Vision 2014: Operating-in-todays-risk-management-framework

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Operating in today’s risk-management framework

Tony Hueston STAR Financial Bank

John Watts Experian

#vision2014

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

TOP

10

Tom Le Goff / Getty Images stock

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

10 Have ONLY compliance

officers on staff

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

9 Have on-staff appraisers

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

8 Achieve double-digits

ROEs on EVERY loan

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

7 Portfolio delinquency rates

are below 0.25%

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

6 Re-establish the open bar

in the bank’s break room

at 4:00 pm Friday

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

5

Your loan review

department stated

to the board of directors:

“We found NO concerns

last year”

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

4 Your portfolio has no

troubled debt restructures

(TDRs)

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

3

You received a letter from

your primary federal

regulator stating: “We will

only examine you once

every five years”

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

2 Loan growth is at

a 10-year high

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How executive management sleeps well at night (While dealing with regulations and growth challenges)

1 Focus on quality growth

Be a trusted advisor

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Introducing…

Tony Hueston

STAR Financial Bank

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Barriers

Competition

Regulations

Credit culture vs. sales initiatives

Growth

Legal lending limits vs. in-house limit

Loan enhancements

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Rate / margin squeeze

Pricing calculations (relationship ROE)

Open structure

Lack of structure from competition

How loose of a structure can you live with?

Competitive pressure

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How do you handle

opposition to appraisals?

Q: a) Obtain, but bank pays for it

b) Waive new appraisal if credit

has performed

c) Too bad – client will pay for it

d) Look for other ways to secure

note

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New or updated appraisal

► Who opposes?

● Client

● Account officer

Updated title work at renewal

Flood insurance

Appraisal regulations / other real estate due diligence

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Account officer has an in-depth discussion

with prospective small business client for

a new line of credit. After discussing, the

account officer states, “… our bank is not

a good fit, we need to pass…”

Q: YES

NO

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Accepting an application

► NO pre-screening

► DO NOT discourage

Requiring non-owning spouse to guarantee

► Paper applications?

Case study

► Discrimination settlement

Fair lending

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How do you handle

TDRs?

Q: a) Not an issue. Don’t have any!

b) Loan modifications are limited

to avoid TDR classification

c) Rely on examiners to classify

loans as TDR

d) Work with borrower in a

different fashion to avoid TDR

classification

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Growth objectives

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To remain competitive and grow,

have you done any of the following?

Q: a) Approve a longer-term

commercial mortgage

b) Re-structure the loan using

business assets rather than

real estate

c) Consider lending on an

unsecured basis

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Come from senior management and board of directors

Examples:

New agriculture loans

► Growth $XXX

► Rate 2.99%

Commercial real estate

► Growth of $XXX

► Calling efforts on CPA

Growth initiatives

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Targeting campaigns / calling efforts

Municipal lending

Professional practices

► Medical

► Attorney

Marketing

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How do you handle competitive

pricing issues? Is this a concern

for small business or commercial

lending?

Q: a) All pricing is determined by the

account officer. Pricing

exceptions are not a concern

for business lending

b) Maintain a rate sheet and

monitor rate exceptions

c) Pricing exceptions must be

made by senior management

or designated personnel

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Finance department involvement

Pricing model

► Focus on relationship ROE; MUST include treasury services

Targeted campaigns with thin margins

► Excess funds on balance sheet…earn a little or earn nothing

Pricing concerns

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Solving these issues

with the help of

technology

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Q&A

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Barriers can be overcome

Growth needs to be a goal and is attainable

Technology and systems are a key enabler

Sleep well…

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For additional information, please contact:

John.Watts@experian.com | @jdubbs4

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