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What history shows about postponing technology improvements 

Delaying banking tech purchases can leave banks and credit unions flat-footed when operational demands or risks surge.

Key topics covered in this post: 

The bigger threat: Slowdown or old technology & processes? 

The U.S. economy may or may not enter a recession this year — economists are still divided. But for many banks and credit unions, the bigger threat isn’t a slowdown. It’s postponing banking tech upgrades yet again.

Financial institutions have been here before. Some paused technology investments during the pandemic and again amid recent interest rate swings. But delaying once more, especially when pressures on teams and systems are only growing, could leave banks and credit unions flat-footed when operational demands or risks surge.

Rather than being a cautious move, postponing tech improvements can risk a financial institution’s ability to drive value and strategic returns. History offers multiple warnings about what happens when organizations deprioritize critical tech infrastructure for too long.

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Outdated technology fails suddenly and publicly

Air traffic control issues, including delays and flight groundings, have made Newark Liberty International Airport “a beacon of serious, widespread issues in the U.S. network of aircraft communications and tracking technologies, which is decades behind the times,” Investor’s Business Daily recently reported.

The problems, which haven’t been limited to Newark, are the result of years of delayed upgrades to technology the FAA relies on daily to manage air traffic safely. Some of the FAA’s most essential systems still operate on legacy architecture, and breakdowns are occurring during heavy travel periods despite efforts to accelerate technology change now.

Old legacy systems are also a major source of vulnerability in health care, an industry that accounts for a quarter of data breaches across all industries, according to a study published in 2023. A lack of investment, legacy systems, and human error allow cybercriminals to exploit health care systems, access information, and sell it on the dark web.

These examples are powerful reminders for community financial institutions: Outdated systems might work today, but they may not survive the next stress, whether it’s a wave of demand, a fraudster, or a new credit risk. And when outdated tech systems fail, the consequences are felt immediately and publicly.

 

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Risks to growth from delayed tech investment

On the surface, it might seem reasonable to push out banking technology purchases for belt-tightening efforts when the economy looks uncertain in order to minimize risk to the bank or credit union. But consider how operational and financial risks can emerge once the outlook strengthens in that scenario.

For example, when interest rates drop, businesses that have postponed expansions may quickly return and be eager to borrow. A community bank or credit union could find itself flooded with loan requests. That would be a welcome opportunity, but that surge can create serious strain without a modern loan origination system that supports automated workflows and role-based access.

Borrowers expect fast answers. Teams need real-time visibility and banking intelligence across the pipeline. Institutions that rely on manual reviews, spreadsheets, or outdated lending platforms will struggle to keep up. The potential growth can quickly turn into a backlog or missed opportunities.

Similarly, as the loan portfolio grows quickly, it can be more difficult to track and uncover credit risks without efficient loan review or to balance funding needs and liquidity requirements without strategic asset/liability management systems.

According to Forrester data, firms pursuing technology-driven innovation grow three to four times faster than industry averages. Institutions that begin multi-year efforts and spending to make digital technology a priority recognize that digital acceleration is a way to:

  • Permanently reduce the cost of doing business
  • Improve customer and employee experience
  • Outperform competitors during a looming downturn

Why tech upgrades amid uncertainty make sense

Community financial institutions don’t need sweeping digital transformations. But investing in focused, scalable SaaS solutions — for lending, portfolio risk, asset/liability management, or anti-money laundering (AML/CFT) compliance — can reduce risk and drive efficiency right away.

Systems are bound to fail at the worst time, and even back-office failures can directly affect customer experiences. Viewing technology as a near-term cost instead of a longer-term investment that can drive growth will ultimately hurt the organization.

Selecting the right banking technology or technology upgrade can help:

Permanently reduce the cost of doing business.

Automated workflows cut down on repetitive tasks, freeing staff to focus on analysis and customer support without adding headcount.

Improve customer and employee experiences.

Faster loan decisioning, fewer touchpoints, and reduced internal friction bolster relationships on both sides of the desk.

Strengthen competitiveness during uncertainty.

Institutions that can pivot quickly — whether managing credit risk, adjusting interest rate strategy, fighting a new type of fraud, or scaling to meet new demand — are better positioned to outperform.

Position yourself to win.

Banks that embraced technology before COVID made more Paycheck Protection Program (PPP) loans and attracted more customers outside their core market, research shows. Implementing new processes to increase efficiency when activity is sluggish positions banks and credit unions to handle the surge in activity that accompanies an economic recovery – or the next crisis.

After all, executives and their staff may be so busy driving and executing deals or otherwise putting out figurative fires that they will lack time to vendors and initiate technology changes to help them manage at scale

Evaluating tech solutions

As financial institution leaders consider technology spending, remember the lessons from the FAA, healthcare, and other examples of delayed modernization. Leaders can also narrow their focus to concentrate on vendors set up to meet their needs and provide the appropriate return on investment.

Here are seven considerations when evaluating a new lending system:

  1.  Can it be implemented with limited internal resources? Smaller financial institutions often have small staffs, so implementation requirements are important in any decision.
  2.  Does the loan system make it easy for support staff with more generalized roles to perform different functions or to fill in when needed?
  3.  Can the financial institution use standard templates or reports immediately, or will it have to make substantial adjustments to get the solution up and running for its specific needs?
  4.  Will it support the institution’s loan categories, such as agriculture or CRE?
  5.  Can the lender maintain control of the relationship throughout the lending process? For example, many community financial institutions want the flexibility to either have a lender start a loan request in the branch or let the customer enter key information and documentation at their convenience. Or they may want the opportunity for staff to review loan applications kicked out by an automated decisioning solution.
  6.  Does the software give visibility across lending, credit, and compliance?
  7.  Will the lender outgrow the system or grow with the institution?

Continuing or pursuing technology investments regardless of the economy will ensure the community and financial institutions thrive.

Financial institutions and other types of companies or organizations never expect delayed technology spending to create vulnerabilities for them or their clients. But this happens when systems are repeatedly stretched past their limits and when customer expectations evolve.

Planning, budgeting, and proactive steps to invest in banking technology will protect banks and credit unions and allow them to serve their clients and communities regardless of what comes next, whether it’s a recession, a spike in loan demand, or changes in regulatory expectations.

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Fentanyl special measures: What compliance teams need to know

The Financial Crimes Enforcement Network (FinCEN) has invoked new authorities under the FEND Off Fentanyl Act (the Act) to target key financial facilitators of synthetic opioid trafficking. On June 25, 2025, FinCEN designated three financial institutions in Mexico as primary money laundering concerns. The agency also issued orders that prohibit any transmittal of funds involving these organizations.

These actions represent a significant expansion of regulatory expectations for financial institutions in the United States. They also signal a shift in how banks and credit unions are expected to detect and disrupt fentanyl-related financial activity.

The ongoing toll of fentanyl in the U.S.

While the new FinCEN orders mark a shift in regulatory strategy, the urgency behind them is rooted in the human cost of fentanyl trafficking. Synthetic opioids, particularly illicitly manufactured fentanyl, remain the leading cause of drug overdose deaths in the United States.

