ABA Commercial Lending Schools

Transcription

1 ABA Commercial Lending Schools Advanced School April 28 May, 3, 2019 Southern Methodist University Dallas, TX

2 Note: Content Subject to Change Banking, the Economy and Credit Outlook Instructor: Scott MacDonald Length: 2 hrs Is this economy going to ever fully recover from the great recession? When does the government exit from its monetary stimulus strategy? What extraordinary reshaping of the financial services industry is still to come? Get answers to questions like these and predictions of what s ahead from a noted economist. Return to their bank with an improved understanding of what impacts the commercial loan market. Gather insight into the latest market and economic conditions impacting their business. Economic Update Latest market and economic changes GDP Unemployment Prices Housing Market Mortgage Market Debt Federal Debt Impacts Interest Rates & Monetary Policy Money Supply Federal Reserves Federal Liabilities Risk Health of the Financial Industry Credit Markets Liquidity Strategic Loan Pricing Instructor: Richard Hamm Length: 2 hrs With intense competition to capture loans, now more than ever it is important to have a strategic approach to loan pricing. This includes adequately covering your bank's costs and meeting profit objectives. It also 1

3 includes differentiating loan interest rates to reflect relative risk, plus knowing that you CAN win the borrower's business on a basis other than the lowest price. This session will cover two "big issues" that influence pricing, then three smaller issues. Along the way, we will demonstrate how to measure loan profitability and calculate the required rate on a loan, with time to discuss various models being used in your banks. We'll discuss getting premiums for taking risk and for adding value to the customer relationship, and ways to compete with a lower rate for volume or when you are able to mitigate risk better than your competitor can. Identify key asset-liability management concepts that influence interest rates Differentiate loan pricing on various lending risks Calculate the return on equity (ROE) for a loan interest rate, using example variables Risk-based pricing Using odd-decimal pricing Differentiating on all risk metrics Recognizing economies of scale on larger loans Comparing relative loan pricing within your portfolio Watching out for loans that are typically under-priced Linking asset-liability management tools to structure and price Setting fixed rates on average life, not full maturity Creative ways to use funding sources to support loans Avoiding prime spreads for rates fixed over one year Recognizing proper indexes and spreads for setting fixed rate How pricing models work Example math How models reveal built-in advantages and disadvantages for your bank versus competitors Typical pricing impact of the 150% risk weighting for high volatility commercial real estate (HVCRE) loans Three small issues Consistently giving your customer pricing options Considering proportional pricing for floating rates Using performance pricing tied to the customer's financial performance and/or loan covenants Portfolio Stress Testing Instructor: Gary Williams Length: 2.0 hrs Strongly encouraged by bank regulators, stress testing is a forward-looking quantitative assessment of potential economic events that could adversely impact the quality of the loan portfolio and, by extension, could impair the financial condition and capital adequacy of a bank. Stress testing is based upon the December 2006 publication of regulatory expectations on CRE concentration issues, and is an important 2

4 part of credit management best practices. It involves the development of what if scenarios that, if actually experienced, could lead to significant additional provisioning in order to maintain an adequate level of loan loss reserves. Understand why stress testing is a critical component of a bank s risk management program Identify important portfolio segments to test in his/her bank Learn about data gathering requirements for implementation of an effective program Communicate key predictive portfolio risks to executive management and directors What stress testing is and isn t Regulatory Requirement Purpose Methodology issues Transaction level = bottom-up Portfolio level = top-down Enterprise level Reverse Process roadmap for development of a stress testing program Management buy-in Concentrations Scenario development and parameter selection Creation of reports and discussion of results CRE Risk Management Instructor: Richard Hamm Length: 4 hrs Commercial real estate (CRE) loans continue to be a significant segment of bank loan portfolios. This course examines the components of an effective risk management system for CRE loans. This includes identifying and dealing with CRE concentrations, strategies for developing industry data and references, plus following the various regulations for appraisals and environmental due diligence. Prior to class, participants are encouraged to download (from and review the August 2013 Office of the Comptroller of the Currency (OCC) Commercial Real Estate Lending Handbook. Through interactive class discussions and course materials centered around nine key areas of CRE lending, participants will be able to: Identify the bank-wide risk areas that the CRE portfolio affects (enterprise risk management), plus ways to avoid or mitigate these risks Describe lending standards and ways to enhance underwriting Explain the risks involved in acquisition, development and construction (ADC) loans 3

