Case Study: Bank's use of Narrative1 for Internal CRE Evaluations

Using Narrative1 for Internal CRE Property Evaluations in your Bank. An interview with Ryan Kelley, CRI Associate for the State Bank of Cross Plains in Cross Plains, WI. 

Since they were promulgated in the 1994 FIRREA revisions and then expanded in the 2010 Interagency Guidelines, evaluations have always been an integral part of CRE valuation and collateral analysis in addition to full-blown narrative appraisal reports. Now, in light of recent changes to banking guidelines, evaluations are likely to become even more common.

Although most lending institutions have always employed skilled appraisal staff, the lack of a comprehensive technology platform has been one of the major reasons that evaluations have been outsourced rather than brought in-house. Narrative1, the report writing solution by ExactBid, has been used by commercial appraisers for over 10 years and is now increasingly being used by banks as well. In fact, banks represent one of our fastest growing market segments.

State Bank of Cross Plains in Wisconsin noticed inefficiencies within their internal CRE property evaluation process. Each new evaluation report meant starting from scratch because they did not capture any prior appraisal data effectively. Over time they realized that they were not getting better, faster or smarter with their processes and it was time to look for a better way. The bank quickly realized that a software-based solution was the best answer and they looked to Narrative1.

 “We chose Narrative1 because they are the best product suited to commercial evaluations. The reason we continue to use Narrative1 is due to our ability to customize the platform to capture the data we need and to support additional valuation processes."

Ryan Kelley, CRI Associate, State Bank of Cross Plains

ExactBid sat down with Ryan to discuss the bank’s experience with Narrative1 and internal CRE property evaluations. Below is the full interview.

How were you managing your internal evaluation processes before implementing Narrative1?

Prior to implementing Narrative1, we used a Word form and supported it with a basic Excel template. We did not have a reliable database resource. 

Where I think Narrative1 has really paid dividends is from the cumulative aggregation of the work we perform. Previously, each new report meant starting completely from scratch on minimal templates. With Narrative1 we can build upon our prior efforts using templates and accumulated data to create efficiencies in our report generation. This allows us to focus more on analysis. And, over time, this has led to performing higher quality work.

How have ExactBid and Narrative1 helped you improve your evaluation processes?

We initially adopted Narrative1 to help improve our evaluation process. Since that time, we have built evaluation report templates for different property types and value approaches.  We capture more granular data about our real estate collateral. We have been able to expand the metrics we consider during the valuation process. We have been able to standardize our product and even been able to brand our reports in our corporate theme. We have come to the point where the quality of the evaluation we are producing is on par with work we get back from some of our external appraisal vendors. And through all of this, we have not increased the time it takes to produce an evaluation report.

Where we really found Narrative1 to pay dividends, however, was through customization of the platform. We tinkered with it at first. We built out the scope of our appraisal orders using the software. We built an engagement letter. And, by integrating our appraisal program in with the software, we were able to recognize early signals about what we might be able to do.

From there, through working with Narrative1’s online knowledge base, and with some assistance from customer support, we were able to also build out our appraisal review process using Narrative1. After developing the appraisal review into Narrative1, we can now use the software to verify existing data against any newly collected data on our subject property, sales can be cross-referenced from our database, and calculations can be verified and supported in the income approach. We can even capture data points like functional obsolescence and personal property value. This ultimately provides us with a whole host of data that makes us smarter about how we approach collateral valuation and other risk topics.

I do want to emphasize that by building Narrative1 into our system, we created a ton of efficiencies in our process. This is important because if you think about the increased scope of what we are doing, we need the process to run faster than when we performed reviews manually.  At the same time, we also produced a great looking review report template, complete with maps and charts. I even create an internal invoice for my work using the software. In the end, the process does not take any longer than it did prior to adopting Narrative1 but the results are better, more detailed and repeatable.

We recently went through a safety and soundness exam. One morning, an examiner came up to me and started questioning me about an appraisal I had reviewed several months prior. As he spoke, I took notes. I asked if I could take some time to investigate his questions. By the time I went to lunch, I was able to pull out the Narrative1 files from my appraisal review and produce a three-page memo that cross-referenced 4 appraisal reports on similar property types and explained why we felt the appraiser’s conclusions were justified.

Ultimately what Narrative1 has allowed us to do is flip how we perceive the appraisal function. Appraisal review typically has not been a great value-add function for a bank. Through what we have built, the appraisal review function has become a center of CRE data analytics and market analysis for the bank. This data can be used in portfolio risk analysis, credit underwriting, and even to support loan origination. This is far more valuable than simply filling out review forms.

At ExactBid, we see a lot of our banking clients using Narrative1 to help with the documentation and analysis of the higher volumes of lower profit loans, has this been the case with your institution?

Our bank has a portfolio that ranges from Main Street properties in rural communities up through infill development projects in urban and suburban markets. From my experience, those Main Street valuations can be tricky ones. These are often the properties where there are fewer market indicators to work from. Plenty is known about infill multifamily property valuations. Less is known about that old storefront that was a butcher shop for decades and now is a packaged liquor store. And, it is these types of properties where we see our demand for evaluation reports. What Narrative1 has allowed us to do is effectively gather all those little pieces of data that can give us a depth of perception and insight about those markets.

I can also see how the Narrative1 platform could be utilized to create an efficient small business scoring model and simple credit presentation without too much effort. The development would not be difficult, and the Narrative1 platform could absolutely handle it. A couple of custom worksheets, some fields, charts, a simple Word template and it’s done.

What advice do you have for other banks who are doing more and more evaluations internally?

In my tenure, I have received numerous calls from vendors trying to sell me their evaluation product. I like to talk with them and see what they offer. And, generally speaking, their solutions seem fine. Then I ask where the person doing my evaluations would be located. That office is usually located in a different state. You cannot underestimate the value of local knowledge held by internal staff.

Having the right tools for the job is key to leveraging a process into business intelligence. Using simple Word and Excel templates can be sufficient if the goal is to simply produce an evaluation. However, if the goal is to unlock more knowledge, a software platform with an integrated property database like Narrative1 is a requisite instrument.

Contact ExactBid to learn more about how you can use Narrative1 in your bank to complete property evaluations to save time and money.  

About State Bank of Cross Plains
State Bank of Cross Plains is known for our modern, progressive approach to supporting businesses and consumers by offering services more typical of larger financial institutions in an environment that values one-on-one personal relationships and community involvement. Celebrating our 110-year anniversary in 2018, State Bank of Cross Plains is a $900 million institution, offering a full range of business and personal financial services including business, real estate and consumer lending, as well as wealth management and financial advisory services. The largest independent community bank in Dane County, we have nine convenient locations. Member FDIC and Equal Housing Lender. For additional information, please visit www.crossplainsbank.com

About Ryan Kelley
Ryan is responsible for creation and development of best-in-class commercial appraisal and valuation function for the bank, with CRE portfolio assets of ~500MM that includes over 500 commercial properties in 19 Wisconsin counties. His role includes performing evaluations on commercial, agricultural and complex residential properties; ordering and review of all new commercial appraisals; and monitoring of the bank’s approved appraiser panel.

About ExactBid
ExactBid, www.exactbid.com, combines the powers of two appraisal management software solutions to streamline complex due diligence processes for both residential and commercial real estate clients. RIMS software focuses on lenders’ due diligence needs, while Narrative1 specializes in time-saving solutions for real estate vendors. Using market leading software and years of experience in the residential and commercial industry, ExactBid empowers customers to improve their businesses. 

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