President’s Letter

A new year has begun. The holidays are behind us along with the celebrating, giving and receiving of gifts, traveling, and sharing special time with family and friends. The unusually mild January weather has me looking ahead and mapping in my mind flowerbeds, the vegetable garden and preparing for the annual battle of wills and wits with the deer, rabbits and groundhogs.

This is also a time when we traditionally take stock of the year that has now ended and set goals and objectives for the New Year. On the personal side we may resolve to get in shape, lose weight, quit smoking, learn a new skill or otherwise improve ourselves. On the business side we set goals for what we want ourselves and our staffs to accomplish during the year and we develop detailed plans for achieving those goals. After all, without a goal to achieve and a plan to follow, it is difficult to know how you are doing throughout the year.

With that in mind, some of your Chesapeake Chapter board members have been bold enough to share their professional New Year’s resolutions in this issue of Chesapeake Clips. We hope that you enjoy reading them and that they may inspire you to set similar challenges for yourself.

One great way to improve yourself professionally is to take advantage of the programs offered by RMA and the Chesapeake Chapter. I hope that many of you will attend the Senior Executives Panel presentation on Thursday, March 23, at the Tremont Grand Hotel in Baltimore. This is your opportunity to hear what four senior bank executives from our area have to say about the big issues facing banks in 2006. You will also have the chance to ask your own questions of the panel. Chapter members should not miss this lunchtime event.

For this panel presentation we are extremely fortunate to have Glenn Wilson as the moderator. Glenn is President and Chief Executive Officer of Citizens National Bank in Laurel, Maryland. Glenn is a past president of the Chesapeake Chapter and this year serves as Vice Chair of the Risk Management Association. In spite of his busy schedule, Glenn has always been generous with his time when it comes to the Chesapeake Chapter, and we thank him for that.

The Senior Executives Panel is just one event in a full schedule of programs being offered by RMA and the Chesapeake Chapter in Maryland this winter and spring, offering something for every financial services professional regardless of experience level. Check the www.rmachesapeake.org homepage under “Coming Events” to see the full schedule.

As always, I welcome your comments and suggestions for programs or any other topic that involves your Chesapeake Chapter.

Daniel L. Herr
SVP, The Fidelity Bank
301-745-5838

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How Is This Credit Cycle Different?

The credit cycle during the current economic expansion has been highlighted by many new entrants into the lending market, creative lending products and an abundance of capital. Deals large and small are being aggressively marketed. As recent as the middle of November 2005, 88 deals were in national loan syndication with 25 coming out in one week. We certainly appear to be at the top of the credit cycle.

Lenders are also finding ways to be more creative. The proliferation of second lien loans is astonishing. According to Standard and Poors, second lien loan volume in 2002 was a mere $630 million. In 2004, volume was $12 billion. In the first 3 quarters of 2005, second lien loans totaled $12 billion. A second lien loan is basically less expensive mezzanine financing without an equity component. A second lien lender maintains a subordinate lien position on the collateral and may be under secured depending on the type of collateral.

One thing that is also apparent is that portfolio management has not been used extensively by many lenders during this credit cycle. This is especially apparent with non-bank lenders and business development companies that routinely hold large pieces of deals without consideration for syndication. Managing to a certain hold level or legal lending limit does not appear to be a priority. The lenders want to put more money to work. When some of these deals do not work out as expected, the impact on the credit markets could be significant.

The economy continues to show resilience as evidenced by 4.3% increase in the gross national product during third quarter of this year. Bank of America estimates real GDP growth in 2006 of 3.7%. The unemployment rate remains very low by historic standards at 5%. The economy has achieved this growth despite the impact of a major hurricane season, the war in Iraq and higher short term interest rates.

The economy will probably continue to be strong throughout most of 2006. The levels of defaults in the bank debt market are low presently but with total leverage on new loans exceeding 5 times, defaults could rise in 2006. The last time that occurred was in 1998 prior to the economic downturn of 2000.

How should traditional lenders compete in this rapidly changing marketplace? They need to be patient with their capital while maintaining excellent customer service to set themselves apart from the non-bank lenders. A lot of money is looking for a home and the non-bank lenders are willing to come down market and work with “middle market” companies that used to be the exclusive club for community and regional banks.

Jim Kirschner
Beltway Capital Partners, LLC

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RMA Courses Offered Locally

The Chapter is pleased to sponsor 5 courses covering a wide range of topics including financial reporting, fraud prevention, real estate lending, structuring commercial loans and the popular Lending Academy. For a little longer drive you can attend sessions happening in adjoining areas. Register and find more details on the web. Use the event ID# to quickly locate the course or search by location. All Baltimore courses located at the Wachovia Bank on 7 St. Paul St. in Baltimore. Never attended one of the courses? Talk to a CCRMA Education Chair Kimberly P. Armstrong, at Wachovia Bank or any board member for advice and information to help guide your decision.

