parable. It was a great place to work, no micromanaging headaches. In general they treated their people well and with respect. You felt valued and appreciated. They were not legalistic. They recognized personal and family needs at times would take precedence. They just asked that you do well at your work and be profitable for the business. Just meet or exceed expectations and all would be fine.

As a result, we were able to build a strong eastern U. S. region credit administration support staff to go with eight experienced production officers. We had become active in all 50 states as a division. Our regional operation would be the core group that stayed together for the next decade. They were the foundation. We all helped grow the Imperial operation toward the Top Ten nationally in loan volume with a plan in place to be #1.

And then one day a couple of years into it, they announced they were selling to a big top twenty in assets bank out of Detroit, Comerica. We were not surprised, but had hoped for a longer run with Imperial. My CEO called and asked me to head to Cali for transition team meetings. It would be him, our division SCO and me working with Comerica’s team with similar roles represented on their side. Our operation was twice as large in scope and annual loan closings. Yet, during the process we learned that they would get the senior leadership roles. To the victor went the spoils. Not very wise on their part, so, oh well…

Here we go again.

The CEO of Comerica’s small business division was a middle aged woman who was a former elementary school teacher for much of her work life. She was based at their regional bank headquarters in San Francisco. Their national sales manager was a leftover from their acquisition of a Dallas based bank previous to ours. Their SCO was a doofus, but located in San Francisco with the schoolmarm wannabe. He was her beta lackey.

At this point my CEO was considered “the” go to expert nationally in the business. Our operation was fine tuned and highly profitable. Theirs was better than BOW, but not nearly on our level. I could tell our CEO was probably not going to be willing to report to schoolmarm, but once again we would have to play along until something better developed.

The transition meetings were filled with some of the silliest school teacher type attempts at bonding I have ever witnessed participation by adults. Absurd. She was also quick to tell the story of how she got into banking by being the teacher of a Comerica bank exec’s child. It was intended to demonstrate how “in” she was with the org. She obviously had no idea she was a minnow in the industry who was swimming with sharks. None of us commented. Didn’t care. Moving right along.

She finally gave up attempting to school her kids and let the rest of us actually do the transition work. I kept my cool, but stayed detached from her attempts to bond. When I returned, I informed my SCO and told him he was next up for credit meetings in Detroit.

Upon my SCO’s return, his first words to me were that they were not a fit at all. He felt he had wasted his time. We learned once again, just like BOW, that the acquisition was about increasing their California banking presence and using our programs to appease politicians and regulators in the the states where they had a presence. Imperial had a strongly profitable division involved in venture capital start-ups in the tech and medical research industries that held an attraction as well.

Our division CEO told me he was already in discussions with three other options. He would keep me informed and to just keep working. To Comerica’s credit, unlike BOW, they did not overstep their authority as it applied to our pipeline of loans being approved or in processing to close in Imperial’s system. Their acquisition of our bank would not close for another 6 months, so we were to continue to operate as is for the time being.

Which was all the time we needed.

Temecula Bound

The winner of the now recurring bank flavor of the month was a small, five year old national bank in Temcula, CA. Since we acted like the wild, wild west in our industry, we might as well join a bank in the old west.

The Chairman/CEO was a highly experienced banker who had been the CEO of another area bank for many years. He had left to start our future employer, Temecula Valley Bank. As the largest stockholder of a publicly traded bank with majority control by a consortium of area stockholder friends and a handpicked Board, he was free to steer the bank into the lines of business for which he had expertise. One of those lines was ours. He understood everything we did as his former bank was a major player with it in CA. A unique opportunity was provided, which included granting stock options to key senior officers in our division. We knew we could manage the balance sheet of the bank with all of the planned growth. Building a deposit base would not be a problem in this high growth area of the country and with the Chairman/CEO’s connections.

The stock options pushed it over the finish line. Our division would be a major driver of profitability, which would enhance stock prices. The Chairman/CEO was wanting to emphasize construction and development financing in single family homes in hot SoCal markets. In so doing it would grow the name and provide places for future branches. The plan was also to be added to the NASDAQ to attract additional capital in the future.

