DD&F Consulting Group

ABA’s Annual Convention

editor — Wed, 01 May 2013 20:22:41 +0000

On May 8-10, 2013, the Arkansas Bankers Association (ABA) is having their annual Convention and Trade Show at the Statehouse Convention Center in Little Rock and DD&F will be there in force with a booth in the trade show and plenty of representation. Stop by and see our staff. Hope to see you there!

DD&F To Present at Multiple Arkansas Bankers Association Compliance Conference Sessions

editor — Thu, 07 Mar 2013 17:39:50 +0000

On April 10-11, 2013, the Arkansas Bankers Association (ABA) is having their annual Compliance Conference and DD&F will be making several apperances as conference speakers. Ronnie Peters will be a featured speaker on Enterprise Risk Management on April 11 and DD&F’s Adam Gilbert and Jo Anna Rueda will lead breakout sessions on ‘Compliance Risk Management-Internal Controls’ and ‘HOEPA Update’ respectively. We hope you’ll be able to stop by and talk to our consultants to learn more on how to stay abreast of the ever-changing compliance environment.

DD&F’s Ronnie Peters to Present at the 2013 Missouri Bankers Association Technology Conference

editor — Thu, 07 Mar 2013 17:38:07 +0000

On March 20, 2013, DD&F’s Ronnie Peters will be a featured speaker at the 2013 Missouri Bankers Association Technology Conference. He will be discussing the topic of Enterprise Risk Management. We hope you will be able to stop by and learn how to stay afloat amidst the flood of compliance changes in the banking industry.

Welcome Jo Anna Rueda to the DD&F Team!

editor — Fri, 01 Mar 2013 19:16:15 +0000

Jo Anna Rueda joins DD&F as our new Senior Risk Management Consultant specializing in compliance. Please help us welcome Jo Anna to the DD&F team!

Welcome Jeremiah Dennis to the DD&F Team!

editor — Fri, 01 Mar 2013 19:05:00 +0000

Jeremiah Dennis joins DD&F as our new Risk Management Consultant specializing in loan review. Please help us welcome Jeremiah to the DD&F team!

Bank Succession Planning

editor — Fri, 01 Mar 2013 17:44:51 +0000

According to the American Bankers Association less than 50% of banks have succession plans. With the trend of aging executive management and boards, state and federal regulators are now looking at succession as a major risk. This risk has not escaped us at DD&F and Randy Dennis, President of DD&F recently covered this issue for the Arkansas Bankers Association. Here is the article.

Succession Planning and Punxsutawney Phil-Happy Groundhog Day- By Randy Dennis

“February is always a great month for me. Of course, part of the reason is because my birthday is in February. More particularly, it’s on the greatest and least appreciated holiday of the year, Groundhog Day. Unfortunately, there is no Parade of Roses nor Macy’s Day Parade to honor the humble and ever faithful prognosticator of the weather, the groundhog.

The largest Groundhog Day celebration is held in Punxsutawney, Pennsylvania. Groundhog Day, already a widely recognized and popular tradition, received widespread attention as a result of the 1993 film Groundhog Day, which was set in Punxsutawney and portrayed Punxsutawney Phil, Pennsylvania’s favorite son (hog?). The movie starred Bill Murray. In the flick, Murray plays Phil Connors, an arrogant and egocentric Pittsburgh TV weatherman who, during a hated assignment covering the annual Groundhog Day event in Punxsutawney, finds himself in a time loop, repeating the same day again and again, waking up over and over to the Sonny and Cher song “I Got You Babe.” After indulging in numerous self destructive activities including multiple creative suicide attempts, he begins to re-examine his life and priorities and ultimately breaks the loop and settles down with the love of his life.

Now, you might ask, what in the world do Bill Murray and the movie Groundhog Day have to do with succession planning? A fair question but in short, I think that too many of our banks and bank boards are stuck in a loop thinking that the succession problem will solve itself only to continue to wake up to Sonny and Cher and no successor.

As I meet with banks around the country, several things are apparent. First, many of the executive officers are starting to look more and more like my parents: they’re old. Second, when I meet with their boards of directors, the age issue becomes even more pronounced – they are even older than the executive officers. Third and most important, few are giving the attention they should to succession planning for management, the board or aging stockholders. This creates a very serious and practical problem for all the banks and the regulators that are charged with oversight of the bank or holding company.

Now, don’t get me wrong, I will be the first to admit that I’m no spring chicken. And truthfully, I’m just as bad as my clients when it comes to this “succession” issue. Like Murray in Groundhog Day, most of us are waking up every day to “I Got You Babe” and are ignoring the potential problems related having no “babe” to wake up to in the event of an untimely death. Unlike Murray, we don’t have an unlimited number of chances to get it right.