According to provisional 2024 data from the Centers for Disease Control and Prevention (CDC):

  • More than 70,000 overdose deaths in 2024 involved synthetic opioids, primarily fentanyl. This figure accounts for the majority of all overdose fatalities.
  • Fentanyl was detected in approximately seven out of every ten overdose deaths, highlighting how deeply it has permeated the illicit drug market.
  • Adults aged 18 to 45 continue to be the most affected, with fentanyl remaining the leading cause of death in this age group.
  • A growing number of cases involve polysubstance use, where fentanyl is mixed with other drugs like cocaine, methamphetamine, or xylazine, increasing overdose risk and complicating emergency response.
  • Although total opioid deaths have declined slightly since 2023, fentanyl-related fatalities remain persistently high, especially in rural areas and regions across the South and Midwest.

These statistics underscore why financial institutions are being asked to take a more active role in disrupting the financial infrastructure behind fentanyl trafficking. The fentanyl special measures are not only about regulatory compliance; they are part of a broader national effort to save lives.

 

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Understanding the reach of Special Measure Six

The fentanyl special measures were issued under Special Measure Six, a provision of the Act that empowers FinCEN to prohibit the transmission of funds involving institutions connected to opioid trafficking. This authority goes beyond traditional Section 311 actions, applying to any fund transfers, including those involving crypto wallets and online payments.

The institutions named in the orders include:

  • CIBanco S.A. and its subsidiaries Finanmadrid Mexico and CI Fondos
  • Intercam Banco S.A.
  • Vector Casa de Bolsa, S.A. de C.V.

FinCEN found that each of these institutions facilitated payments that supported the trafficking of fentanyl and its chemical precursors. These orders take effect 21 days after publication in the Federal Register and apply to any accounts or fund transfers, whether through traditional or digital channels.

Recognizing red flags tied to fentanyl trafficking

In connection with the fentanyl special measures, FinCEN has reaffirmed the importance of identifying behavioral and transactional red flags. These red flags were initially outlined in FinCEN advisories, including 2024-A002 and 2019-A006, and are critical for strengthening anti-money laundering programs.

Red flags based on customer or counterparty behavior:

  • Individuals or entities with a history of drug-related convictions or links to chemical laboratories
  • Businesses based in China or Hong Kong that have no physical location or maintain a residential mailing address
  • Customers who have no business relationship with China but use Chinese phone numbers or IP addresses
  • Mexican importers of chemical products or lab equipment who lack valid business licenses or show little online presence
  • Groups of seemingly unrelated importers in Mexico that share contact details or interact with the same foreign suppliers

Red flags in transactional activity:

  • Repeated low-dollar payments, typically under $1,000, to companies in China or Hong Kong
  • Use of money services businesses or online payment platforms to send funds in patterns that appear designed to avoid reporting requirements
  • Beneficiaries in Mexico receiving funds from multiple unrelated U.S. senders
  • Wire transfers from businesses without an apparent commercial reason to interact with chemical suppliers
  • Use of cryptocurrencies such as Bitcoin or Monero for overseas payments, particularly when involving unregulated platforms
  • Attempts to avoid cash reporting thresholds through structuring or by canceling transactions after initiating them

Financial institutions should integrate these indicators into onboarding processes, transaction monitoring, and investigative protocols.

Steps financial institutions should take

The fentanyl special measures require immediate attention from compliance teams. Because these orders prohibit transmittals of funds, including those that may not involve direct relationships with the named institutions, institutions need to assess risk across all lines of business.

Key actions include:

  1. Review past transactions to identify any activity tied to the named institutions or their subsidiaries. Screening wire activity from the past 60 to 90 days can help gauge potential exposure. Employ temporary resources if needed for this lookback.
  2. Block payment activity using affected Bank Identification Numbers (BINs) or routing numbers, particularly if operations include card, MSB, or crypto sectors.
  3. Ensure processors and fintech partners are applying restrictions, especially for BaaS providers or acquiring institutions.
  4. Escalate potential matches and file SARs when warranted. While the new orders do not mandate SARs, FinCEN’s language suggests that institutions should treat any connection as a due diligence red flag.
  5. Update internal controls and training to reflect these restrictions. Incorporate keywords and entity names into monitoring systems to ensure alerts are captured and addressed quickly.

A broader risk: Trade-based money laundering and fentanyl financing

The fentanyl special measures also spotlight the growing use of trade-based money laundering to mask illicit proceeds. Criminal networks often use commercial transactions to legitimize payments, such as purchasing goods with drug proceeds and exporting them to cartel-linked businesses.

Common methods include:

  • Purchasing goods such as electronics or industrial equipment with drug proceeds, then shipping them to Mexico
  • Mispricing shipments to transfer value without moving cash
  • Structuring deposits into funnel accounts to hide the origin of funds

These strategies complicate the detection of trafficking-related activity. Financial institutions with customers involved in international trade should consider applying enhanced due diligence and reviewing trade finance transactions more closely.

 

A call to act

The fentanyl crisis continues to cause widespread harm, and financial institutions are positioned to support law enforcement by disrupting the financial infrastructure that traffickers rely on. The fentanyl special measures are more than a regulatory requirement; they are an opportunity for institutions to play a direct role in protecting their communities. A proactive, well-coordinated AML/CFT response not only meets FinCEN’s expectations but also strengthens the institution’s risk position. As synthetic opioids continue to evolve, so must the strategies used to detect and report the movement of illicit funds.

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Stablecoin risks and opportunities for financial institutions

Stablecoin has emerged as a key focus in the digital asset space, offering a less volatile alternative to traditional cryptocurrencies. The stablecoin market grew to approximately $159 billion in 2024 and has surged to more than $255 billion this year. With U.S. lawmakers signaling support and growing adoption across both consumer and institutional channels, now is the time for financial institutions to assess how stablecoins could impact their digital payment strategies.

 

Understanding stablecoins and their purpose

A stablecoin is a digital asset designed to maintain a consistent value, typically by tying its price to a fiat currency such as the U.S. dollar. Stablecoin’s steady value makes it a more practical option for everyday transactions than other cryptocurrencies, which are known for volatility. It combines the efficiency of blockchain technology, such as rapid settlement and lower transaction costs, with the financial stability that businesses and consumers expect from a medium of exchange.

In a historic move, the Senate Banking Committee recently passed a bipartisan stablecoin bill, known as the GENIUS Act. If signed into law, this act would set guidelines for stablecoin issuers and could make stablecoins common for digital payments and investments. The legislation introduces a plan for regulating stablecoin use, requiring 1:1 backing in cash or U.S. Treasuries and giving the Federal Reserve supervisory authority over large issuers. State regulators would oversee smaller issuers, preserving their role in overseeing regional financial institutions. This legislation is the most concrete sign yet that policymakers are preparing to bring stablecoins into mainstream payments, and compliance expectations are quickly materializing.