Having significant stock options was a really nice benefit. My role and compensation package were essentially the same – build the eastern U. S. presence. Just keep doing what we do.

Parting Is Unsweet Sorrow

Meanwhile back at Comerica, our new schoolmarm wannabe CEO was making the rounds of her expanded playground. She was trying to build a relationship with us and other regions of our division. You could tell her spidey senses were telling her it was all about to fall apart. After our CEO left to go to Temecula, she and her sales manager were calling me and visiting routinely. During one such visit at one point she ridiculed southern women and the Bible Belt in an informal conversation after lunch. I responded, “Yeah, we all talk slow because we think slow. Jesus understands.” She then apologized profusely and said it was a poor attempt at humor. Nah, she meant what she said. She also knew she stepped in it with me. Later in a phone call she tried dangling a high salaried compensation package to get me to stay, but the inability to keep and attract production officers with the credit constraints and big bank attitudes would eventually kill the operation. So I declined citing the ground floor stock option opportunity at TVB. She attempted to deride that as well, which was about as dumb as it gets. Yeah, be sure and deride the analysis of the senior manager you are trying to retain and just formally offered to highly compensate. Jeez…

Now you know why I cannot stand Nancy Pelosi even without regard to her politics. Schoolmarm and her came from the same mold.

I began working out my notice. After I left, our staff of a dozen employees began leaving one at a time to join me in our new offices a half dozen blocks away. Over about four months they transitioned in until the last one turned out the lights on the Comerica operation for good in TN and the eastern U. S.

More Banking Wars Drama

For the first time in our years of working together, I witnessed my division CEO friend being fooled by his new boss, the Chairman/CEO of Temecula. The old guy pulled off a bait and switch on us. He promised one set of credit policy and parameters pre-employment that he had no intention of delivering. He made it worse on our region by only having our one SCO on the newly formed three person credit committee for the division. That meant that any loan request over $500 K that was real estate secured or $250 K for non-real estate secured must be approved by the committee. This was half the amount of my SCO’s approval authority at Imperial, which was an agreed condition for our joining them. Since the other credit committee members knew nothing about business loans in the eastern U. S., we were placed in an awkward position with our referral sources and customers. The main office could and did begin throttling our volume, making it difficult to get deals done that were never a problem in the past. Our loan collection and default rates had been historically good and well below government agency averages. There was no justification for the tail wagging the dog other than unjustified fear or big egos or both.

I figured it out quickly, especially when our production officers started screaming at us. We had hired the five best from Imperial/Comerica in our region and at this point had added another four. Business was growing and this was throwing a wrench into the machine at exactly the wrong time. It was time to take a stand with my CEO and the bank Chairman/CEO as our eastern U. S. operation had been noticed by other potential employers based on the calls from recruiters.

We had options and did not have to work for con artists.

So I fired off a memo to both that include the “bait and switch” observation. To say the Chairman/CEO got his panties in a wad would be an understatement. My division CEO was placed in an uncomfortable position, which I considered before doing it. However, he was the one who had chosen this employer and was being paid the big bucks. To his credit, he stuck by me and told the Chairman/CEO that if I was terminated, he would also leave. He told the guy that we had other options than working for them, which was true.

Power base established.

The bank’s execs and Board got their heads together and suddenly decided they could modify credit parameters and give my SCO increased authority, doubling the previous levels to what he had at Imperial. This gave the production officers what was necessary to retain them and also incentivized them to prospect for more real estate secured loans that were obviously preferred by the Chairman/CEO and Board. Things settled in and we began doing what we did.

Occasionally we would be brought out to Cali for division meetings with the Chairman/CEO and his execs. The visits were cordial, we were making them good money and the move to the NASDAQ was completed. The last time my SCO and I went, they elected to have it at the Bellagio in Las Vegas. Having meetings previously in Reno with SierraWest brought back memories of that type of environment.

Such a sad environment in Reno during those days in my opinion. Anybody who knows or frequented the mall type enclosed casino district downtown back then understands. It never shut down, at 5 AM it was like 10 PM. No clocks, no sunlight, and very few smiling faces as people sat with drinks in hand at the tables or slot machines to toss in their money on games of chance. This time we would be in the real deal of glitzy Vegas, not the Reno wannabe, and I had been there before with my ex back in the late 1970s. I knew what to expect and I had changed greatly since those days. I just wished this guy was still alive and performing there.