5 Identify ways to structure and administer ADC loans Identify ways to structure and monitor income-producing property loans Describe key issues for different property types, and for expanding industry research and knowledge Explain the key issues in analyzing the borrower s and guarantor s support Identify ways to stratify the portfolio and develop category-level limits, and within areas of concentration create dynamic lending policies and guidelines Risks Associated with CRE Lending Credit risk Interest rate risk Liquidity risk Operational risk Strategic risk Reputation risk Real Estate Lending Standards Loan portfolio management considerations Underwriting standards Loan administration LTV limits Exceptions to policy ADC Lending Types of ADC lending Construction issues Market conditions Policies, procedures and internal controls Evaluating the developer borrower Determining project feasibility Loan structure and administration Income-Producing Property Lending Overview of underwriting components, including market analysis, cash flow analysis, value analysis and ratios Considerations by property types Loan monitoring issues Analysis of Borrower and/or Guarantor s Financial Condition Appropriate financial information to obtain Assessing cash flows on a global basis Portfolio Management Issues Key issues for managing CRE concentrations of credit Board and management oversight Ongoing market analysis Portfolio stress-testing and sensitivity analysis Role of credit risk review 4

6 Credit Risk Management: Tools and Techniques Instructor: Dev Strischek Length: 3.75 hrs Credit risk management is key to a bank making profitable and prudent loans, which in turn is driven by the bank s credit culture. Banks with value-driven credit cultures enjoy good asset quality and higherthan-average shareholder value. This course explains how to implement and maintain a values-driven credit culture in practical, logical steps. Recognize credit risk s prominence among all the enterprise risks Show how successful risk management starts with managing credit risk Explain the key role of credit culture in managing credit risk Learn how to identify your bank s credit culture and align it with your bank s credit risk strategies Learn how to use the 14 credit discipline tools to build a successful credit risk management function Define the key enterprise risks with emphasis on credit risk Big 3 risks credit, ops, market Other risks liquidity, reputation, strategic If you can get credit risk under control, then the others will fall into place Identify the elements of credit risk management Risk tolerance Risk measurement Risk strategy Portfolio management Credit culture Evaluate the critical role of the credit culture element in managing credit risk 4 types of credit culture Ideal culture is values driven Credit risk management framework for implementing and maintaining desired culture Offer some methods for measuring and managing credit risk 14 credit discipline tools Key credit risks transactional, intrinsic and concentration risk Risk tolerance, appetite and measurement Risk rating of obligor and obligation, rating migration, portfolio management Show how to use policy for preventive maintenance and align risk management with credit culture Maintain and sustain bank s credit culture Support Bank s credit strategy with practical guidance for managing credit risk Underwriting and analysis Lending and approval Monitoring and reporting 5

7 Global Debt and Contingent Liability Analysis Instructor: Dev Strischek Length: 1 hr Bankers expect commercial borrowers and their owners to be able to repay their loans from the business operations, and lenders are expected to include the owners-guarantors in the repayment calculation. This course is aimed at helping managers ensure that analysts and lenders are accurate and consistent in calculating global cash flow (GCF). A manager s guide for monitoring the accuracy of the GCF is also included. Define and calculate global cash flow (GCF) Review and compare various measures of cash flow (CF) Use GCF to evaluate borrower-guarantor repayment ability Adjust net worth to evaluate guarantor support Why bankers calculate GCF Cash flow over the business cycle Cash flow needs differ between mature firm and growing firm Comparison of alternative cash flow measures o TCF and EBITDA o CFO (NCAO)--net cash after operations, NCI-net cash income, and CADA-cash after debt amortization o FCF free cash flow o Other--Global cash flow Why bankers expect business owners to guarantee business debts Types of guarantees Personal cash flow underwriting issues and common errors on personal financials How to adjust personal net worth for dubious assets and forgotten liabilities Examples that incorporate owner-guarantor cash flows into business cash flows Management check grid for GCF accuracy Problem Loan Management Instructor: Kevin Nickodem Length: 1.5 hrs. This session focuses on how to avoid problem loans, recognize early warning signals and their causes, and the major factors to consider in managing problem loans. Case studies are utilized to assist participants in identifying these issues and managing a troubled asset. 6

8 Participants will be able to: Identify their target markets and the intrinsic risk associated with them; Determine where an early warning sign originates and its cause; Determine a workout plan strategy; Utilize a problem loan tracking report Avoiding Problem Loans Industry Risk Management Risk Product/Structural Risk Credit Risk Triangle Recognizing Early Warning Signals Bank Environment Customer and Management Signals Macro Signals Managing Problem Loans Rehabilitation Moving the Relationship Liquidation / Foreclosure Issues Workout Strategy and Tracking Best Practices Discussion: CRE Loans Gone Bad Instructor: Richard Hamm Length: 1.25 hrs Despite the bank s best efforts, some clients default on their CRE loan. But there are always opportunities to learn from these situations. In this interactive and engaging facilitated discussion, students will examine several actual scenarios and try to determine the reason for what happened in each case. The facilitator will reveal the true reason for the default and discuss lessons learned. Students will receive tools and questionnaires to avoid some of the same mistakes. Credit Risk Management Case Studies and Report Out/Review Instructor: Dev Strischek Length: 3.75 hrs Case study requires students to apply the techniques and tools learned in the Credit Risk Management course to solve the credit risk problems found in the case study s bank. Identify the case study bank s credit culture and devise strategies for improving the culture 7