Although most companies recognize the importance of succession planning in attracting and retaining excellent employees, few companies successfully establish a process for doing so (according to Best Practices, LLC). In fact, 67% of all organizations do not currently have any formal succession planning process.

Sure, but that’s all organizations, you say. We’re talking about BANKS, which are supervised by various federal and state regulators and surely must have their succession act together. Well… not exactly. According to the American Bankers Association, less than half of banking organizations have succession plans in place. To make matters worse, in 2008, the average age for a bank CEO was 57.25, with an average tenure of 8.6 years. It’s been five years since 2008 so I’m sure our average age is higher and the remaining tenure is much shorter.

In fact, a 2011 Pearl Meyer & Partners banker’s succession survey, On Point: CEO Succession Planning Survey Banking Edition, found that 46% of banking survey participants experienced a CEO succession within the past five years. While we all hope we are able to anticipate and prepare for succession, in 41% of the successions, neither the management nor the board had identified a viable internal candidate. As a result, many of the banks were forced to search outside the bank for a viable candidate.

Perhaps in a metropolitan or regional banking market this would not be a problem. For Arkansas, though, 50 of our community are located in rural markets like Delight, Salem, Corning and Eudora to name just a few of our more isolated rural markets. To compound the pain, 44% of the respondents who had identified a potential internal candidate were very concerned about losing the internal candidate if he did not get the job, thus exacerbating the succession issue and kicking the can down the organization chart. Turns out they were right to be concerned. Almost a third of the internal candidates who were passed over left the bank or retired.

Hopefully by now, you’ll agree that we community bankers have a problem. Even if some of us are calendar-challenged and still believe that we’re only as old as we feel, I can assure you that our state and federal supervisory examiners are not so chronologically deceived. In fact, they have identified succession as one of our major risks for the upcoming several years. They are going to consider our age in their risk matrix, even if we don’t want to.

So, how do we break the time loop, recognize our need for successors, identify qualified candidates and live happily ever after?

First, recognize that succession has to be a priority for the executives, board and owners. Your bank is too important to your community to leave it to chance. Second, identify the most critical links in the executive chain of command. You may be a healthy 42 year old CEO but have a 64 year old chief of operations whose untimely demise would be devastating to your bank. He or she needs to be first on the board’s list to begin planning for. In some banks, the loss of a chief operations officer would be far worse than the loss of the CEO.

Third, establish a succession team made up of key board members (usually including the chairman of the board) and at least the bank’s CEO to come up with a board approved succession plan. Fourth, before you begin your search for Mr. or Ms. Successor, identify the job responsibilities of the executive that’s at the top of your list for a successor. I warn you that this process can be even scarier than the loss of the person in that it may begin to dawn on your team how critical that person really is. We find that some banks may have to materially reallocate job responsibilities across several positions to be able to identify a viable or realistic successor for some executives or CEOs.

Last, don’t wait until the last minute to begin the identification process. It takes time to find a viable successor for key jobs. Unfortunately, 41% of banks tended to only do succession planning on an as-needed basis according to the Pearl Meyer survey. At a minimum, regardless of the executive’s age, the succession team should prepare an emergency plan (for those worse case scenarios) and a 3-5 year plan. In more rural markets, a longer planning horizon will be needed to take into consideration younger existing employees who need grooming to assume leadership positions in the future.

In today’s uncertain regulatory environment, our banks have plenty of issues that need some improvement or clarity. Punxsutawney Phil, while an adorable weather icon, is not a very good weatherman. His weather predictions have only been correct 39% of the time. With succession planning, our average needs to be higher. It is such a critical issue that it needs to address sooner rather than later so we can all get on with our lives and live happily ever after.”

Small Bank Recovery Plans Draw Regulatory Focus

editor — Thu, 14 Feb 2013 21:56:58 +0000

By Jackie Stewart: American Banker

Community banks are getting increased regulatory pressure to beef up their technology platforms and emergency response plans for unexpected events such as hurricanes, floods and
cyberattacks.

Examiners are increasingly asking small banks to showcase how they would recover systems after a disaster, either natural or man-made, industry experts say. These types of requirements have been in place for years, but scrutiny is finally trickling down from larger banks to smaller institutions.

“Regulators want to be ahead of this,” says Kevin Jacques, a former regulator at the Office of the Comptroller of the Currency who is now the finance chair at Baldwin Wallace University in Cleveland. As examiners have become more comfortable with this topic, Jacques says, oversight “has filtered down to smaller” banks.