Yep, had to…

Even in my more rogue days I was never a gambler. For me, life is too big of gamble as it is, much less risk what was so hard to gain. Regardless, I never condemned anybody else for their choices and that included TVB’s choice of venue for the meeting. However, I was not going to change me either. So while the others began eating, drinking and talking; my SCO and I prayed silent prayers of thanks before beginning our meals. At first the others were puzzled, but as the days rolled on they became quieter and even respectful. Our evenings were spent back in our rooms with work and calling home, not out carousing and gambling with the rest of them.

However, one evening the Chairman had all of us head out to one of the popular, high end area steakhouses, Smith and Wollensky, frequented by some of the rich and famous. As we dined we looked across the room and there was this guy.

Coach K – Hall of Fame head coach of Duke

He was very gracious and spoke briefly to many of us in the restaurant. Folks were reasonably respectful and after quick visits everybody left him alone to enjoy his meal with his companions.

After our return and over time the bank’s execs had begun using our divisional profitability to expand into their desired financing of homes in SoCal as well as adding branches. Over time we began noting slower coordination of funding our closings as well as a subtle tightening of credit approvals on larger projects. It was something I needed to keep my eye on. It was an indication that the bank’s liquidity was drying up from over expansion into SoCal real estate financing.

Conclusion

We had no idea in our region’s offices that our careers were getting ready to dramatically change in a surprising way. We will dive into that next time. Until then be well and be blessed.

Back In My Day: Civilized War – 1997-1998 Continued

The last time I discussed my new job, thinking Hebrew, involvement in Promise Keepers and a day on the Mall in DC with Stand in the Gap. However, I need to go back a bit into that year and tell the parallel story before moving this series significantly forward.

https://youtu.be/snZKnES4ng4

To everything, there is a season and a time for every purpose, under Heaven…

Career Movement

My cup not only ran over in spiritual matters, it ran over in my occupation. After the equipment company fiasco I had retreated to a home office. I returned to my first love as a small business banker, originating and underwriting loan requests in my region. I was the first officer hired in the expansion of my new banking employer, which was a financial company owned by a bank holding company that owned a half dozen smaller rural banks. Those banks needed earning assets due to the lack of business activity in their areas. Our operation was able to provide them.

The global loan volume for small business loans that were guaranteed by the U. S. Small Business Administration and USDA guaranteed loan programs among other programs did not rise to the level of Wall Street investment houses being interested in the purchase of the guaranteed portions. However, numerous regional brokerage firms had institutional buyers interested in their purchase if packaged into larger pools, which would then be sold and securitized by Wall Street firms for sale into hedge funds, pension funds, insurance companies and so on. As more lenders entered our line of business through the years, industry profitability and influence began to increase due to the number of jobs created or saved with the business financing. The politicians began to take notice and support better as it gave them talking points in their districts.

In summary, what President Reagan and his administration envisioned in the 1980s with their modifications and boost of the industry worked. The ride was bumpy because it was a political football, but trending up as a whole for the industry.

As 1997 rolled around my book of business had grown greatly as professionals in the region learned what type of financing we could provide. That understanding led to many referrals of prospects from their clients. Add in that our company’s loan growth had increased with the addition of a couple more production officers similar to me in other regions of the state. The growth in volume began to concern ownership as we had become the largest volume lender of our type in the state, far surpassing the volumes of the big banks.

Concerned about the monster they created, ownership decided to hire a new senior credit officer (SCO) from the most conservative big bank in America at the time, Wachovia. SCO’s are charged with making sure the loans fit bank and regulator policies and requirements before they are approved and made. Executive management sets the parameters and criteria for approval. So, with the arrival of a new SCO from a highly conservative big bank, we knew we had major changes coming in the loan approval process. The CEO of our operation became concerned immediately as did I. We knew from our past experiences this was a signal of tighter credit and that the owners wanted to slow the loan volume down. Instead of increasing the deposit base to fund additional loan volume, they were choosing to throttle what they had authorized to be built, which was successful. The dog caught the car, became scared and did not know what to do with it.