9 Identify, measure, and mitigate concentration, intrinsic, and concentration risks Solutions for improving the bank s credit policies, processes and administration Fast growing suburban community bank has outgrown its credit risk management framework New chief credit officer has been hired to improve credit risk management If student were the new chief credit officer, how would the student put into place better credit risk management? Avoiding Lending Liability Issues Instructor: Tricia DeLeon Length: 2 hrs Consumer-based lender liability claims against banks are becoming more common again. In this course, lenders will learn to think like a lawyer to spot potential red flags which could lead to a lender liability lawsuit. Lenders will discover the legal pitfalls of accepting late payments after a borrower has previously and repeatedly defaulted, continuing to lend money even though the borrower is hopelessly insolvent, making verbal promises that a borrower detrimentally relies upon, and exercising too much decision-making control over the borrower s business. A consumer can sue a bank for a variety of reasons, most of which may be frivolous. Lenders will learn the best defenses to defeat and avoid these claims via current case law and legislation. Learn the most common lender liability claims consumers file against financial institutions. Learn how to best prevent and defend a bank against lender liability claims. Debate facts and analysis of current lender liability cases in state and federal courts. Discuss the growing trend of deepening insolvency litigation. Understanding What Constitutes a Lender Liability Claim Origins of litigation. Gained prominence in the mid-1980s. Cyclical. More suits are filed when the economy slumps. Most Common Claims Discuss Via Case Studies and Debates Breach of contract o Breach of commitment to fund or renew loans o Oral commitments o Good faith and fair dealing Duress Bad Faith Breach of Fiduciary Duty Negligent loan processing and administration Fraud and misrepresentation Interference with contractual affairs or with corporate governance Preferential transfers 8

10 Fair Labor Standards Act Equal Credit Opportunity Act Antitrust laws RICO Deepening insolvency Avoiding Excessive Control How much control is too much? Impact of change in control clauses Checklists to demonstrate proper file documentation Positive and Negative Impacts of Disclosure Parol evidence issues Opening the door to untruthful or omitted, material information Question and Answer Session with Class Discuss current issues/trends/cases and legislation in nation regarding lender liability Best Practices Discussion: C&I Loans Gone Bad Instructor: Tim Huestis Length: 1.25 hrs Despite the bank s best efforts, some clients default on their C& I loan. But there are always opportunities to learn from these situations. In this interactive and engaging facilitated discussion, students will examine several actual scenarios and try to determine the reason for what happened in each case. The facilitator will reveal the true reason for the default and discuss lessons learned. Students will receive tools and questionnaires to avoid some of the same mistakes. Appraisals and Evaluations Instructor: Suzy Gardner Length: 1.5 hrs This course is designed to promote the participants understanding of commercial real estate valuations. The course primarily focuses on regulatory requirements and expectations for real estate loan policies; appraiser independence; appraisals and evaluations; reviews; re-appraising and re-evaluating property; value conclusions; loan modifications; third party service providers; and referrals. Class instruction is based on a facilitation style of teaching. Course materials provide background information and address the most commonly asked questions or issues raised by lenders. Participants will review case study scenarios and provide their solutions or suggestions for resolution based upon the given circumstances. Ascertain whether real estate loan policies meet regulatory requirements Maintain appraiser independence 9

11 Understand regulatory expectations for appraisals Determine if the most common exemptions from the appraisal requirements apply Understand regulatory expectations for evaluations Develop criteria for reviewing appraisals and evaluations Identify when to re-appraise or re-evaluate real property collateral pledged on loans Recognize differences in different types of value conclusions Distinguish between different types of subsequent transactions Understand the lender s responsibilities when outsourcing services to third parties Know when to file a referral Loan Policy Real estate lending standards Real estate loan policies Independence Small bank and branch exception Loan production staff Borrower-provided appraisals Communication with appraisers Approved appraisers list Appraisals and Evaluations Appraisal requirements Appraisal engagement letters Appraisal Management Companies (AMCs) Market value conclusions for development projects Validity Appraisal exemptions Evaluation criteria Overview questions Reviews Criteria Overview questions Re-Appraisal / Re-Evaluation Criteria Overview questions Value Conclusions Market value and fair value Prospective market values Liquidation value and disposition value Examples of market value and liquidation value Other Loan modifications Third-party services Referrals 10

