They will discuss why cash management is important to any business, as well as what the specific needs of IMBs are when it comes to basic cash management.
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Cash Management For Mortgage Banks With Russ Anderson And Jack Nunnery
This show is created by mortgage professionals. It is for mortgage professionals and we’re grateful to have you as our reader. Our commitment is to bring you timely information in a format you can read anytime, anywhere. In our Hot Topic segment, we have some interesting information. We’ve got Russ Anderson joining Jack and I and, of course, the rest of the team.
Jack and Russ used to work together at Texas Capital Bank. We’re going to be talking about some interesting topics. A lot of mortgage bankers don’t necessarily think about cash management, but we’re going to get you awakened to that. Both Russ and Jack have retired in one sense, but they’re still involved in the mortgage industry. We’re thrilled to have them. This is an important topic for IMBs when it comes to basic cash management. You think, “We’re a small little company. We’re not subject to that.” You are and you’re going to benefit from this episode. I’m looking forward to having you on all the way through to the Hot Topics segment.
Let’s say a special thank you to Industry Syndicate. We are thrilled with them in the promotion of our show. We promote them, and they promote us, along with a whole lot of other podcasts. I encourage you to check out IndustrySyndicate.com. Also, the Mortgage Bankers Association of America. Become a member of that. Please also be signed up for the Mortgage Action Alliance application. We are thrilled with our participation, and all that the MBA does for us. Also, Finastra.
We also have Chris coming up, who’s the President of the Americas division part of Finastra. They’re an international company, but I do encourage you to go back and listen to the October 4th, 2021 interview we did with Karen Jenkins. We talked about their strategy and how they designed their system. It’s an open architecture that they have designed that allows other vendors to connect with Fusion Mortgagebot solution. It’s great to have them as a sponsor, as well as Lenders One and The Mortgage Collaborative.
Both of these organizations are co-ops that allow you to get up and close with your peers as well as vendors. We’re members of both of these co-ops and that’s a great way for you to find out what’s going on with people in a smaller, more intimate setting where more is shared. I’m excited about having Total Expert as one of our newest sponsors. They are doing a great job of helping people connect with consumers. Be sure to check out Total Expert. They’re well-known in the industry. I don’t have to say a lot, but for those of you that have not checked out Total Expert, please do so. We will have more information on them in an upcoming episode.
Also, Knowledge Coop. For a great way to sign up for their upcoming new releases, go TryTheCoop.com and get signed up. Also, there’s Mobility MMI and Modex. Intelligent tools that these two companies have for recruiting and getting insights. I was talking to one of my clients. We referred to them at El Cova and we’re talking about the importance of the data that you can get that helps you. I wonder how many of you are communicating using these tools to communicate with your branches the intelligence.
It’s great for recruiting, but the data that they have in both of these systems allow you to get insights into the real estate community and who, being the realtors selling what. It gives you down to the transaction level, a powerful tool. Mobility MMI as well as Modex. Also, Snapdocs. We are thrilled to have them as a sponsor with over $3 million in mortgage closings in a year that they’ve done. They work with title companies, notaries, and lenders. It’s a powerful tool. If you’re not familiar with that, check it out.
Also, check out the interview I did with Vishal Rana back on September 13th, 2021, as well as SuccessKit. We are thrilled to have them as a sponsor. They’re a very effective way to reach your audience through the testimonies of your clients or your customers. We’re using them more and more. I’m so thrilled with the quality of what they do. Check out SuccessKit.io. Also, Lender Toolkit is one of our newest sponsors. We are thrilled to have Brent Emler with us, as well as Brett. We are excited to be a part of that organization with all that they do.
I was talking to Kimberly Nichols, one of our other newest sponsors, PennyMac. We are thrilled to see what they’re doing. The new name is PennyMac TPO. That’s how they branded it. Check out PennyMac TPO. Go back and read the interview we had with Kim Nichols on November 1st, 2021. Finally, also DW Consulting. Debbie Wemyss does a great job of helping you prepare your LinkedIn profile. I appreciate all of our sponsors. Thank you so much. Also, a special thank you goes out to Rob, Les, Alice, Allen, Matt, and Jack as the cohost.
Welcome to the Hot Topic segment. As our special guest, we’ve got Russ Anderson. Jack is joining me in this interview as well because Jack and Russ used to work together. They’re both retired from the mortgage industry. They both are slipping back into us. In this industry, it’s easy to get in and hard to get out. Anyway, it’s one of those things. I can’t retire. I don’t want to. I enjoy it so much. They both stay up on what is going on in the industry.
Both are joining me in the consulting business as well. We’re thrilled to have that. We’re going to be talking about cash management and its importance to any business, no matter what your size, especially IMBs that are smaller, you need to pay attention. Russ and Jack, good to have you both on the show. I appreciate you.
Thank you, David.