Our cottage industry’s trade organization had a biannual conference coming up in the spring of that year. As things go for Goober Gump, they were holding the conference in our family’s favorite vacation spot of Hilton Head, SC. In addition to being the industry’s primary trainer, the conferences had become happy hunting grounds for recruiting new hires by employers throughout the country. with a large number of management recruiters on hand.

The holding company major owners had not consulted with us about their obvious plan to decrease the loan volume of our operation, which had already started, when they had other suitable alternatives available. We did not require huge growth in deposits since we sold the 75% guaranteed portion of the SBA loans. My ever growing referral sources and customers needed dependable funding sources as the economy was in high gear. My CEO received a cut of the profits from our company’s operations as his commission. He was a significant stockholder within the bank holding company, whose future profits would also be impacted by the decision that he was not consulted about despite being on the Board of Directors.

My CEO and I made a plan. It was time to go shopping for a new business home.

Boy, was it ever. Goober Gump and his CEO were in demand it seemed. Our steady rise to #1 in the state surpassing the big boys had not gone unnoticed in the industry.

Beach Bums

If you have ever been to the SC beaches in late April and early May, it is usually spectacular. The temps are about 75-80 degrees with loads of sunshine and the environment is gorgeous. Upon our arrival, wife and daughter hit the beach and pool while I was in meetings for a few days. In the evenings there was entertainment and great food with families invited into a pavilion area overlooking the ocean. A photo op waiting to happen. They did things right and good times were rolling with attendees. We became acquainted with many interesting people.

As we visited with each other the discussions would turn into informal job interviews. Part of our plan was to separate and do our own fishing expeditions, which worked well. By the time the conference neared its end both my CEO and I received six informal employment offers, three of which were from the same potential employers.

Landing this many informal offers meant we needed to review them before the end of the conference and rank the three we shared in order of preference. We wanted to stick together as my CEO wanted to stay in management and I wanted to stay in production, so we eliminated the choices that did not include a package deal. We both immediately settled for the same #1 choice and agreed on the #2 that would be the back-up. We scheduled a breakfast with our #1 choice for the last day of he conference.

Boom. It was over quickly. It all fit like a glove and had great upside. Their leader had made calls to his bank’s President/CEO the evening before our meeting and received approvals to proceed. We had met our future boss as well as his SCO, so we knew their loan parameters and criteria. They were both as excited to expand their operation into the eastern U. S. as we were.

Transition

As I look back, it was the single most important and correct career decision I ever made. The Lord had been clearly opening the doors every step.

The new bank employer, SierraWest, was headquartered in beautiful Truckee, CA with a large regional presence also in Reno, NV. The bank already had a large small business finance division in the west, however, they wanted to grow its branch presence and felt that the division could provide the profitability they needed to get that done. By adding an eastern U. S. region, they would also be more attractive for acquisition by a larger bank that may want a national commercial government guaranteed loan presence to springboard into new markets.

When one enters that industry, it is so specialized that you learn you are really employed by the industry, not by your bank employer. Employers in banking come and go. Their appetite for what you do comes and goes with it. However, once you are a proven performer, you will always have a good job and opportunity with active lenders in the industry. The stable of horses who can win is limited. Fortunately with her own banking background, Rock Star began to realize this as well. It was a change from her cradle to grave employment perceptions, but she got past it.

We knew our new employer would probably sell in a few years before we joined them. We also knew California banks were the absolute best in our industry at this line of business and that we would benefit from the experience. We had hitched our wagon to one of the few industry leader stars. He was highly respected, knowledgable, fun to be around, and overall good guy who gave you the tools and got out of your way. If you had a problem or needed assistance, just pick up the phone and call.

If we needed another home in a few years because the bank sold or the lending climate changed, he would take us with him if we did good work. Meanwhile we would build our own network over time and begin building the back office support staff to handle all aspects of credit and loan processing ourselves. That would make us even more valuable to potential employers.