Stablecoin has the ability to offer faster settlement, greater accessibility, and new customer engagement opportunities. Examples include cross-border transfers, payroll, merchant payments, and decentralized  (DeFi) platforms. With acceptance on the rise, financial institutions should understand how these products may intersect with their operations and risks, particularly in payments and compliance.

 

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FinCEN guidance: Stablecoin falls under AML/CFT oversight

The Financial Crimes Enforcement Network (FinCEN) considers stablecoin a type of convertible virtual currency (CVC). As such, any financial institution facilitating stablecoin transactions must comply with Bank Secrecy Act (BSA) requirements and implement anti-money laundering/countering the financing of terrorism (AML/CFT) measures. This includes customer due diligence, suspicious activity reporting, and transaction monitoring.

In its guidance, FinCEN has warned that digital assets, stable or not, can still be exploited for money laundering, sanctions evasion, and fraud. Financial institutions must be prepared to identify and mitigate these risks, particularly as digital payment methods become more integrated with traditional banking.

Key risks financial institutions should consider

As stablecoins move closer to mainstream use, they bring new risks that banks and credit unions must be ready to manage:

  1. Liquidity pressure during high redemptions

Even stablecoins that are fully backed by reserves can face problems if customers lose confidence and try to cash out all at once. This kind of “run” can create short-term cash flow challenges for institutions holding or processing these assets.

  1. Risk tied to third-party partners

Working with outside stablecoin issuers or fintech providers means relying on their financial health and operational practices. Institutions should carefully vet these partners and have clear agreements in place about who is responsible for safeguarding assets, processing redemptions, and managing risks.

  1. Compliance uncertainty and reputation concerns

The rules around stablecoins are still developing. Moving too fast, or not fast enough, can put a financial institution at risk. Engaging in stablecoin activities without a strong compliance program could lead to regulatory issues or damage customer trust.

  1. Challenges detecting financial crime

Some stablecoin transactions are harder to trace than traditional payments. Without the right tools and processes, institutions might miss signs of suspicious activity. To stay compliant, AML and fraud monitoring programs should be able to track and evaluate blockchain-based transactions effectively.

Stablecoin carries many of the same risks as other financial instruments, plus some new ones. From AML/CFT compliance to liquidity planning, community financial institutions must treat stablecoin not just as a trend, but as a potential risk area that should be analyzed and managed.

What financial institutions should do now

Financial institutions have an opportunity to proactively position themselves as innovators and trusted providers of secure digital services. Whether or not your institution is engaging directly with stablecoin, these actions will help strengthen your position:

  1. Reassess your AML/CFT program: Ensure your risk assessment and AML/CFT compliance program can monitor for stablecoin risks, including identifying typologies related to stablecoin transactions.
  2. Monitor federal and state developments: Stay informed on legislative updates, particularly as the Senate bill advances. Look for guidance from FinCEN, the OCC, the NCUA, and the Federal Reserve on expectations for banks and credit unions.
  3. Engage internal stakeholders: Involve compliance, risk management, IT, and product development teams early. The more coordinated your approach, the better equipped you’ll be to assess opportunities and risks.
  4. Build fintech risk assessment processes: If partnering with a fintech or stablecoin issuer, apply enhanced due diligence measures and ensure service-level agreements clearly define responsibilities around compliance, custody, and data security.
  5. Educate your customers and your board: Help board members, executives, and customers understand how stablecoins work and the steps your institution is taking to protect their funds and data.

Looking ahead: Stability through preparation

Stablecoins have the potential to change how money moves, but they also bring new responsibilities for financial institutions. While this form of digital asset offers faster and more efficient payments, it also raises questions about oversight, risk, and readiness. With regulators beginning to set clearer expectations, now is the right time to get ahead of the curve. Banks and credit unions have succeeded by earning trust and adapting early, and preparing for stablecoin activity is a natural extension of that strength.

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New survey: Fraud may be down, but the stakes for financial institutions remain high

Fraud isn't only a risk to manage within financial institutions; it's quickly becoming one of the most critical tests of trust between banks and credit unions and their clients.

As fraud continues to be a climbing concern at reported losses of $12.5 billion in 2024, consumer expectations for their financial institutions remain high.

Abrigo recently conducted its second annual fraud survey to understand how fraud affects U.S. consumers and small businesses and what they expect from their financial institutions.

The 2024 Abrigo State of Fraud report uncovered how prevalent fraud had become. Fast forward to 2025, and the picture has changed, but in ways that are just as concerning.

According to the Abrigo State of Fraud report 2025, fewer people have experienced fraud this year, but the anxiety around it has grown, and so has the emotional fallout when it does happen. Here's a closer look at how the numbers have changed and what those shifts might mean for your bank or credit union.

Fraud is less frequent, but the pressure is rising

In 2024, nearly half of participants told us they had experienced financial fraud at some point. In 2025, the percentage of people who had experienced fraud dropped to 38%. That's encouraging on the surface, but it doesn't tell the whole story.

Concern about fraud hasn't dropped. In fact, it's rising, particularly regarding new threats like AI-driven scams and identity theft. Even with fewer incidents, 56% of fraud victims still reported stress or anxiety, and more than 60% said they would reduce their relationship with their bank or credit union if they were defrauded.

Customer attrition rates held steady, with about one in five respondents reporting they had left a financial institution due to fraud, regardless of fault. This underscores the growing pressure on institutions to respond swiftly and effectively to protect both reputation and retention.

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Customers are worried about—and open to—AI

Artificial intelligence has quickly become both a red flag and a green light for consumers. In 2024, 74% of respondents feared AI would increase successful fraud. In 2025, that number jumped to over 83%.

But here's the twist: while concern about AI is rising, so is trust in how it can be used to prevent fraud. This year, 44% of consumers and an impressive 69% of small business owners state that they would feel safer if their institution used AI-powered fraud detection. People are beginning to accept that fraudsters are using advanced tools, and they want their banks and credit unions to fight back with equally sophisticated defenses.

Transparency is key. Clients want to know what tools are being used to protect them and how those tools make a difference.

Small businesses are feeling the pressure

If you're serving small businesses, the survey’s insights into how they’re being affected by fraud matter. Last year, half of small business owners had been targeted by fraud. This year, it jumped to nearly 60%.

The reported fraud is not minor. More business owners are encountering check fraud and AI-assisted scams. Many of them are facing losses of over $10,000, and they're spending hours, sometimes days, to resolve the issue.

Small businesses also reported that they are more likely to walk away from a banking relationship if they feel unprotected. In this year's survey, 30% of small businesses said they had ended a banking relationship due to a fraud event. That's a loud and clear signal; this segment expects tailored fraud education, proactive tools, and quick response when things go wrong.

Check fraud isn't going anywhere, even as check usage decreases

It might be surprising, but check fraud continues to be one of the most persistent and damaging types of fraud we see, even as fewer people write checks. Total check fraud losses for 2024 are estimated to exceed $24 billion.

