Practical Considerations for Community Banks – Enterprise Risk Managment

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Reg RegRelief Relief SBA SBA Ad NC.indd Ad NC.indd 1 1 11/5/201511/5/2015 1:51:03 1:51:03 PM PM PRACTICAL CONSIDERATIONS FOR COMMUNITY BANKS - ENTERPRISE RISK MANAGEMENT

On October 22, 2012, the Deputy Comp- foundation on which to build an effective troller of the Office of the Comptroller ERM process. of the Currency made some prepared remarks at a community bank enterprise The Framework indicates that ERM en- risk management seminar in Washington, compasses: D.C. Most thought those remarks were the • Aligning risk appetite and strategy prelude to Enterprise Risk Management • Enhancing risk response decisions (ERM) becoming the new hot topic in • Reducing operational surprises and banking with substantial regulatory focus losses and scrutiny. It was also presumed these • Identifying and managing multiple Doug Mims, CPA, is heightened expectations would be ac- and cross – enterprise risks the Financial companied by specific formal guidance for • Seizing opportunities Institution Industry banks both large and small in the form of • Improving deployment of capital partner with Carr, interagency guidance and the like. Riggs & Ingram, LLC. Further, the Framework defines ERM as Fast forward to 2016 and you will find follows: many community bankers still searching for guidance and unaware of the benefits of “Enterprise risk management is a process, an effective ERM program. This is particu- effected by an entity’s board of directors, larly true for community banks with less management and other personnel, applied than $1 billion in assets where the regula- in strategy setting and across the enter- tory expectations have been inconsistent prise, designed to identify potential events across agencies and assistance with practi- that may affect the entity, and manage cal solutions the same. risk to be within its risk appetite, to provide reasonable assurance regarding the In September of 2004, the Committee of achievement of entity objectives.” Sponsoring Organizations (COSO or The Committee) of the Treadway Commission Several key elements of the above are published Enterprise Risk Management – important in understanding ERM and in Integrated Framework (The Framework). the effective application of its principles. This guidance was designed to expand The executive summary of the Framework upon the Committee’s Internal Control In- is an excellent overview and quick read for tegrated Framework (updated in 2013) and anyone that wants to better understand provide for a more “robust and extensive the foundation of ERM. focus on the broader subject of enterprise risk management”. In doing so, the Com- The Risk Management Association (RMA) mittee created a useful tool for banks and also developed a risk framework that is other companies to understand the theoret- thought provoking in considering the ical basis of ERM and provide a structural practical implications of ERM, adapted to

Spring 2016 Carolina Banker 43 financial services. The structure of their on an equally robust strategic planning ERM components is as follows: process that establishes clear measurable • Coverage: What are all the risks to our strategic objectives (business strategy). business strategy and operations? • Risk Appetite: How much risk are we Establish the bank’s risk appetite. Risk willing to take? appetite can also be thought of as “risk • Governance & Policies: How good are tolerance” and is a vital element in de- we at overseeing risk taking? veloping the bank’s ERM infrastructure. • Risk Data & Infrastructure: How do Developing a risk statement is one avenue we ensure we have the right informa- to clearly articulate the bank’s risk toler- tion to manage risk? ance but is not an absolute. However, the • Measurement, Evaluation and Com- bank must clearly articulate the amount munication: How do we determine of risk it is willing to assume to execute the size and scope of the risk and its strategy. report the results? • Control Environment: How well do Identify an ERM “champion” or equiva- we manage the risks? lent. Depending on the size and com- • Response: What are we doing about plexity of the institution, consideration of the risks? identifying or hiring a Chief Risk Officer • Stress testing: What else can go wrong is an option. Regardless of title, someone and how are risks interconnected? in executive management must “own” ERM and facilitate many of the activities Furthermore and worthy of note, the discussed herein. foundation of the RMA’s components is “C u l t u r e”. Establish a management level risk committee. While the BOD must “own” the While the aforementioned documents process, in most instances, management provide a theoretical basis and hopefully will be the “doers”. The success or failure “frame” ERM for the reader, they do not of the ERM designee will be in large part provide implementation guidance or “next based on the support he or she receives steps for community banks”. However, from executive management. A manage- there are a number of practical steps a ment level committee can be an effective community bank can take to begin de- means by which to allocate responsibility veloping an efficient and effective ERM for tasks and send a clear united message process. to employees that ERM is inherent in the culture of the bank. Establish a risk committee of the Board of Directors (BOD) or equivalent. The Educate executive management and tone at the top drives the bank and ERM BOD. Depending on the institution, is no exception. The BOD has to “buy in” ERM may still be “out there” for the and both facilitate and accept responsibil- BOD and executive management. A little ity for a number of key elements of the practical training as part of a BOD retreat practical considerations offered below. might be in order.

