Magazine article The RMA Journal

Faces and Perspectives of the 2005 RMA Annual Conference Washington D.C

Magazine article The RMA Journal

Faces and Perspectives of the 2005 RMA Annual Conference Washington D.C

Article excerpt

Take it as a sign:

Seemingly endless wet weather decided to move out of D.C. as RMA's 2005 Annual Risk Management Conference moved in. The power of the keynote speakers alone was enough to drive away the rain for a conference that RMA President and CEO Maury Hartigan (photo, right) says continues to get better every year. You also know your speakers are on target when they quote one another, as they did in October in Washington, D.C. The rest of the conference surpassed the expectations of those in attendance as well. The RMA Journal is pleased to offer the complete addresses of three speakers--W. Kendall Chalk, RMA chair; John A. Allison IV, chairman and CEO, BB&T; and John E. Silvia, Ph.D., chief economist, Wachovia Bank, N.A.--plus highlights from an address by Tim Russert, managing editor and moderator, Meet the Press. Also within the following pages are summaries of a number of conference plenary and breakout sessions. PowerPoint and pdf files of presentations are available online at EventInfoandRegistration/Presentations/acpresentations05.htm.

Opening Address W. Kendall Chalk Senior Executive Vice President and Chief Credit Officer, BB&T

This is an interesting time in our industry from a risk management perspective. The truth is, there is little evidence we are taking much risk. Profits are at an all-time high, loan losses are at the lowest level in 10 years, and many of our institutions are recapturing the loan loss reserve. According to the FDIC, noncurrent loans [90 days past due plus nonaccruals] for the banking industry are at the lowest level [0.71%] since the FDIC began capturing noncurrent loan data 22 years ago. The watch list of FDIC problem banks is now only 74 banks out of almost 9,000 institutions, down from more than 1,500 institutions in the early 1990s. So, you might ask, what do we risk managers have to do? Why are we so worried about risks?

Yogi Berra once said, "The advantage of getting old is you live a long time." I have been through five credit cycles during my career. It's a pretty safe bet that we will have another down cycle. Maybe Mark Twain said it best: "The past may not repeat itself, but it sure does rhyme." So, I would suggest that, clearly, risks are embedded in our portfolios.

From 1992 (following the real estate recession) to 2000, loans on commercial banks' balance sheets for commercial real estate and one-to-four-family residential real estate stayed around 47% of total loans.

By the end of 2004, real-estate-related loans were at 57%--a 10% rise in only four years. We are making more A&D loans, construction loans, and home equity loans, and we're holding more mortgage loans on our books. What does that say about risk? Also, I learned some new terms at a recent RMA round table--a rondo is a rental unit being converted to a condo; likewise, a hondo is a hotel unit that's being converted to a condo. Where all of those people are going to come from to live in these condos, I don't know.

I'm not trying to be an alarmist about real estate lending, because the quality of our real estate portfolios is actually wonderful. Our losses in commercial real estate and residential real estate lending have been in the single digits for years. I'm also not suggesting that we have a real estate bubble. My point is that we clearly have shifted our exposures to more real estate. That 10% movement in only four years carries risk. The last time we saw such a shift was between 1980 and 1990--a period of 10 years--and of course, some of us are still around who remember what happened in the early 1990s.

Further, changes in our portfolio mix are influenced significantly by what's happening in the economy. One reason we are filling our portfolios with real estate loans is that C&I--commercial and industrial lending--has been very difficult to come by in the past four years. It looks like we are seeing a turn and C&I loans are growing again, but we continue to make a lot of real estate loans. …

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