In 2024, 61% of people said they still wrote or received checks. In 2025, that number dipped only slightly. Yet, nearly half of all respondents weren't aware that mail theft is a key driver of check fraud. Even fewer knew that using a gel pen could help prevent check washing.

Younger consumers showed higher-than-expected rates of check fraud victimization, possibly because they didn't realize the risks. Small business owners continue to rely on checks more than most and face even greater exposure as a result.

Education and real-time check fraud detection are important ways to strengthen the relationship between a financial institution and its customers. This is a chance for banks and credit unions to be seen as trusted advisors by offering clear guidance and solid monitoring tools. For example, advising customers not to mail checks from their home mailbox and to use in-branch drop boxes or digital payments instead can go a long way in preventing fraud. Pair that with real-time alerts for suspicious check activity, and you’re not only helping protect your customers, you’re also protecting your bottom line.

 

Trust still breaks down after fraud

One of the most consistent findings from the survey both years is this: people don't always stay in a banking relationship, even when their financial institution resolves the fraud quickly.

In 2024 and 2025 alike, nearly one in five respondents said they had switched banks or credit unions because of a fraud incident. Many more said they would reduce engagement even if they were satisfied with the resolution. It's not just about how fast you fix the issue; it's how supported, informed, and secure your customers feel throughout the process.

That's where communication makes all the difference. Whether it's sending fraud alerts through the customer's preferred channel or educating them on what to do next, consistent, clear messaging builds trust that lasts beyond the crisis.

 

What does all of this mean for your institution

What should financial institutions take from the shift in numbers between 2024 and 2025?

Fraud isn't just a technical problem; it's a human one. People want to feel financially secure, and they want to understand how you're helping them stay that way. They want you to be transparent about how you're fighting fraud, especially when it comes to new technologies.

When a client is a small business owner, they want tailored support that acknowledges the size of the risks they face. Institutions that respond with empathy, innovation, and clear communication will not only reduce fraud losses but also strengthen client relationships.

 

Final thoughts: Turning insight into action

The year-over-year changes in Abrigo's fraud surveys show us that while fraudsters' tactics may evolve, your client's expectations remain steady. They want to be protected, informed and know you have their back.

For community banks and credit unions, this is more than a call to action. It is a chance to differentiate. The financial institutions that respond with smart fraud tools, transparent education, and empathetic communication will not only reduce losses but also build the kind of trust that fuels long-term relationships, customer loyalty, and community growth. Your fraud strategy should reflect your institution's values, resilience, and commitment to protecting what matters most.

 

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The power and value of income estimates

Income estimates can inform critical decisions, but outdated data and techniques can cost financial institutions. 

Key topics covered in this post: 

The value of income estimates 

Many financial institutions rely on income estimates to inform critical decisions, from loan applications to portfolio management. These estimates streamline processes and enhance customer experiences, but their accuracy hinges on the underlying models.

What happens when those models are based on outdated data and techniques? The result can be missed opportunities, increased costs, and eroded confidence in decision-making. 

The importance of keeping pace with change 

For income models to remain effective, they need to adapt to evolving consumer behaviors and market trends. Continuously refreshed models, driven by the latest data and analytics, are essential for providing accurate and reliable insights. Lenders can find that data within Abrigo's Sageworks lending and credit platform, thanks to a partnership with Equifax. By leveraging the cutting-edge modeling methodologies and incorporating up-to-date attributes of the Equifax Consumer IncomeView+ solution, financial institutions can ensure their income estimates reflect the current economic landscape. 

Key advantages of a dynamic income model 

A continuously refreshed income model offers several key advantages: 

  1. Reduced model drift: Regular updates minimize the impact of model drift, ensuring that estimates remain relevant and accurate over time. This eliminates the need for cumbersome migrations and ensures seamless access to the latest data. 
  2. Enhanced precision: Newer inputs and advanced analytics, including machine learning and AI, lead to more precise income estimates. Incorporating recent consumer credit attributes and alternative data further enhances accuracy. 
  3. Expanded range: Updated models often provide a broader range of income estimates, capturing a wider spectrum of financial situations and enabling more comprehensive analysis. 

These improvements translate into tangible benefits: greater accuracy in income estimates, a reduction in the need for additional verifications, and ultimately, more informed decision-making. This can lead to: 

  • More new customers 
  • Reduced expenses 
  • Opportunities to expand relationships 
  • Minimized losses 

Streamlining workflow with integrated solutions 

Integrating income estimation into existing workflows can further enhance efficiency. For example, financial institutions can pull Consumer IncomeView+ income estimates alongside an Equifax credit report directly within the Sageworks platform. This integration simplifies processes and provides a comprehensive view of customer financial profiles, all within a single platform. 

Income estimates play a crucial role in various applications, from acquisition to collections. Relying on outdated models can hinder growth and lead to suboptimal decisions. By embracing continuously refreshed income models, such as the Equifax solution integrated on the Sageworks platform, financial institutions can make stronger, more confident income-related decisions, drive growth, and build stronger customer relationships. 

Read more about the Consumer IncomeView+ solution from Equifax, here. 

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Navigating economic uncertainty tied to the shifting trade landscape 

From heightened credit risk to potential impacts to liquidity, financial institutions are planning for the potential effects of tariffs and related economic uncertainty. 

Key topics covered in this post: 

Planning for tariff impacts on risk & performance

The announcement of new tariffs by President Trump on April 2 — dubbed "Liberation Day" — rattled the markets. Stocks plummeted, bond yields surged, and confidence in the administration’s economic strategy took a hit. Investors watched retirement accounts dip while analysts debated the broader implications. At first glance, the picture seemed bleak.

But in the weeks since, a more complex picture has emerged.

Market reactions initially centered on the chaos: an undefined shift in trade policy with unclear direction. We’ve since seen signs that these tariffs may be more about leverage — setting the table for trade negotiations. Pauses in implementation and selective carve-outs hint at a more calculated approach than a definitive new order.

Nevertheless, financial institutions — especially those in rural or industry-heavy regions — need to think carefully about the global and local ramifications of this evolving trade landscape. What impacts might it have on your bank or credit union’s risk, performance, and planning? Understanding and planning for the  potential ramifications of tariffs and the related uncertainty is essential.

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Watch for signs of heightened risk

The continuing tariff news has elevated overall economic uncertainty, affecting businesses and households alike. Higher prices on imported goods could put pressure on savings rates, compress consumer spending, and increase credit risk. Financial institutions should already be watching for delinquencies and slow-paying loans, and they may reconsider underwriting assumptions as the policy framework evolves.

Some businesses may front-load purchases to stay ahead of rising costs, but long-term capital investment is likely to slow.

Financial institutions with ag exposure are particularly vulnerable, so they need to stay especially sharp. Agriculture isn’t just a loan on the books in parts of the Midwest and South — it’s the local economic backbone. Beyond individual balance sheets, entire local economies reliant on crop yields, equipment purchases, and seasonal labor are exposed. Ag lenders should watch closely for early warning signs such as declining average deposit balances, altered loan payment patterns, and lower ACH transaction volumes.