Let’s get into this. For those of our readers that are not aware of you, Russ, tell us a little bit about yourself and your background.
I’ve got about several years in banking, preceded by military service in front of that. I’ve spent most of my career in commercial banking and dealing with energy companies, real estate companies, and normal commercial industrial businesses. That was for the first half of my career. I dedicated the last half of my banking career to the mortgage space at Texas Capital at the time. It was one of those things where once it gets in your blood, it’s hard to get out. I was hooked by the mortgage industry. I’m probably one of the very few people with a focus on the treasury or cash management who had been focused specifically on the mortgage industry. That’s what I’ve been doing.The mortgage industry is one of those things where once it gets in your blood, it’s kind of hard to get out. Click To Tweet
I’m interested in how you made the transition from what you did previously into what drew you to the treasury cash management side of the business. There’s got to be an aptitude, but what was it that appealed to you and went down that path?
I took a look around the market. When I was first approached and asked if I would be interested in doing it, I said, “Absolutely.” I think it’s untapped potential here because a lot of the companies don’t pay that much attention to their treasurer cash management, particularly when originations are gushing. You’re not all that concerned with it, but especially now when you’ve got originations waning a little bit, you’ve got to pay more and more attention to how you get your money in, how you’re dispersing it, and what information you need along the way, which is what cash management is.
When you look at cash management, it sounds like a big complicated topic and it’s for the big guys, but it is relevant to any business. I’d like to have you expound on that. Why is it relevant to any business of any size?
It is important and a lot of people ignore it. You and I were talking about it. When I first started in the industry many years ago, I’d look around at our accounts and see who had $100,000 or more and try and figure out if it made sense for them to be in a cash management or treasury management relationship with the bank. It usually does. The inflation, the numbers up a little bit, but when you are looking at what you’re doing with your bank, all cash management provides you is what is called an account analysis statement, which is nothing more than an invoice for bank services.
What happens a lot of times is people will choose a bank that is easier to deal with because they’re down the street or whatever and it may not be the best solution for them. While they may find all their services are free, they may be leaving a lot of money on the table because they may have more balances in there than is required to pay for their banking services. Analysis tells you exactly what that invoice looks like. It’s important for every business.
Jack, you championed this show. You recommended it for many of our IMBs that read the show. We have so many IMBs that read the show and I’m so grateful that you did. I’m going to go over to you, and let you ask some questions.
Thank you, David. Russ, can you help our readers understand what are the specific needs of independent mortgage banks when it comes to basic cash management?
The one thing I always go in and talk to mortgage banks about is that I’m familiar with the flow of cash through a mortgage bank. It all starts with loans and wire transfer services are important for how you’re moving money in and out of your accounts and you need to be associated with a bank that does that efficiently. There are ACHs for payroll, for paying vendors, and for the electronic movement of funds. You get down to your yield on deposits, which as we all have learned, yields may be going up. It’s going to become more and more important. It’s going to get more and more attention from different businesses.
In the mortgage industry specifically, it’s important to take a look at those ways that you’re moving money into your company, how you’re moving it out. Is it the most efficient way to do it within the mortgage bank that you’re in and the yield on the deposits you have with the bank? Are you getting the best bank for your buck when you’re looking at yield? Sometimes the best solution is on an account analysis statement and that’s, again, only available if you’re in a treasury management relationship with your bank. You can analyze what you’re putting your money on those things.
Russ, a lot of banks nowadays are focused on fee income generated from operating accounts being housed at their bank. Can you talk a little bit about why this type of treasury fee income is important to banks and how does that align with operating account relationship with an independent mortgage bank?
It’s going to become more and more important to banks as we go forward. As yield spreads narrow, fee income becomes more and more important. One of the things I was proud of myself on when I go into talk to a client was I would take a look at their current analysis statement and find the extraneous cost that are associated with their relationship with the bank. It’s important to constantly analyze that stuff.
If you’re overpaying or paying for something you don’t even use, which I found on innumerable occasions or something that they didn’t understand what it was, but they got sold it because it’s generated fee income for that institution, we would put a stop to that. The fee income comes off of all the items I named, like wire and ACH agents, the information reporting systems. Some information reporting systems were costly than others.
Some will throw some things in there that you don’t need, especially as an independent mortgage bank, there are certain things that are needed, some that aren’t. A lot of banks will try to plus up all the different line items from an account analysis statement to generate more and more fee income. That’s something you have to be careful in watching.
All that stuff is negotiable when you have high volumes of wires or ACHs. You can get a lower price, but you want to work with your bank on a holistic basis where you’re talking about both the credit side and the deposit side and how do you get the best relationship from that bank. You can adjust pricing on one side or the other on the credit side or the deposit side so that everybody gets what they want out of the deal.
You’ve mentioned account analysis several times. Can you get a little more granular in what goes into analysis and why that’s important to the independent mortgage bank?