Define measurable strategic objectives Develop an ERM policy. A robust ERM that are aligned with the bank’s risk ap- policy will encompass many of the ele- petite. Most community banks perform ments discussed above and provide a some level of strategic planning. However, clear road map for an effective ERM a robust ERM process is largely dependent process.

44 Carolina Banker Spring 2016 Perform an enterprise-wide risk assessment and the BOD need to establish the ment. Most banks currently have a num- metrics that will allow them to monitor ber of elements of an enterprise wide risk progress towards strategic objectives and assessment already in place. It may just be measure the relative risk being assumed. a matter of pulling existing risk analyses Most of this data is readily available and together, identifying gaps, supplement- simply needs to be pulled together in a ing where necessary and compiling one concise manner also known as a “dash cohesive document. The resulting analy- b o ard .” sis should be periodically reviewed and approved by the BOD. While none of the above considerations are ground breaking, they are hopefully Inventory current practices, policies thought provoking for community banks and procedures and identify gaps. still uncertain as to how to get started Similar to the risk assessment, many of or regain momentum in establishing an the policies and practices for the ERM effective and efficient ERM process. The program are already in place. They simply concepts of formal BOD oversight of risk, need to be identified and brought to- robust strategic planning, clearly defining gether in order to identify gaps and build risk tolerance and effective monitoring a bridge to ERM. are sound business practices, regardless of the acronym. After all, effective ERM Measure and monitor on an appropri- is not about regulators and policies – it’s ate frequency – develop a dash board. C about maximizing shareholder value. B All of the above provides little value if it is not measured and monitored on at least a quarterly basis. Executive manage- HOLD FOR ELLIOTT BANKING INSURANCE. A SERIOUSDAVIS DECISION. HALF PAGE

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CAROLINA BANKER Faces in the News

senior vice president and area supervisor. Nicole Treadwell also joined the bank at the Market of Wake Forest branch as office manager II and banking officer. The bank also announced John T. Winston joined its team in Chapel Hill as senior business development officer. FIRST CITIZENS First Citizens Bank announced that it hired David Zim- Harvey Keith A. Derek DeAnna merman as president of its registered broker-dealer First Schmitt Epstein Green Bousman Citizens Investor Services, Inc. (FCIS). HOMETRUST BANK HomeTrust Bank Auto Finance Credit Analyst, Randy Ja- noe, completed the National Automotive Finance Associa- tion (NFA) Compliance Certification, created to provide compliance professionals with a solid working knowledge of the federal and state laws and regulations that govern consumer credit.

Shea Audrey Betty Ann Mitch NORTH STATE BANK Byrd Christie Lilly McKenzie Chief Credit Officer Brian S. Hedges has been promoted to executive vice president for North State Bank. Hedges has served the bank as chief credit officer since 2011. The bank also announced Jonathan N. Krieps as executive vice president and chief banking officer. Previously, Krieps served as senior vice president and chief operations officer. PARAGON BANK Paragon Bank announced that two new members have Nate John Spence H. Robin S. joined the client relationship team at the bank’s Charlotte Barrett Rutenberg Broadhurst Hager office. Will H. Bishop joined the team as senior vice president and client development officer. Rusty Page also joined the bank’s team as senior vice president and business development officer. The bank also announced the addition of Harvey Schmitt to its corporate board of directors. Schmitt joins 11 other board members dedicated to guid- ing the bank toward continued success. ROXBORO SAVINGS BANK Roxboro Savings Bank announced the promotion of Keith A. Epstein to vice president and chief credit officer. He will continue performing his duties as commercial and mortgage lender for the Person and Orange county markets. The bank also announced the hiring of Derek Green to its lending team. Green will focus primarily on commercial, mortgage and consumer lending, along with the bank’s merchant credit card program. SOUND BANK Sound Bank announced the promotion of DeAnna Bous- man to marketing manager for the bank. The bank announced that Shea Byrd joined the Morehead City branch as personal banker. Audrey Christie also joined the bank