Inflation and interest rates concerns

Inflation is another pressing concern with ramifications for banking.

A recent Dallas Fed Business Outlook Survey found that businesses increasingly expect higher input costs and plan to pass them along to consumers. That kind of pricing power shift can compress consumer spending and squeeze margins across the financial system.

And then there’s interest rates. Even a pause in rate cuts could keep interest expenses elevated — a burden for community financial institutions that recently moved out of non-maturity deposits and into higher-cost short-term CDs.

Additionally, we are beginning to see divergent lending behaviors, based on our conversations with financial institution leaders. In some areas, there has been a moderate uptick in revolving credit usage — possibly a sign of consumer liquidity stress. Some community financial institutions also report that they’re seeing commercial real estate deals that normally would go to regional banks, particularly in areas reliant on imported construction materials.

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Watch for industry-specific stress tied to tariffs

On the ground, some industries are already feeling the squeeze, which could impact banks and credit unions.

Higher tariffs on materials like steel, aluminum, and lumber increase construction costs, which puts pressure on homebuilders. This hits particularly hard in urban growth corridors where housing starts had begun to rebound. For community FIs that generate fee income by originating and selling mortgages, this poses a serious challenge. With rising rates and low housing inventory already dampening recovery prospects, tariff-driven cost increases could delay any rebound and affect pipeline margins.

The auto sector’s also in the crosshairs. Tariffs on imported vehicles could shrink demand for new cars, shifting more buyers into the used car market. Credit unions — many of which rely heavily on direct and indirect auto lending — may need to explore new ways to deploy capital. According to early feedback from regional lenders, used auto loans have begun to show modest growth, but that creates both opportunity and risk, particularly around vehicle valuation and loan-to-value ratios.

As one community banker put it: “The average borrower is still making their payments — but just barely. If gas or grocery prices tick up even a little, I worry we’ll see a spike in credit card delinquencies and skipped auto payments.”

On the ag side, another financial institution leader shared: “We’re already stress-testing our agriculture portfolio for higher input costs. Fertilizer, feed, equipment — it’s all impacted. And when our farmers slow down, the rest of the town does too.”

Duncan Taylor, EVP at the Washington Bankers Association, noted early signs of weakening loan demand—an indicator that businesses might be holding off on projects that had been in the works. During a recent Abrigo podcast, Taylor said: “The impact on banking is that anytime commerce is affected, the banking industry is going to experience that viscerally because our fundamental business model is we build communities, and we facilitate the flow of commerce. That's banking in a nutshell.”

Also of note: some banks and credit unions are seeing a slowdown in deposit growth in suburban and rural branches. We saw the same thing during the post-COVID inflation cycle when households dipped into savings to cover higher prices. Institutions servicing communities that depend heavily on manufacturing or farming may especially see this slowdown.

Operational response for financial institutions: Rethinking risk

All of these situations point to the need for sharper risk management.

Institutions should revisit their stress testing scenarios and make sure they’re factoring in potential tariff-driven shifts in liquidity, loan performance, and rate sensitivity.

The COVID-era chase for yield led many institutions into long-term bonds at rock-bottom rates. That came back to bite some institutions with unrecognized losses once rates surged. It’s a good reminder that strategic ALM should focus on long-term strategy, not just short-term earnings.

Outlook: Planning amid volatility

Forecasting growth and margin in this kind of environment is never easy. But it’s not impossible as long as institutions stay rooted in strategic priorities and flexible enough to adjust as needed.

If there's a silver lining here, it’s that community FIs have one major advantage: proximity. You’re in the room with your borrowers. You’re in the neighborhoods where economic change shows up first. That kind of insight can be your edge — whether it’s identifying stress sooner or uncovering new lending opportunities before others.

We saw this during the pandemic, when community institutions led the way in digital transformation and the delivery of Paycheck Protection Program (PPP) loans. Today’s tariff-related uncertainty may push innovation again — this time in risk management and community-focused services and strategies.

Stay close to your data on loan payments, deposits, and ACH activity. Add tariff-related scenarios to your stress test models and review underwriting criteria in light of vulnerable industries and inflation trends. Re-evaluate interest rate risk considering possible interest rate curve inversion/reversion. Look for lending opportunities by considering which sectors may grow as others slow. Lean into community relationships that give you the clearest window into what’s happening locally.

Uncertainty isn’t new. But the combination of geopolitical risk, inflation, and rate pressure means FIs need to be sharper than ever. With disciplined planning and a strong read on your local economy, your institution can come through this even more resilient and better prepared for the next curveball.

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Abrigo CEO Jay Blandford at ThinkBIG

A rundown of the hot topics ahead, as surfaced by nearly 1,000 bankers and industry experts. 

From uncertainty over tariffs and regulations and the impact on small businesses to fraud threats and AI opportunities, here's what attendees at Abrigo's ThinkBIG 2025 are focused on for the months ahead. 

Key topics covered in this post: 

Issues and common themes bankers should be ready to tackle

Nearly 1,000 people — including bankers representing 365 financial institutions — gathered at Abrigo’s ThinkBIG 2025 conference this week in Orlando, Florida, for three intense days of hallway huddles, hands-on labs, and the kind of candid peer conversations you can’t stream later.

A few consistent takeaways surfaced as lenders, credit leaders, risk managers, BSA Officers, and fraud fighters hustled from break-time networking to sessions led by more than 80 industry experts.

Financial institutions have plenty of opportunities and risks ahead in 2025 and beyond, but below are some of the common themes and imperatives that speakers and attendees said are shaping the next 6-12 months.

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1. Keep small businesses resilient amid economic uncertainty

Banks and credit unions understand the role small businesses play in their communities. But with the economic outlook murky and business demographics shifting, speakers at ThinkBIG 2025 challenged institutions to reassess the opportunity and how they’re supporting this segment—and to sharpen the tools, products, and services they use to do it efficiently.

Ginger Siegel, North America Small Business Lead at Mastercard, noted that some six million new small businesses launched in 2024 alone, a dramatic increase from fewer than 900,000 in 2018. But inflation, labor shortages, and tariffs are leading many to put off investments and capital requests, several speakers said.

Without the cash provided during COVID, the uncertainty is tough for small businesses, and it’s tough for lenders trying to make credit decisions. One commercial banker described how a meeting with a “perfect” borrower to “check boxes” related to tariff risk described how 70% of its suppliers were in China, and it wasn’t sure how it will adjust.

To help businesses stay resilient, speakers encouraged banks to connect frequently with small businesses and pair relationship banking with modern data and technology. That includes alternative data for underwriting, such as real-time receipts, as well as automation with small business lending software to compete with fintechs’ faster decision times. It may also mean offering different products or services beyond checking, savings, and loans.

“Small businesses don’t want to be sold to, they want to be spoken to,” Siegel said. They often need help with cybersecurity, succession planning, and managing cash flow, which is why Mastercard recently built an expense management solution for small businesses.

