“Risk Elements that Management Should Know and Boards Should be Asking, Part I”

www.bankersdigest.com

July 13, 2015

Volume 147, No. 2

Pittman Appointed Chief Administrative Officer, Los Alamos National Bank in NM

Bachmeyer, Beshea, Cardenas Promoted

The board of directors has announced consulting functions within the bankthe appointment of Rodney (“Rod”) ing and financial services industry.

Pittman to chief admin Pittman earned an istrative officer of Los MBA degree in finance Alamos National Bank, from the University of a subsidiary of TrinIndianapolis in 2001. ity Capital Corporation, He also holds industry Los Alamos, NM. certifications: Certified Pittman, 57, most Internal Auditor (CIA), recently served as exCertified Financials Serecutive vice president vices Auditor (CFSA), of corporate security at Certified Information BBVA Compass for five Systems Auditor (CISA), years in TX. and Certified Fraud Ex Before joining BBVA, aminer (CFE). he was EVP/chief oper Pittman currently Pittman ating officer for McAlserves on the board for len-based Texas State Bank, a BBVA the Los Alamos YMCA and is an active predecessor. His experience includes member of the Musician’s Guild. He operations, audit, compliance, and plays the saxophone professionally Q

Marvin Rickabaugh, region president of Frost Bank-San Antonio, TX, announced the bank has promoted three to executive vice president in the downtown San Antonio executive offices.

Christy Bachmeyer, in consumer banking Bachmeyer management, received a BBA degree in finance from UT at San Antonio prior to joining the bank in 1997.

Bradley Beshea earned a BA degree from UT at San Antonio and Beshea a master’s degree from Our Lady of the Lake University. He joined Frost in 1985 and now manages fiduciary compliance and risk for Frost Wealth Advisors.

Raquel Cardenas, consumer banking, attended Cardenas the University of Incarnate Word and joined Frost in 1988. She serves as cashier of the bank Q

BOK Financial, Tulsa, Names Brunker To Lead Its Mortgage Division BOK Financial Corporation, a $30 billion regional financial services company based in Tulsa, OK, has named Glenn Brunker to lead BOK Financial MortBrunker gage. Brunker most recently served in an executive leadership role in mortgage banking at Fifth Third Bancorp, a $140 billion financial services company headquartered in Cincinnati, OH. In his new role, Brunker is charged

with managing all mortgage origination channels companywide Brunker brings nearly 30 years of financial industry experience to BOK Financial Mortgage. His diverse background in mortgage and consumer banking includes credit risk management, compliance, production operations, and secondary marketing experience, in addition to mortgage channel management. Prior to Fifth Third, he served as an executive leader in mortgage banking at National City Bank in Dayton, OH; president of Oak Street Mortgage in Carmel, IN; and CEO of ABBCO Mortgage in Tampa, FL. He also served five years with Bank One in Indianapolis, where he developed and implemented the direct lending line of business Q

In This Issue...

Risk Elements that Management Should Know and Boards Should be Asking, Part 1 Feature..............................................3

Published weekly on Mondays except fifth Mondays

FEATURE

RISK MANAGEMENT Risk Elements that Management Should Know and Boards Should be Asking, Part 1 By Bruce Zaret, CPA, and Michael Winters, CIA, CISA, CRCM www.weaver.com This article is the first in a three-part series on risk management.

In many banks, the risk management process is an annual regimen where risk factors are simply reviewed and Zaret approved.

With changes in the regulatory environment along with new and emerging risks, management and the board must be keenly aware of the strength of their risk management process and whether modifications to systems and processes are needed.

Typically, before things can change Winters the question must be answered, Where do we stand? The following discusses risk culture, attitudes about risk management, and proactive versus reactive risk management in order to help evaluate the current state of a bank’s risk management process.

• Does the board understand management’s risk culture?