Account analysis is nothing more than an invoice for bank services. It’ll start with all the different deposit products you use and then it’ll work into the different areas like ACH usage, wire usage, information, reporting usage, and any other products. Commercial card sometimes is on those analysis statements, too. It lists at the bottom of analysis statement all the bank services you use and then gives you a bottom line what that cost.
On the top half of the analysis statement is your deposit information. It’ll list what balances you have with the bank and what earnings credit you get for having those balances in the bank. That earnings credit goes to offset the fees that are on that bottom line. There are two different things you need to look at on an account analysis statement. If you’re in any business and, in particular, a mortgage bank, you look at your fees first and see what they’re charging you for each different line item. What you do is you go back up and see what credit are you getting for the deposits you have with the bank.
Sometimes that earnings credit rate is the best place to get your yield on your money, depends on your particular bank and how they price their earnings credit. That is all analysis is. It’s an invoice for bank services with an offsetting earnings credit, which is basically sock dollars in most institutions where it offsets your fees. If you’re trying to manage it to the nth degree, you try to get that earnings credit to exactly match what your invoice for services is and anything excess is earning you actual interest somewhere else.
I’ve got some questions coming in from several of our readers and I’m fascinated by this topic. You’ve already touched on some good points, but if you were to be working with somebody and starting advising them, where would you start this conversation at?
I always start by looking at their account analysis statement with their current bank and then I’ll go through that and I’ll take a look and see what they’re doing. It is important on the margins and the reason why it’s important. If you’re gushing cash at the time and it’s a little less important, but if you’re in a time where originations aren’t what they once were, then it becomes more important to watch exactly what’s going on with your cash in and out of your company. There are ways to maximize what you have in your bank account and earn a little extra interest income if you know how to manage this process.There are ways to maximize what you have in your bank account and earn a little extra interest income if you know the cash management process. Click To Tweet
I look at some of the opportunities that are there, but when you were talking about this, and you touched on this briefly, I’d like to have you expound a little bit more on some of the mistakes that IMBs make when it comes to basic cash management. There is a lot of mistakes that are made and part of one of them is not even looking at it, not being aware of the opportunities here.
It’s a mistake. A lot of folks, when they open up their shop, they do what many other business does. They open up a bank account down the street because it’s convenient and that’s what they want to do. Maybe it’s a guy who they happen to know or account officer down street at the bank and so they use them for their bank account. It is probably a community bank. Most times when I look at it, it’s a community bank. It’s not charging them any fees and keeping their money over there and all good, except for the fact that when their mortgage banks grow, then they’re losing money on leaving it in a situation like that. There’s money to be earned on that excess cash.
That is getting into the leverage component of all this, right?
Exactly. There’s a time where you overcome that community bank free service because you’ve got more cash in there. They can possibly need to offset the services, but there’s no way to use what products they have to continue to leverage your cash up and make a little extra interest income on the side.
I’ve got a question that’s coming in from one of our readers and it’s for both of you. Jack, did you have experience with cash management beforehand? How much of an appreciation did you have for this? I’m sure when you’ve run Texas Capital Bank, you’ve been in banking forever, so maybe a lot. They’re hoping that you didn’t have a lot until you met Russ and he helped create the awareness.
Going back to a lot of the questions that are rolling in, and there are a lot of them, it’s all around. I had no idea how much I could make a difference. Some of the larger ones, yes. Jack, respond to that one question. How much knowledge did you have about treasury and cash management before you started working with us?
Not a lot, David. I’ll take it back to 2009, a gentleman named Gary Ort re-engineering a warehouse program and banks covet deposits. We were challenged to drive deposits through our warehouse lending activities. At that point in the market, warehouse programs were not linked to the ability to drive substantial deposits. Gary and I said, “No, we’re going to change this conundrum and we’re going to become significant drivers of deposits into the financial institution that we work for.”
We focused on treasury and liquidity solutions in cash management as part of that strategic plan. It worked beyond our wildest expectations. To be successful at that, we needed to partner with an astute treasury and liquidity officer. That’s where Russ and I first started to work together. We went from zero attributed to our line of business to billions of dollars, David.
I wouldn’t consider myself a cash management expert and Gary and I were challenged to drive deposits. We partnered with Russ on the team and we went places that we never thought we could get. Ultimately, we wanted to be more to our clients than a warehouse line. We were trying to de-commoditize warehouse lending. If you start providing mortgage bankers with other services that are critical to the longevity and health of their business on top of the liquidity that you supply them through a warehouse line, you deepen the partnership and it worked.
Russ, when you came in and started doing this, was there a program that existed, or did you set this up from scratch?
No, we started it from scratch. Honestly, when we started to take a look around in the industry about the warehouse programs around the country were funded, meaning what percentage of deposits are funded, they’re at about 5%. When I started, I thought, “If you look at our originations, that’s not going to amount a whole lot.” I became committed to funding our book at 100% and we did. We were fully funded for our entire book of business and that was a great achievement for us.