Several institutions described bundling treasury management and fraud-protection services to boost efficiency and deepen relationships. These value-added services not only strengthen margins, they also make it harder for small businesses to leave when rates shift.

2. Stay disciplined—even if some rules ease

As regulatory priorities shift in Washington, some bankers may be tempted to relax. But speakers at ThinkBIG 2025 urged caution: Even if the tone softens temporarily, examiners haven’t let up—and the next administration could bring a sharp pivot.

“Don’t take your eye off the ball,” advised Laurel Sykes, EVP and Chief Risk Officer at American Riviera Bank. “This is a four-year administration, and deregulation is definitely necessary and helpful. But executive orders are merely shifting priorities. They don’t do anything about the existing regulations we still have to comply with.”

In addition, Sykes reminded attendees that bankers have seen multiple cycles of regulatory whiplash. “I remember days when we had to do look-backs of loan decisions for three, four years because a new administration came in and all of a sudden fair lending was the big thing again.”

Sticking with practices that are good for customers and the institution regardless of the regulatory environment also applies to anti-money laundering and fraud efforts, speakers said. Abrigo Director of Client Engagement Terri Luttrell said risk assessments remain foundational to the pillars of BSA, even as certain rulemakings stall. Keeping the risk assessment current helps institutions stay focused on their highest-risk areas, regardless of regulatory noise.

Auditors, too, illustrate the need to continue “doing the right thing.” CECL-related scrutiny continues, especially around qualitative factors, governance practices and documentation.

“You need a management team that is actively reevaluating what’s going into your model,” said Mark Scriven, principal, Elliott Davis. “It’s not a set-it-and-forget-it process.”

Abrigo advisors also emphasized that stress testing, backtesting CECL models, and sensitivity analysis are increasingly expected as part of sound model governance.

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3. Stay ahead of fraud and financial-crime evolution

Fraud continues to evolve, and financial institutions are seeing firsthand that it’s not just a consumer issue. It’s a business risk and a reputational threat. In fact, over 57% of small business owners said they have experienced fraud, and only 16% feel extremely prepared against fraud, according to a recent Abrigo survey of more than 1,000 respondents.

Several ThinkBIG 2025 sessions underscored how fraudsters are moving faster, targeting small businesses and older adults with increasingly sophisticated schemes. From persistent check fraud to pig-butchering to cryptocurrency schemes, teams must be aware of the latest fraud trends to have proactive conversations with customers, and they must use fraud detection tools sufficient for their institution’s risk profile.

Fraud may be unavoidable—but with the right strategy, it doesn’t have to be unmanageable.

Another common fraud risk is that small business owners often underestimate their risk, despite the fact that 50% of all cyberattacks hit small businesses. Yet most financial institutions don’t ask about cyber protection in the underwriting process. “You can underwrite a business that has a beautiful balance sheet and one cyberattack can wipe them out,” Siegel of Mastercard said.

4. Use AI where it already works—then scale deliberately

AI was a major focus at ThinkBIG 2025, and not just in the sessions. It showed up in hallway conversations, live demos, and candid comments from attendees who’ve seen firsthand how the technology can save time and reduce risk. Abrigo AI-driven tools that draft loan memos, answer policy questions, or streamline loan review are no longer theoretical—they’re in production and delivering value. 

Beta solution AskAbrigo, for example, lets staff search internal policy documents in plain language, returning clean answers with citations. Other tools, like Abrigo's Loan Review Assistant and Narrative Generation, also in beta, help speed up credit analysis while flagging missing data for human review.

“In five years, every banker will have an AI co-pilot—not replacing people, empowering them,” predicted Ravi Nemalikanti, Abrigo’s Chief Product and Technology Officer. “It's going to be similar to how we use Microsoft Office today. Can anybody imagine a life without Excel?”

Adoption has accelerated. More than three-quarters of respondents in a recent Abrigo survey said they are adopting or planning their approach to AI. That's nearly triple the share responding the same way a year earlier.

But many attendees expressed frustration: They understand the business case for AI but feel that their institutions are moving too slowly. In conversations throughout the conference, bankers said they’re eager to experiment. However, meaningful adoption is difficult without executive-level support to develop clear guardrails and approval processes. Many expressed the need for educational AI resources for bankers.

Several panelists already using Microsoft’s Copilot suggested financial institutions start small so they can prove value as they build policies and plans. Starting with clean, reliable data and documenting prompt inputs and assumptions are key to scaling safely.

David Christiansen, Chief Credit Officer from First County Bank in Stamford, Connecticut, and others urged their peers to walk before trying to run. “You don’t have to take the whole bottle of aspirin;  you can take a couple at a time.”

AI doesn’t replace bankers—it frees them up to do more of what they do best. The real question isn’t whether it works. It’s whether your institution is ready to use and compete with it.

Abrigo has developed an AI readiness checklist to help financial institutions navigate their way to implementing AI tools needed to remain competitive.

5. Plan for liquidity risks and rate changes

If the last two years taught anything, it’s that liquidity risks can move faster than institutions are ready for. At ThinkBIG 2025, bankers revisited past lessons and got advice for ensuring models, policies, and assumptions are ready for whatever is ahead.

Speakers encouraged institutions to revisit their stress-testing and funding frameworks now—not when rates or deposits move. The more tightly connected your data and decision-making processes are, the faster your institution can adapt to what’s next, said Dave Koch, Managing Director of Abrigo Advisory Services.

Treasury specialists from Bloomberg emphasized that disjointed systems and manual processes remain top challenges for liquidity forecasting. But they also pointed to AI and machine learning as tools to close the gap.

6. Technology and human connections: The formula for remaining relevant

At ThinkBIG 2025, one idea cut across discussions of AI, risk, credit, and compliance: Connection—among bankers, between departments, and with customers—isn’t just a cultural asset. It’s a strategic one that can help financial institutions compete with a growing list of competitors in an uncertain environment.

Panelists and attendees shared how they’re pairing technology, including AI, not to replace staff but to free them up so bankers can focus on judgment calls, personal interactions, and local market nuance.

“We want to help you be more efficient, stay compliant, manage risk, and surface the insights buried in your data so you can make better decisions,” said Abrigo CEO Jay Blandford.

Financial institutions may not be able to avoid every pothole. But they can prepare so that their bank or credit union is sturdy enough to absorb the shocks.

“We’re not just a vendor—our role is to be on board with you," he said. "With the right people, technology, and data, you can spot the rough patches early and stay focused on the destination, while others are stuck fixing flats."

Financial institutions that use technology to better meet customer and operational needs can still center their people and processes on what remains core: asking the right questions, listening carefully, and acting intentionally.

Changes to CECL rules finalized 

On April 30, the FASB met to revisit and finalize important decisions regarding its proposed changes under CECL for Purchased Financial Assets (PFAs). If you’ve been following this project, you know it’s been a journey, but the end is now in sight, and the board made some important calls that community financial institutions (CFIs) need to be aware of.

Here’s a brief recap of what happened, why it matters, and how it could affect your institution.

This article covers these key topics:

What was decided?