Speed Bump

Not long after I had joined SierraWest and had closed a few transactions in 1998, a health issue stopped me. I was playing some driveway basketball with the neighbor kids and daughter, when I was accidentally tripped and fell awkwardly. A previously balky, problem knee from my younger days in sports was blown out. After a visit to an orthopedic surgeon who handled the athletes at the University of Tennessee, I learned my knee needed reconstruction for an ACL tear and severe meniscus damage. My new employer was gracious and gave me all the time I needed for the surgery and recovery.

While grinding it out in therapy, I spent a couple hours a day, a few days a week with this guy…

https://www.restaurantbusinessonline.com/leadership/bill-regas-mentor-host-standout-restaurant-executives-dies-age-92

He was an iconic fixture in the Knoxville area as a restauranteur, businessman and all around high quality person. I knew of nobody in the area who did not personally like the man as well as his restaurant. He had the quality of being a friend to the homeless man on the corner or the king in a royal court. He mentored many leaders in the industry. However, he was most known for being a very close, lifelong friend of Dave Thomas of Wendy’s. Bill and Dave knew each other and worked together as teenagers, when Bill took Dave under his wing. They remained close all of their lives until Dave passed. He was a frequent visitor to our area as well as in Bill’s home and restaurant.

The only time I had ever witnessed Bill express anger and frustration was toward his therapist who he claimed was killing him after a knee replacement. We had surgery about the same time and used the same orthopedic clinic and therapy center. We would laugh at each other while the torturers worked the other over. Our experiences would come up whenever I had a business luncheon or took Rock Star to his restaurant. We complained, however, we both acknowledged our therapists were outstanding.

Sold!

Things were going very well and I was able to get a number of higher profile projects and businesses financed locally to build our story. It was in the year 2000 when we were told to be on a conference call.

The expected had happened. The bank was being sold to the much larger Bank of the West out of Walnut Creek, CA, which was owned by the French international banking conglomerate of BNP Paribas. Which incidentally just completed the sale of the same Bank of the West to Canadian banking conglomerate, BMO Financial in January of this year. Will leave BNP Paribas for another day, but let’s just say they don’t mind cheating, violating sanctions and thieving; or paying the resulting huge fines and penalties for having done so when caught. So the net they keep must be off the charts to justify their criminal activities.

My first thoughts were, this will not work. We learned that Bank of the West (BOW) only had three SBA business loans in their entire $10+ billion loan portfolio. By comparison our division closed more loan transactions than that every week. Add in that our average loan size was $650 K while theirs was $3 M. A major loan culture clash was incoming.

It was obvious they wanted our bank to expand their branch banking presence in the west and to put lipstick on the pig relating to small business finance in local communities to assuage regulators. We also learned that our bank’s President/CEO was going be named the head of our small business lending division for BOW with our current boss being given a one year parting gift after he finished transitioning our unit. That was not going to work well either. The President/CEO knew very little about our line of business and our boss was a leader in the industry that was loyal and helpful to his troops. Besides, our boss had moved past being just a manager. He and his wife, who also worked for the bank, had become our friends. The trust factor had been addressed over several years.

Over the next several months we went along with it. Then I noticed an interesting, red flag thing. My regional manager tried to spin it that it would be great being at BOW. I suspected it was primarily because he was receiving a bigger salary while being able to keep roaming around having fun with little responsibility.

Meanwhile, the other production officers were as apprehensive as I was. They all had been contacting me for years as I had been named a senior officer to mentor and answer their questions. I had enough at that point, our pipelines were dying with the changes. After talking it over with Rock Star I informed our manager he had 90 days to find us a new home or I would have to make other arrangements. I wanted to continue doing what I did in a better lending environment. Our relationship had changed over the years from friendship and being co-workers doing what we did well to more of him being a distant supervisor I rarely saw anyway.

About two months into it, the manager called and said he was having no luck in finding a good fit. I doubt he had even tried as I kept getting recruiter calls from prospective employers weekly. He asked that we give it more time, that he expected it would get better as they had announced plans in meetings. I smelled a rat, that he had been given a sweet salary deal to stay, which was confirmed later. About the same time I had the largest deal of my small business career tanked by BOW credit officers through their refusal to use local, more qualified appraisers on a hotel property financing project. It was an intentional, sneaky way of declining a credit worthy loan that had already been approved by our lending partner in the deal, the USDA. It was the final straw. I began talking with recruiters.