My goal was to fund the whole bank, but then they told me I had to hit the brakes so I had to stop. The idea behind it was, it was more than the line items on an account analysis statement. We used those corporate accounts to help our clients with leveraging their yields on what they were paying their warehouse line.
As I had indicated earlier, we would look at it as a holistic relationship. What are you doing with this on a deposit side? What are you doing with a ton of credit side? We didn’t stop at the warehouse program. We looked at our facilities advanced lines and you name it, EBO lines. We would look at everything in terms of how we price both the credits and the deposits and make it a good deal all around.
You mentioned how you would oftentimes see a lot of IMBs specifically work with more of the community banks. Sometimes there’s a feeling that you need to work with the big super banks. Talk about what is the ideal size bank for IMB to work with when it comes to treasury management and the benefits that they can get. Is there a size preference or a recommendation that you’d make?
For IMB, it’s better to work with the regional or a super-regional bank.
What is the difference between those two categories? Is it an asset base? Is it locations, footprint?
It’s footprint and asset base, a little both. As they spread out around the country, the regional will end up being a super-regional pretty fast if they continue to acquire other institutions. The idea behind a little bit bigger of a bank is that they’re going to have some products that you will need going forward. Things like credit card processing or getting up for your sales staff to use for expenses or being able to process for appraisals and credit polls and things like that or credit cards. Better information reporting systems with the bank that allows you to track what’s going on in your accounts and wins.
They have more efficient ways of handling your payables and your receivables. Typically, a community bank has some of that stuff, but it’s a little bit more clunky and they don’t have the same quality of some of the products that we’re talking about here to meet the need of a mortgage bank as it as it grows.
The other thing to consider, too, is there’s always a big elephant in the room. The whole write-off offset on a warehouse line, that is a concern if you have your warehouse line in the banking in one place, but it can be addressed. I addressed it innumerable times to where we got everybody comfortable with what was going on. If you get a loan stuck on a line and you’re worried about them seizing your corporate cash, that can be addressed through the agreements. It’s not as big an issue as some people may think it can be.Address a problem innumerable times until you get everybody comfortable with what is going on. Click To Tweet
We’ve barely scratched the surface on this big topic and so we are going to have another segment, a part two to this interview. We’re going to continue this discussion with Russ. I’m looking forward to doing so and it’ll be great. Jack, any comments and you want to put a teaser out there, what they can anticipate?
We’re going to talk a little bit about deposits and the value of those deposits and how they could impact your cost of borrowing on warehouse facilities, David. I don’t want to lose sight of the fact that even if you don’t have a servicing portfolio with a lot of deposits, you’re still an important relationship to a bank because of the fee income that the bank can write off of your operating accounts.
That fee income has a lot of value to it. Bank stock analysts certainly like to see a healthy share of the bank’s income coming from fee income, non-interest income. If a bank has overweight interest income, it tends to see its PE ratio get diminished in the market. Your fee income as a smaller independent mortgage bank is important to banks.
We’re going to get into that. We’re going to be releasing part two of this. It’s an important topic. Russ, thank you so much for coming on and talking about it. Jack, thank you so much for encouraging us to talk about this important topic. We’ll continue on. I’m learning something. I’ve got a lot more notes here and we’re going to dive deeper next time and release it. Russ, thanks so much for joining us. Thanks, Jack, for being here with us. I appreciate it. I look forward to it.
My pleasure. Thank you.
For this next episode coming up, we’ll talk about what’s going on with interest rates and how a lot of people are looking at where interest rates are going. We reached out to Les Parker and he’s going to join us next time and answer a lot of questions. He made a prediction earlier that we all wrote down because it was pretty astounding.
He said, “It is very possible that we could see the ten-year treasury back under 1% for a period of time.” What’s he talking about? We’re going to ask him that question and many other questions next time on the Hot Topic segment. We’ll be back with that one. Thank you to our sponsors, Finastra, Lenders One, Mobility MMI, Modex, the MBA, Knowledge Coop, the Mortgage Collaborative, Snapdocs, SuccessKit, Lender Toolkit, PennyMac, as well as Total Expert. Thank you so much. I look forward to having you back here next time.
- Russ Anderson
- Mortgage Bankers Association of America
- Mortgage Action Alliance
- Karen Jenkins – Past episode
- Fusion Mortgagebot
- Lenders One
- The Mortgage Collaborative
- Total Expert
- Knowledge Coop
- Mobility MMI
- Vishal Rana – past episode
- Lender Toolkit
- Brett Brumley – past episode
- Brent Emler – past episode
- PennyMac TPO
- Kim Nichols – past episode
- DW Consulting
- Debbie Wemyss – past episode