The board voted in strong favor of what they called "Alternative A1" – a narrower, more targeted approach that fine-tunes CECL rules without blowing up what institutions have already built. That’s important.

Key takeaways from Alternative A1:

  • All loans acquired in a business combination are automatically considered seasoned and will use the gross-up accounting approach.
  • For other purchased loans, like those acquired in asset sales or the secondary market, a new seasoning test will determine if the gross-up method applies.
  • The gross-up method continues the accounting used today for PCD assets, where expected credit losses are added to the purchase price to establish amortized cost.
  • Credit cards and HTM debt securities are excluded from these changes.

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Why the FASB CECL changes matter for community financial institutions

If your institution has undergone a merger, you’ve likely seen how CECL treats acquired loans differently than originated ones. The timing of expected loss recognition can distort capital, confuse investors, and create what many have called a “day-one double count.”

This update is a big deal because it starts to fix that. The FASB listened to investor and preparer concerns, especially from institutions like yours, and decided to expand the use of the gross-up model in a way that makes it more intuitive and more consistent with economic reality.

That means:

  • Less capital volatility after acquisitions.
  • More transparency for stakeholders.
  • Fewer one-off manual workarounds just to get the accounting to tell the right story.

Clarifying details and adoption dates

  • The seasoning test will be applied on a loan-by-loan basis (no portfolio-level shortcuts) to each loan acquired through asset purchases outside of business combinations.
  • The new approach only affects transactions going forward.  It won’t require restating past activity.
  • The final rule is expected to take effect for fiscal years beginning after December 15, 2026.

Assuming the final ASU is issued sometime in 2025, CFIs will have two key timing options:

  1. Early Adoption: You can adopt the new rules as early as 2025 or 2026, provided your financial statements for that year have not yet been issued. If you adopt during an interim period, you can apply the new guidance either from the beginning of that interim period or from the beginning of the full fiscal year that includes that interim period.
  2. Mandatory Adoption: If you don’t adopt early, the new rules will be required for fiscal years beginning after December 15, 2026, which means 2027 for calendar-year CFIs.

This flexibility gives CFIs time to prepare, while also offering the opportunity to implement sooner, particularly if you have upcoming acquisitions where the gross-up model may provide clearer results.

What’s next

We’re now awaiting the release of the final ASU, which is expected sometime in 2025. Once issued, CFIs can begin preparing for implementation, whether choosing early adoption or waiting until the mandatory effective date. In the meantime, it’s a good opportunity to assess how your institution accounts for acquired loans and whether your systems are ready for this change.

We’ll continue monitoring the timeline and guidance closely and will share updates as more details become available.

Final takeaways

If you would like to dive deeper or stay up to date on how things progress, FASB has a dedicated project page with updates, documents, and meeting notes: FASB Topic 326 – Purchased Financial Assets Project.

For CFIs navigating CECL while growing through acquisitions, this is a welcomed refinement. It acknowledges the operational realities and cost pressures facing smaller institutions while still providing investors with more meaningful information.

These changes don’t overhaul CECL, but they do improve it in a targeted and thoughtful way. That’s a win for CFIs and the stakeholders who rely on their financial reporting.

Whether you’re reassessing model configuration, evaluating an upcoming acquisition, or simply trying to align accounting with operational goals, having a trusted, flexible CECL platform in place can help ease the lift. Look for CECL software and services that are designed to adapt to evolving guidance and support institutions through transitions like this one.

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Utilizing loan review worksheet for consistent analysis

Analytical inconsistency is a persistent challenge in the loan review profession, often leading to wildly different approaches across reviewers.  Striking the right balance is essential—and a structured tool like the loan review worksheet can help reviewers achieve clarity, consistency, and more meaningful assessments.

Standardization matters when assessing asset quality

One of the things Abrigo Senior Consultant Kent Kirby observed over his loan review career is that analytical consistency is not a hallmark of the loan review profession.

“We’re all over the board,” he said. “On one end are maniacs like me. As my wife and daughter will readily attest, I’ll carry an analysis far beyond what’s necessary to make sure every detail is crystal clear. At the other extreme are those who provide so little analysis that readers are left guessing at even the basics: When was the company founded? What are the terms and conditions of the facility? These analysts often spend more time cutting and pasting from prior work than developing new, relevant insights.”

Neither extreme is desirable. Both drive the reviewer in charge crazy as they battle inconsistent individual approaches on their way to the true objective: assessing asset quality, administrative competency, and the future trajectory of the segment under review.

Fortunately, there’s a tool that helps eliminate these extremes and foster a consistent, thoughtful approach: the loan review worksheet.

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What is a loan review worksheet?

A worksheet is simply a series of standardized questions on a subject loan review cares about — underwriting, governance, monitoring, etc. Its purpose is to systematically collect structured, comparable, and analyzable information to support sound, data-driven conclusions.

Specifically, worksheets help to:

  • Assess borrower risk: Gather updated financial, operational, and compliance information to evaluate repayment ability.
  • Test underwriting discipline: Verify that loans were originated and monitored according to policy and sound credit principles.
  • Identify emerging credit issues: Surface early signs of borrower stress, collateral deterioration, or covenant breaches.
  • Enable portfolio monitoring: Aggregate responses to detect risk patterns across industries, geographies, or loan types.
  • Support documentation and defensibility: Create a clear record of what information was considered during analysis for regulators, auditors, and management.

In short, loan review worksheets turn scattered, subjective input into organized, actionable insight for targeted and effective loan reviews 

Five benefits of using worksheets

Here are five key benefits of using worksheets in analytical work:

  1. Standardization of data collection
    • Ensures every analyst answers the same questions, presented in the same way.
    • Improves consistency, making results easier to compare and quantify.
  2. Efficiency and scalability
    • Quickly gathers data across many credits with relatively low effort.
    • Helps analysts stay focused, avoiding the extremes of over- or under-analysis.
  3. Objectivity and reduced bias
    • Minimizes bias toward particular credits or lenders.
    • Captures responses openly (often on the line sheet), promoting comparability.
  4. Quantitative and qualitative insights
    • Provides numeric scoring and rankings, as well as open-ended narrative insights.
    • Supports both statistical and thematic analysis.
  5. Data archiving and reusability
    • Stores responses electronically for easy retrieval, comparison, and analysis.

Worksheet examples for loan reviewers

A common question when creating loan review worksheets is: Should I build one comprehensive worksheet or several smaller ones?

Experience has shown that a series of smaller worksheets (no more than 10–15 questions each) works best.

  • Some worksheets should be mandatory (e.g., credit analysis).
  • Others can be optional depending on the nature of the review (e.g., collateral evaluation).