A week later our outgoing division boss called me. Previously he had asked that if he landed a good spot, would I be interested in joining him. I told him I would. This time he asked if he could come by and see me after he returned from vacation with his family to DisneyWorld as he was winding down his transition duties at SierraWest/BOW. I asked when, to mark my calendar. Then I nearly fell out of my chair. We were going to be in DisneyWorld that exact same week!

Like I’ve said many times before, stuff just happens with Goober Gump.

We made plans to meet a day after arrival for dinner with the families. He and I met a couple more times while the families hit the parks. He had accepted the CEO role of the existing small business finance division of Imperial Bank in Inglewood, CA. It was a $5 B in assets, NYSE listed business bank. The division was one of three primary lines of business in the bank. There would be no issues with commitment to what we did or with funding it because it was the second most profitable line of business in the bank that they wanted to increase and emphasize even more. Several of the more productive division employees at the former SierraWest were coming to join him at Imperial.

He wanted me to join them under one condition, that I would be his eastern U. S. Regional Manager who would develop a production, underwriting and processing operation for our part of the country east of the Mississippi River. He was not interested in hiring my manager at all. He then enlightened me on the problems he had with the guy, that he had been placed on a quiet probation recently and that BOW had indeed inked him to a contract that our former SierraWest President/CEO had executed. Seems some palace intrigue had developed behind the scenes. What that former President/CEO thought about my manager proved how out of touch he was.

I was still grateful my soon to be former manager had provided an opportunity when we were going through difficult times as a family. We parted on amicable terms and would visit with each other at conferences. However, I no longer trusted him. It was not long before BOW pulled the plug on his region and job. He has bounced through multiple employers around the country through the ensuing years as a sales manager, which simply reinforced my decision was correct.

The Imperial opportunity meant I could remain in production for as long as I had time for both producing loans and leading the eastern U. S. development. Over time as the region’s volume grew I would exit production and hand off my referral sources to a hand picked successor. I was to be hired as an executive officer of the bank with signing authority to purchase assets needed to open and maintain offices, approve division expense reports, etc. The #2a to go with the SCO in his different function as #2b in the division

Needless to say, he had successfully drug me back into management. It was a no-brainer. This time I was paying attention to what doors the Lord opened instead of doing my own thing.

Our new CEO of Imperial’s division had mentored me into a more advanced delivery system in our industry. I had no idea at the time that I had mentored him into the faith. Over the years at SierraWest and the following years he had invited me to stay in their home when I came out for meetings instead of the usual hotel stays. In doing so we were able to get to know more about each other; our interests, families and career plans. One morning over breakfast in their home before I left to return to TN, they asked me about the book I was reading. They knew I loved the Lord and was a church goer in the Bible Belt. I told them it was a devotional book I read and prayed over every morning. I gave them my witness and asked if they had ever considered placing their faith in the Lord Jesus Christ as they never talked about church or anything related. They acknowledged that they went to church some when they were kids, but never really followed up on it as adults. We talked for awhile and I left them my Bible as a gift before he drove me to the airport.

A couple of years later they were happy to tell me that they had accepted Jesus as their Savior and joined a local UMC congregation where they lived in California. They both had gone through divorces previously as had Rock Star and I. They had recently learned she was pregnant, just as we experienced. Something clicked in that they were shown that forgiveness and eternal life are available at the Cross for all who have sinned, troubled or are questioning the meaning of life. They reminded me of how much I meant to them years later as I also reminded them how much his employment and mentoring meant to me and my family. I realized the primary reasons God had placed us in each other’s lives. You just never know… unless your eyes have been opened.

Conclusion

Stick with me as I continue to set the stage for what is to come as it builds. Hopefully you are getting an operational view from inside banking and small business finance as well as how the Lord pays attention to even the smallest details of His children’s lives. He closes and opens doors all of the time if we are paying attention. As always I invite you to…

Jump in, the water’s fine. Ask Asbury University…

There is a hunger in all of us that can only be satisfied one way. Nothing else will do it.