In Baltimore:
Intermediate Real Estate Lending (#3077076)
Baltimore– February 27, 2006
Real Estate Developer Financial Statement Analysis: Evaluating Varied Financial Reporting (#3078096)
Baltimore – March 27, 2006
Analyzing Business Tax Returns (#3053316)
Easton - April 4, 2006
Fraud 101: Preventing Fraud in Lending (#3128026)
Baltimore – April 27, 2006
Structuring Commercial Loans I & II (#3008056 & #3007036)
Baltimore – May 9 & 10, 2006
Fundamentals of Financial Statement Analysis (#3094096)
Easton - May 15-16, 2006
RMA Lending Academy II (#3136106)
Baltimore – June 6-8, 2006

A Little Further:
Analyzing Personal Financial Statements and Tax Returns (#3001256)
Norfolk, VA – March 9, 2006
Analyzing Business Tax Returns (#3053286)
Norfolk, VA – March 10, 2006
Analyzing Construction Contractors (#3042126)
Richmond, VA – March 16, 2006
Practical Asset/Liability Issues for the Community Bank (#3119026)
Greenville, SC – March 6-7, 2006

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RMA’s Audioconference Series

RMA offers two audio-conference series that help you lend smarter and more productively. All audio conferences are 60 minutes and begin at 1:00pm Eastern time. You can register online or get more details by following the links below. Added bonus, each session earns you one CEU toward maintaining your RMA-CRC.

Risk Management Audioconference Series features these sessions: 

February 14, 2006 - Managing and Compensating Credit Officers
Hear some best practices in managing an institution's credit officers. What is being done regarding talent planning and recruitment, diversity activities, retention and compensation? Several senior bankers will discuss what is being done in their institutions.

March 7, 2006 - Issues Impacting Healthcare Lending
External forces including regulatory, legislative and reimbursement changes continually challenge healthcare providers. Hear from James Unland, President, Health Capital Group, about current issues and their potential impact on your healthcare related customers, including medical practices and acute care providers.

May 9, 2006 - State of the Commercial Real Estate Market
A representative from Property & Portfolio Research, Inc. will provide information about the current status and future trends of various types of commercial real estate property, including office, multi-family, industrial and retail throughout the country.

Community Bank Audioconference Series features:

February 7, 2006 - Best Practices in Loan Review
From in-house to contracted services, hear different approaches from a panel comprised of Community Banks and consultants.

April 4, 2006 - Best Practices in Lending to Home Builders
Hear from an expert the techniques used in underwriting residential construction loans and lot loans. Hear about strategies to employ to manage risk in this "hot" business segment. Speaker- Neil Wedewer- Executive Vice President & Manager/REFG Atlanta, SunTrust Bank

June 6, 2006 - Regulatory Crossfire with Senior Regulators from the FDIC, Federal Reserve and OCC
Hear senior officials from our regulatory agencies discuss the areas of greatest concern to them.

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New Year’s Resolutions from Your CCRMA Board

As a small community bank that does not have extensive training resources, I hope to make better use of the RMA’s educational seminars.
- Tom Myers, Vice President, Farmers & Merchants Bank

To deepen my understanding of processes, people and systems in order to be a more effective credit risk manager.
- Dave Miller, SVP Credit Administration, Sun Trust Bank,

2006 Resolutions – (1) Develop and implement training curriculum for beginner and intermediate Credit Analysts using RMA and other product offerings; (2) Initiate affinity group meeting for Chief Credit Officers of local community banks; (3) Develop and implement underwriting/monitoring/maintenance guidelines for relatively small commercial loan relationships (less than $100,000 or $250,000).
- Bob Kendrick, SVP Credit Services, BankAnnapolis

My top professional New Year's resolution is to catch-up and keep up with my filing in 2006.  
- Thad C. Ulrich, MBA, CPA, CRC, Vice President, Annapolis Banking & Trust Co.

New Years Resolutions: 1) Keep desk clear of multiple projects; focus on one at a time; and 2)  Create "Weekly To Do" lists to keep activities and deadlines better focused 
- Peter L. Hickling, SVP Credit Administration, Sandy Spring Bank

This year my new year resolution is to improve overall communication skills both on a personal and corporate level. My second goal is to improve this newsletter with more pictures of our events, attendees, speakers etc.
- Mary Jo Taylor, SVP, First Mariner Bank

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Annual Senior Executives Forum

2006: A New Year … New Challenges

Join the senior executives of Sandy Spring Bank, The Columbia Bank, Bank of America –Maryland, PNC Corporate Banking and Citizen’s National Bank for a dynamic discussion over lunch on the challenges and opportunities in 2006 on Thursday, March 23 at the Tremont Grand in Baltimore.

2006 promises much change and pressure on the banking industry. Banks will continue to contend with a wide variety of known and unknown developments and events including a fickle economy and irrational competitors. What are area banks doing in a time where most see higher levels of risk in C&I and CRE than two years ago?
How are they responding to the Patriot Act, Basel and Sarbanes-Oxley? How will news such as Maryland’s more rapid increase in asset-based lending last year (more than most other U.S. states) affect us in 2006? Glenn Wilson, President & CEO, Citizens National Bank will moderate a panel including:

John A. Scaldara, President & COO, The Columbia Bank

Laura Gamble, President, Bank of America—Maryland

Wayne P. Hunley, Senior Vice President, PNC Corporate Banking

Hunter R. Hollar, President & CEO, Sandy Spring Bank

Registration Fees, which include lunch, are $55/CCRMA Premier Member; $60/RMA Associate Member; $65/Non-Member. To register online or download a flyer and form, visit our website.

Peng Xu
National Cooperative Bank

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