Here are two simple examples — not best practices, but illustrations:

Example: Credit analysis worksheet (250 words or less per response)

  1. Briefly describe the background of the borrower(s).
  2. Do you arrive at the same conclusion as the original approval? (Yes / Yes with qualifications / No—explain.)
  3. Quality of primary repayment analysis: (Conservative / Reasonable / Liberal—explain.)
  4. Quality of secondary repayment analysis: (Conservative / Reasonable / Liberal—explain.)
  5. Quality of projections: (Acceptable / Unacceptable / N/A—explain.)
  6. Quality of sensitivity analysis: (Acceptable / Unacceptable / N/A—explain.)
  7. Are the guarantors a source of strength? (Yes/No—explain; if Yes, assess global cash flow.)
  8. Do you agree with the assigned risk rating? (Explain.)
  9. Credit strengths: (Explain.)
  10. Credit weaknesses: (Explain. Were they identified by the line? Were mitigations put in place?)
  11. Financial trend of the borrower: (Improving / Stable / Erratic / Declining — explain.)
  12. Any follow-up questions for the Relationship Manager?

Example: Controls worksheet (250 words or less per response)

  1. What exceptions were cited by the bank? (Choose from list.)
  2. What exceptions were missed? (Choose from same list.)
  3. Do mitigating factors justify exceptions? (Yes/No—explain.)
  4. How do you rate ongoing borrower monitoring controls? (Adequate/Inadequate—explain.)
  5. Are covenants effectively monitored? (Yes / No / Missing—explain.)
  6. If substandard, should customer be moved to non-accrual/charged off? (Select option and explain.)

Each worksheet mixes quantitative (trackable/scorable) and qualitative (explanatory) responses.

By keeping each worksheet focused, analysts zero in on risks that matter — and avoid wasting time on superfluous activities. Worksheets bring structure, consistency, and objectivity to loan review.  They help the reviewer in charge bridge different analytical styles and generate forward-looking, actionable insights that truly add value.

If you’re not using worksheets yet and want to start, reach out to [email protected] to set up a time to discuss how worksheets can add structure, insight, and real value to your loan review program.

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A loan reviewer's perspective on complex credit deals

Abrigo Senior Consultant Kent Kirby says he always gravitated toward the messiest, most chaotic credits on the review list during his loan review career. They were challenging — like solving a complex puzzle — making the work more engaging. Bankers often avoid these kinds of deals because of their complexity, not because they’re inherently bad. But Kirby says that usually, that’s not prudence — it’s missed opportunity. The key is learning how to understand and manage complexity. Read his perspective below.

What makes a credit complex?

Two factors typically drive credit complexity: volatility and correlation.

Volatility is rapid and unpredictable change. We all know someone with a volatile mood — calm one moment, explosive the next. The same applies to lending. Take ag lending commodities, for example. Perhaps corn is the seventh-largest concentration in a bank’s portfolio, and 30 days later, it is the second-largest — without a single additional ear of corn in a bank’s collateral. It was all price movement.

Correlation refers to how one variable affects another. The strength of that relationship can vary widely. A loose correlation: speeding doesn’t always mean getting a ticket. A tight one: a mother telling her son, “If you do that, you will go in time out.” In credit, correlations exist everywhere — but in complex credit, they tend to be stronger and drive much of the volatility.

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Let’s look at two examples:

  1. Discretionary income
    Most people don’t have large piles of idle cash. They must prioritize essentials like food, shelter, and transportation. What's left is discretionary. People cut back during periods of high inflation — when real wages lag. That impacts industries like casual dining or movie theaters. These sectors are tightly correlated with shifts in discretionary income.
  2. Public policy
    We rarely think of public policy as a correlation factor, but it can be huge. Take tax credits for solar panels and windmills. When those incentives are removed or threatened, entire projects stall and revenues plummet. Lending on assets driven by policy incentives introduces political risk — and I generally avoid lending on anything political. Tax credits sit high on that list.

Differentiating risk in complex credits

Complex credits often come with layers of risk. A helpful way to assess them is by separating key risks from trigger risks.

  • Key risk is the fundamental threat that causes actual loss. You can’t avoid it, only mitigate it.
  • Trigger risk is a condition that could activate the key risk. It may or may not occur, and even if it does, it might not cause harm.

Take commodity lending. The key risks are price fluctuation and collateral control. Trigger risks might include weather events, geopolitical conflicts, or even market rumors—things that might influence price but don’t guarantee impact.

Misdiagnosing a trigger risk as a key risk can lead to poor decisions. For example, imagine a construction loan backed by pre-leased tenants. If a tenant like Party City goes bankrupt 18 months into a 3-year build, reacting as if the whole project is at risk could be a mistake. The developer still has time to backfill, restructure, or adjust. Recognizing the true key risk — the ability to refinance or sell upon stabilization — is critical.

Analyzing complex credits

I’ve never been a fan of the overly ritualized, checkbox-driven approach to credit analysis. It often misses the real risk. My framework — especially useful for complex credits — is straightforward:

  • Use of proceeds: Why do they want the money? Not “working capital” or “business purposes” — give me the real reason.
  • Repayment source: When and how do I get paid back? What’s the real source, and when does it kick in?
  • What can go wrong: What events could impair repayment?
  • Likelihood of failure: Sensitivity analysis should match the repayment structure — not just be done for form's sake.
  • What’s Plan B?
    • What’s the borrower’s contingency plan?
    • What’s yours?
  • Participation purchased (if applicable): Can the agent bank manage this credit? Should someone else take the lead?

Case study: Lending to religious organizations

Church loans are among the most complex — and consistently misstructured — credits bankers make. These aren’t real estate loans. They’re special-purpose properties with limited resale markets and PR risk galore.

Let’s break it down:

  • Key risk: The sustainability of contributions from major donors. Most churches don’t repay loans from operating income; they rely on capital campaigns.
  • Use of proceeds: Building or renovating sanctuary or “life center.”
  • Repayment: Two sources — capital campaign funds and asset sales (existing structures or donations in kind). Campaigns typically span 2–5 years with pledges paid over time (monthly, annually, or one-time). Asset sales often supplement repayment.

Making 20-year amortization loans secured by the church building is a common tactic. Why? That’s not the repayment source. Instead, funds should go into escrow, with structured disbursements tied to campaign receipts and pay based on a fixed schedule, with a maturity balloon after 5 years. Oversimplified? Yes — but you get the idea.

  • What can go wrong: The 80/20 rule applies —often, a few large donors give most of the money. If one of those donors dies, will their families continue to honor the pledge?
  • Borrower’s Plan B: Are they encouraging planned giving from major donors? Nonprofits do this all the time — why not churches?
  • Your Plan B: "Extend and pretend" isn’t a strategy. Churches aren’t traditional businesses. Many prioritize mission work over debt service. At minimum, mission spending should be capped or suspended during loan repayment. Contributions and asset sales should be escrowed, and assets should be secured as “abundance of caution” collateral to ensure payment before you release your lien. Your real reliance is on donations, not the building.

Conclusion

A banker’s job is to serve a broad community — including borrowers with complicated needs. Avoiding complexity isn’t prudence; it’s abdication. Understanding what makes a credit complex, how to structure around it, and where to focus risk analysis is what separates a good banker from a great one. It's not just about saying “yes” or “no.” It’s about saying “yes, if.”

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