12 CRE Valuation Management Instructor: Suzy Gardner Length: 2 hrs This course is designed to promote the participants understanding of the scope of commercial real estate lending activities and valuation-related issues. The course primarily focuses on a common sense approach when considering whether an appraisal provides a credible value conclusion. Class instruction is based on a facilitation style of teaching. Course materials provide background information regarding several types of commercial real estate valuation related issues. Participants will review case study scenarios and provide their solutions or suggestions for resolution based upon the given circumstances. Appreciate the significance of the United States banking system s exposure to CRE Lending Check engagement letters for potential inappropriate instructions or limitations Understand the Uniform Standards of Professional Appraisal Practice requirements (USPAP) for comparable sales Identify potential inconsistencies in quantitative adjustments Recognize unsupported adjustments or common USPAP deficiencies Calculate the loan-to-value for income-producing properties Participate in three real world case studies that reflect multiple valuation concerns Scope of CRE Lending Banking System Exposure to CRE Problem Loans Ratings Downgrades CRE Prices Valuation Related Issues Engagement Letters Adjustments to Comparable Sales Supporting Information Unsupported Discounts Deductions and Discounts Adjustments Not Supported Common USPAP Deficiencies Loan-to-Value Case Studies 294 Residential Lots Projection Issues CRE C&D Loan 11

13 Introduction to Bankruptcy Instructor: Brandon Tomjack Length: 1.5 hrs 1. General Principles Bankruptcy Code and Bankruptcy Court The Automatic Stay Loan Documents and Collateral Review The First Steps in Bankruptcy Basic Bankruptcy Documents 341 Meeting Types of Claims Discharge/Post-Discharge Injunction Non-Dischargeable Debts 2. Chapter 7s General Concept Appointment of Chapter 7 Trustee Secured Claims Unsecured Claims Reaffirmation Agreements 3. Chapter 13s General Concept Secured Claims Unsecured Claims Proofs of Claim Plan Co-Debtor Stay Debt Limitations 4. Chapter 11s General Concept Reorganization/Liquidation/Combination of Both Proofs of Claim Adequate Protection Disclosure Statement Objections Plan Objections 5. Chapter 12s General Concept Secured Claims Unsecured Claims Proofs of Claim Adequate Protection Plan Co-Debtor Stay Debt Limitations 12

14 6. Miscellaneous Issues Valuation Standards Cash Collateral 363 Sales Adversary Proceedings Preferences Fraudulent Transfers Executory Contracts and Unexpired Leases Cut Off of Security Interests Appointment of Trustee in Chapter 11 Case Fraud: Methods, Detection and Prevention Instructor: Kevin Eack Length: 2 hrs The course covers the different types of fraud schemes typically encountered by financial institutions, particularly those schemes that utilize lending products. Various criminal statutes will be discussed and examples of recent criminal cases will be utilized to provide examples of factual scenarios that highlight the fraud schemes. A discussion of red flags particular to lending fraud schemes will enable participants to identify and report activity that must be reported to financial institution s fraud, security or BSA departments. Schemes involving bank insiders will be covered with a focus on potential signs of collusion between bank clients and lenders. Participants will develop a fraud scheme and critique others for methods of prevention and detection. Identify red flags for a variety of fraud schemes Identify fraud schemes by bank borrowers, customers, vendors, and providers of professional services Identify and report suspicious activity to the appropriate area of the bank Discuss methods of identifying and preventing insider frauds. Summary of Course Content Overview Understand different criminal statutes that cover fraud schemes; Identify Red Flags of lending fraud schemes; Understand requirements for reporting fraud schemes; Identify methods of preventing lending based fraud schemes Identify methods to prevent and detect fraud schemes involving insiders 13

15 Lending Leadership: A Question of Balance Instructor: Mark Faircloth Length: 3.75 hrs The final course of the 2015 school is a fast-paced, interactive session which addresses one of the most misunderstood labels in the business world: leadership. Students examine a case study bank, identify its lending unit s successes and challenges, and then provide advice to the supervisor on how to improve performance. Small teams are graded by their peers on the soundness and practicality of their advice. Understand the difference between management and leadership Determine how individual motivations and approaches can be blended to increase productivity Make better daily decisions which benefit the individual, business unit and institution Create a self-sustaining environment which promotes advancement Management vs. Leadership Task- and people- responsibilities Importance of T and M balance Application to case study bank Leading Individuals Personalities, motivations and communication styles Critical element of individual buy-in Boundaries: where to draw the line Leading Business Units Stages of team development Robots vs. anarchists Quality and quantity balance Production pressure Application to case study bank Institutional Leadership Critical on stage elements Short term needs and long term effects Regulatory vs. ethical standards Application to case study bank Final Exercise Teams present recommendations for the case study bank Secrets to self-sustaining leadership Recap and final thoughts Distribution of at-work leadership tools 14