The somewhat elusive term “risk culture” can be used to describe values, beliefs, knowledge, attitudes, and understanding of risk. It is a key element of Enterprise Risk Management and focuses on the tone at the top – management’s leadership and commitment towards openness, honesty, integrity, and ethical behavior. Thus, risk culture is not simply about creating and updating risk assessments to comply with internal and regulatory requirements; it is an attitude about

risks, rewards, and the behaviors that management and employees embody daily to achieve a bank’s vision and goals.

A healthy risk culture not only looks at risk-aversion; it is also about assessing the risks and rewards of new opportunities and making risk-informed decisions. It is inspired from the top – the senior management and the board. A healthy risk culture is an integral part of the risk management process though this is often lost in the efforts of maintaining regulatory com-

pliance or trying to fulfill bank policy requirements.

• What is the board’s attitude toward risk management?

When asked this question, the response may be, “My attitude is whatever it needs to be to simply run a profitable, reputable bank.” The board’s attitude toward regulation and risk management has an intangible, trickle-down effect that sets the tone for the entire organization’s risk culture.

If the board considers the need to cre(continued on Page 8)

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July 13, 2015 BANKERS DIGEST Page 3

NEWSWATCH MISSISSIPPI

BancorpSouth Inc. Extends TX & LA Merger Agreements BancorpSouth Inc. Tupelo, announced June 30 the extension of the merger agreements with Central Community Corporation, Temple, TX, and Ouachita Bancshares Corp, Monroe, LA. The merger agreements were extended until December 31, 2015, without material changes.

As previously announced, the mergers have been unanimously approved by the boards of directors for all three companies and by the shareholders of Central Community Corporation and Ouachita Bancshares Corp. The transactions remain subject to required regulatory approvals and the satisfaction of other closing conditions.

Central Community Corporation is the holding company for $1.4 billionasset First State Bank Central Texas, Austin. haltnerBancshares third page adCorp.

814.pdf 1 Quachita is the holding company for $654 million-asset Ouachita Independent Bank, Monroe Q

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FEATURE RISK MANAGEMENT (continued from Page 3)

ate and approve risk assessments and monitor the bank’s risk culture as an unwelcome irritation, it is likely that management and employees will view risk management as an unnecessary burden. When this is the case, risk assessments are simply compliance documents whose primary function is to fulfill regulatory requirements and bank policies. The result is that a weak risk culture most likely exists, and the risk management process is not robust.

Alternatively, when the board engages the risk management function as a valuable element in accomplishing the bank’s strategic goals, that attitude sets a much more productive tone throughout the bank. The board should continuously assess their attitude toward risk management to evaluate whether the tone they set is a positive contributor to the bank’s risk culture.

8/5/14 • Is 9:29 the PMboard’s risk management process proactive or reactive?

Too often, management and the board

become aware of the need to strengthen controls through an adverse event.

This may take the form of internal or external fraud, an information security breech, legal action against the bank, or an unexpected business interruption. When these events occur, the results typically include a shift in the bank’s culture and risk tolerance level to better protect against a recurrence.

When adverse events occur at other institutions and become publicly known, the question: “Can that happen to us?” becomes a hot topic at board meetings. Another way of phrasing this question is, “Are we being proactive in our risk identification and mitigation processes?”

Being proactive means that management and the board are continuously keeping themselves updated on threats in the industry and the failures or successes of other institutions. It also means maintaining close communication with outside resources to continuously understand how new threats impact the bank’s risk environment.

Combining a strong risk assessment process with a healthy, wellmaintained risk culture will result in the bank: (1) being better positioned to proactively identify new risks, (2) being more capable of adapting to changes in existing risks, and (3) improving its ability to take advantage of new opportunities.

In Part 2 next week, we will discuss key factors to consider in the risk assessment process Q About the authors: Bruce Zaret, CPA, is an advisory partner who leads the financial institutions consulting practice for Weaver, the largest independent accounting firm in the Southwest.

He can be reached at Bruce.Zaret@ Weaver.com or 972.448.9232. Michael Winters, CIA, CISA and CRCM, is a senior associate II in Weaver’s financial institutions consulting practice. He can be reached at Michael.Winters@ Weaver.com or 817.882.7386.

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