Presidents Letter: Two Informative Events

Early this month, our members took advantage of two very informative events, which I have re-capped below. I would like to thank the speakers for their continued support of CCRMA and making the following events a success!

Workout Tools
Workout Tools for the Community Bank Loan Officer, held on April 1, 2004 was a very informative joint event, with the Turnaround Management Group, sponsored by Textron Financial.

The three speakers, Peter Hickling, SVP, Sandy Spring Bank, Gerald Elias, SVP, Mercantile Safe Deposit and Trust Co, and Denis Biscoe, Retired SVP, Bank of America’s Real Estate Work Out-Group provided the following insight and tips on signs of a troubled credit or when you find yourself in a workout situation:

Gerald Elias highlighted the following red flags that may require your attention:

• Rapidly growing Accounts Receivable
• More frequent overdrafts or use of the operating line of credit
• New competition in the area
• Lack of communication from the borrowers
• Lack of timely financials
• Increase in loan inquiries

Mr. Elias also recommended occasional field exams to keep on top of the credit.

Peter Hickling's concentration during a workout included the following tips:

• Reviewing the loan documents – Identify what collateral you actually have and your lien position versus what you think you may have
• Communication between the borrower and the bank is key in a work out scenario
• Obtain interim financials, current A/R & A/P agings, projections & budgets
• Visit the site
• Express a “sense of urgency”
• Ask to speak with the accountant
• Seek alternate resources to secure a right of offset

Finally Denis Biscoe had the following insight:

• Seek council
• Explore remedies
• Review judgment procedures
• Obtain current appraisal of equipment or property
• Review environmental conditions
• Review alternatives to foreclosure: i.e. deed in lieu of foreclosure
  Consider Receiver Sale in a Bankruptcy situation
• Prior to a foreclosure check the title policy and get an update to ensure no other lien positions
• Check insurance to make sure its current
• Check operating expenses, plans and specifications/management contracts
• Be realistic – Sell for the market price, don’t hold out for the highest amount

Mr. Hickling said he was once told there are only 2 good days in the life of a loan: “The day the loan is made and the day the loan is paid off”.

Operational Risk
On April 12, 2004, CCRMA was delighted to have RMA’s Director of Operational Risk Management, Charles R.Taylor, speak to our members about Operational Risk. Regardless of your Bank size regulators will soon begin to review the Banks policies on operational risk. Bank operational risk does not encompass credit risk only, but is multifaceted:

• Bank risk with regard to Non Compliance
• Failures due to inadequate processes/systems
• Risk of Loss with Mergers, Acquisitions, ATMs, Insurance, Investments, IT departments, Disaster planning (don’t forget procedures with vendors and suppliers), Outsourcing, etc.

Mr. Taylor’s recommendation included setting up an Operational Risk Group to periodically review the Banks policies and procedures and track those “things that have gone wrong”. In essence, help the line managers do a better job, not as a means of “checking up on management” but more as a “protective firewall” to prevent re-occurrences or to ensure situations would not occur due to more pro-active measures.

Set up a baseline exercise and check every six months. Review how risks are or can be mitigated. A good resource for this exercise can be found in the RMA Journal dated February 2002, which contains a Risk Control Self Assessment: www.rmahq.org
Once again, communication at all levels is of paramount importance.

Mr. Taylor has the task of elevating the subject of Operational Risk with regard to all areas of Banking. RMA has developed Operational Risk 101 to help heighten awareness in this area and is now working on Operational Risk 102, which will be scheduled within the coming months.

For additional information on getting started on Operational Risk, Mr. Taylor recommends review of Basel Committee Publication on Sound Practices for the Management and Supervision of Operational Risk (dated February 2003) www.bis.org/bcbs. This document outlines 10 Principles of Developing an Appropriate Risk Management Environment.

CCRMA looks forward to providing our members updated and timely information on numerous topics. Please email any suggestions for future forums to our Program Chair, Cheryl Dahut, at cdahut@bankannapolis.com.

Thanks again for your continued support!

Jo Taylor, CCRMA President

The Chapter Leadership is always interested in your viewpoint – and helping you get actively involved. Consider joining a committee, check out our committees here. Contact any board member for more details.