Spring 2016 Carolina Banker 63 Faces in the News as manager of its new Wilmington branch. Betty Ann Lil- ly was also recently promoted to branch manager of the Morehead City office. Sound Bank announced the hiring of Mitch McKenzie as branch manager of the Cedar Point location. TD BANK TD Bank announced it has named Nate Barrett as senior BANKER Keep the middle market relationship manager for the Carolinas. The CAROLINA bank also named John Rutenberg regional vice president NCBA in for the North Coast market in South Carolina and Wilm- ington, North Carolina. the loop! YADKIN BANK Honor Flights Give WWII Vets Pride and Praise Yadkin Bank announced that two NewBridge Bank execu- tives will assume leadership roles with Yadkin Bank when the merger of Yadkin Financial Corporation and New- Bridge Bancorp closes in late quarter one or early quarter HELP KEEP two. Spence H. Broadhurst will be Piedmont commercial banking regional president for the combined bank and CAROLINA BANKER Robin S. Hager will be chief administrative officer based CURRENT in Greensboro. As your bank promotes employees or hires new employees, please remember to send an update and the employee’s headshot to Kathleen Rollinson at [email protected]. This special Faces in the News section in Carolina Banker is designed to showcase these announcements each issue. We truly appreciate your submissions.

CM Y

K Around the State

Right: Four Oaks Bank’s new branch facility, located at 115 Four Oaks Place, off of Ashe Street in Dunn, is near- ing completion. Employees of Sign and Awning Systems, Inc. are pictured leveling the new sign they installed in front of the new building. Below: Sound Bank opened its newest full-service branch in Wilmington in January 2016. Pictured below are employees (from left to right) Audrey Christie, branch manager; Korin McPeek, teller; Mark Johnson, New Hanover market executive; and Dalla Twaro, teller.

Above Right: Peter Gwaltney was interviewed by Chris William, executive producer and moderator, for Carolina Business Review, which broadcasts on 22 PBS stations in North and South Carolina. Also featured and interviewed on Peter’s segment were Clifton Rutledge, CEO, Bojangles, and JoAnn Turn- quist, president & CEO, Central Carolina Community Foundation. The segment aired in February across all markets of North Carolina. Left: Paragon Bank, headquartered in Raleigh, hosted its annual holiday party at the Bank in December. Each year, employees, clients, families and friends gather in Paragon’s large lobby to visit with one another and celebrate the com- ing holiday.

Spring 2016 Carolina Banker 65 Banks Backing Their Communities

Top Right: First Citizens Bank joined together with nonprofit Teen Cancer America and The Who’s Roger Daltrey to help open the door to better cancer care for young adults. First Citizens Bank is a major sponsor of Teen America, which is designed to increase awareness and support for targeted care and specialized treatment facilities for teen and young adults with cancer. Bottom Right: Volunteers from Paragon Bank, along with volunteers from the North Carolina Bankers Association (NCBA), spent the Friday before Thanksgiving pre- paring and serving meals for those less fortunate in Raleigh and the surrounding community at a local soup kitchen.

Left: In 2015, the Johnston County offices of Four Oaks Bank joined Farm Bureau Insur- ance to help collect toys for its annual Toy Drive to benefit children in Johnston County. The drive collected more than 800 toys, which were distributed through the Hin- nant Outreach Center during its “Lunch with Santa” event.

Above Left: the little bank, in partnership with funding from the Lookout Foundation, presented a $5,000 check to The Salvation Army of New Bern to provide grocery gift cards for families and toys for children registered for The Salvation Army’s Angel Tree program. The check is part of a gift of $30,000 from the little bank to The Salvation Army that will provide much needed help and new hope to hundreds of family members and individuals in Eastern North Carolina. Above Right: Members of NewDominion Bank’s executive team, Blaine Jackson, Marc Bogan, and Kelly King, were featured on Wilson’s World-WCCB Charlotte News Ris- ing to talk about the bank’s partnership with Classroom Central. Classroom Central is a nonprofit organization that helps students living in poverty effectively learn by collecting and distributing free school supplies. NewDominion donated 1,281 calculators to Classroom Central, which covers schools in Charlotte and its surrounding cities. 66 Carolina Banker Spring 2016 LifeLife is is good good at at top-of-wallet.top-of-wallet.

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