How PrecisionLender Helped Woodforest Bank Expand into Commercial Lending


When Woodforest National Bank made the strategic decision to grow its commercial loan portfolio in 2015, it wanted to leverage the latest technology to take full advantage of that opportunity. Woodforest is a privately held bank based in Woodlands, Texas, with over 740 branches across 17 different states, and also in-store branches with WalMart and Kroger. At the time, Woodforest management realized that the bank’s lending portfolio was heavily weighted towards commercial real estate. The commercial lending operation was based out of—and primarily managed by—its Houston office. Rates and pricing were based strictly on what the market would bear, with no system in place to tailor rates to different markets, industries or clients. Woodforest then sought out a technology partner to help implement a more intelligent pricing model and methodology for the commercial side.

After establishing five different commercial lending business lines, Woodforest partnered with Charlotte-based PrecisionLender to help relationship managers (RMs) win better deals that aligned with the bank’s strategy, in terms of profit, risk and growth. The cornerstone of the PrecisionLender platform is “Andi,” an AI-powered virtual assistant. Andi works with relationship managers as they price each opportunity, showing them multiple ways to structure deals that will reach their targets, while also highlighting ways to expand the relationship.

Part of what made PrecisionLender an ideal partner was the ease and speed of which Woodforest could implement the platform across relationship managers in multiple states. The firm worked closely alongside the Woodforest business and IT teams during the implementation, and the platform was launched in March 2016. The commercial banking team now uses the system to input pricing for all opportunities that require approval. To help ensure the RMs price deals that work for both the borrower and the bank, Andi considers a multitude of factors, such as fixed versus adjustable rates, fee structures, duration and deposits the applicant already has with the bank. This flexible, data-powered approach empowered Woodforest’s RMs to better tailor deals by client, industry and region, helping the bank rebalance its portfolio and put a greater emphasis on middle market banking.

Woodforest and PrecisionLender conduct a quarterly return on equity (ROE) meeting to discuss performance trends of products, branches and even individual relationship managers. PrecisionLender also reviews ROE targets set for each region during these sessions. And at last year’s third quarter ROE analysis meeting, the firm surfaced several key issues from the system that Woodforest could not have found without this rich data set.

PrecisionLender continues to seek feedback from Woodforest to optimize and improve on its use of Andiand the overall platform. Currently, the firm is working to create a “Promise versus Delivery” dashboard, which will give management a snapshot of lending opportunities in progress in comparison to what’s been forecasted for each region, branch and relationship manager. This will create real-time visibility into each potential deal, and ensure that relationship managers are providing accurate forecasts.

There’s also a “performance scorecard” in the works to evaluate each relationship manager as if they were running their own mini business, taking into consideration not just new loan generation but also income generation and risk management.

“PrecisionLender helped us grow from a Houston commercial banking organization into a national presence with five new locations from coast to coast while generating the return needed for the expansion, while also providing flexibility to our relationship managers and great relationship pricing for our clients,” says Derrick Ragland, president of commercial lending at WoodForest.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

BASEL III: The Final Rules are Here and It’s Time to Get Ready

7-26-13-Bryan-Cave.pngOver the past year, my colleagues and I have spent an untold number of hours researching, writing and speaking about the Basel III capital rules. We felt it important to help bankers focus on the proposed rules in order to help them prepare and to help facilitate an appropriate response to the proposed rules. Because the rules were in proposed form, however, many bankers, bank directors and industry participants did not focus on these capital rules, instead waiting until they were finalized. Well, we’re here.

Earlier this month, the regulatory agencies finalized their revisions to the capital and risk-weighting rules, commonly known as the Basel III rules. Even though the rules will not be effective for most banks until Jan. 1, 2015, the finalizing of these rules presents the call to action to begin the dialogue about how the new rules will impact your bank. Of course, given the fact that the final release for the rules was almost 1,000 pages long, many bankers contemplating a board presentation are left to ask, “Where should I start?” Below are a few suggested areas of focus to begin to enhance your directors’ understanding of the new rules.

  • The New Rules Limit Leverage. If there is only one sentence for directors to remember regarding the new rules, it is this one. By increasing capital requirements and ensuring that common equity represents a substantial portion of an institution’s capital structure, the new rules limit the leverage that banks may take on. A central premise of the new rules is that by decreasing leverage in the banking industry, a more stable economy will result. This stability was emphasized even at the risk of limiting economic growth. To the extent that your directors viewed the deleveraging of the industry as a cyclical matter, these rules allow bankers to dispel that notion. By the time the required capital conservation buffer is factored in, the required Tier 1 risk-based capital ratio will have increased from the current minimum of 4.0 percent to 8.5 percent under the new rules.
  • Maintaining the full capital conservation buffer will be important. In addition to a new Tier 1 common equity requirement, the new rules impose what’s called a capital conservation buffer equal to 2.5 percent of risk-weighted assets (subject to a phase-in period), making total capital minimums go as high as 10.5 percent for community banks. The failure to maintain the full buffer amount will result in restrictions on discretionary reductions in capital such as bonuses for executives, dividends and stock repurchases. Given investor demands for cash flow and the need to provide competitive compensation in order to attract and retain the best talent available, these restrictions could be very meaningful (particularly if an institution is forced to choose between compensating its executives and paying a dividend to shareholders). As a result, one might expect sophisticated investors and bank managers to focus on the maintenance of this buffer.
  • The new rules should impact the pricing of certain products. The risk-weighting components of the new rules will change the amount of capital that must be dedicated to certain products. For example, an acquisition, development, and construction loan that is deemed to be a high volatility commercial real estate loan will have a 50 percent higher risk weight and will therefore occupy 50 percent more capital. Therefore, it stands to reason that these products should be priced 50 percent higher in order to achieve the same return for the institution’s shareholders.
  • Return on equity is simple math. The ultimate bottom line of the new rules is that with less leverage, it is more difficult to produce optimal returns on equity. Bank management should study the aggregate impact of the new rules on the institution’s capital levels to determine if existing capital levels will be adequate. If not, directors will need to understand that return on equity is likely to suffer unless net income increases. As a result, directors’ expectations of returns may need to be managed and strategies may need to be implemented to become more efficient or to increase revenue.

The regulatory agencies are careful to reassure us that the vast majority of institutions would be in compliance with the new rules if the rules were in effect today. Even though the analysis used to arrive at that conclusion is a bit crude, this point should be emphasized to directors: Now is not the time for panic. It is, however, time for bankers and boards to roll up their sleeves and understand the impact of the rules on their institutions. The sooner bank management can begin a dialogue with directors about the new rules, the more likely it is that the board can develop an informed and effective strategy.