Other recent events, from Hurricane Sandy in October to attacks on large banks’ websites, have brought the topic to the forefront. IT-Lifeline, a provider of disaster recovery services, found a 67% rise in disaster recovery testing at small banks in 2012, says Matthew Gerber, its chief executive. The increase included banks that have scheduled testing well in advance to banks seeking assistance just weeks before an auditor visit, he says.

Examiners want banks to have “consistent business continuity plans” in place, says Kooros Mahmudi, senior vice president at Marsh Risk Consulting. In addition to technology, such as servers and backup systems, examiners want banks to clearly outline the roles of senior management and directors in the case of an emergency. “They want to make sure it is a process-orientated approach,” Mahmudi says. “They’re not necessarily interested in understanding a particular system. They want to know if you can process checks and money and if clients can gain access to their accounts. That’s really a collection of processes and people.”

A representative for the Federal Reserve Board would not comment, and efforts to reach the Comptroller’s Office were unsuccessful.

As part of the planning process, banks must rate their various systems as one of five categories ranging from nonessential — those that would be fixed last — to ones that are deemed critical and must be running again within hours, Gerber says. What is considered critical has changed over the last few years, he says. For instance, email systems that were once considered lower priority are now considered critical because management greatly relies on email to communicate with staff. “What good would it be to have your core system up and running if you can’t communicate?” Gerber says. Banks must also provide documentation to examiners that they have conducted tests on their recovery procedures.

Generally, banks should conduct tests at least twice a year and rotate the systems they examine, experts say. “Auditors want to know that you have sat down, looked at your systems and determined the risk levels,” says Stan Anderson, information technology manager at Inland Northwest Bank, the $394 million-asset unit of Northwest Bancorp in Spokane, Wash. “They want to make sure banks are engaged in the process on a monthly basis,” Anderson says.

Anderson says he spends about 10 hours each week on Inland’s disaster recovery systems. The system has become more complicated over time, evolving from roughly six servers and a tape drive to backup data located at the bank. IT-Lifeline provides Northwest with data protection off-site and a disaster recovery service, Anderson says. Small banks often struggle with having the appropriate staff and infrastructure for its disaster recovery due to the costs. Gerber says it can cost a bank $2,400 to $3,600 a year for every $100 million of assets it holds.

As a result, many small banks rely on outside companies to provide these services at a lower cost, Jacques says. John Marshall Bank in Reston, Va., has written plans on what it would do in case of various threats, says Carl
Dodson, the bank’s chief operating officer. The $511 million-asset bank uses an outside company for its technology and personnel needs, keeps all its servers off-site and backs up all critical data daily, he says.

John Marshall Bank is also creating a secondary disaster recovery site, which would let it bounce back more quickly after an emergency. “If something were to happen regardless of how unexpected, it would be terrible to not be able to serve our customers,” Dodson says. “We do everything we can to make sure that doesn’t happen.”

Data backup alone is an insufficient disaster recovery plan, says Michael de la Torre, vice president of product management at SunGard Availability Services. Companies need the capacity and procedures to restore critical applications.

Banks also need to update the systems at their secondary sites to reflect any changes made in their business, he says. “Change is the bane of disaster recovery,” de la Torre says. “The more time that has passed from when you set up that site, the more changes that have happened and the less likely you will be able to use it.”

Bankers should not view regulators as the enemy when discussing disaster preparedness, Jacques says. Examiners, who have the benefit of observing best practices at a variety of banks, can serve as a resource, especially to small banks, he adds. Examiners have proven their worth to John Marshall and Inland in the past. “Someone who thinks they know it all is missing the boat,” Anderson says, because “you never know it all.”
If you have questions or concerns about your own recovery or continuity plans, check out how DD&F can help you by clicking here.

Randy Dennis To Speak at Forum For Community Bank Examiners

editor — Mon, 04 Feb 2013 17:41:10 +0000

March 6, 2013- Randy Dennis, President of DD&F Consulting Group, will be speaking at the 2013 Forum for Community Bank Examiners March 6^thin Dallas, Texas. His topic is “Keep Your Eyes on the Road” –How Will Community Banking Stay on Course.” We hope you can make it to hear this insightful presentation.

Ronnie Peters to speak at ABA Technology Conference

editor — Fri, 02 Nov 2012 18:56:22 +0000

November 28-29, 2012- Ronnie Peters, Executive Director of DD&F’s Risk Management group, will speak at the Arkansas Bankers Association Technology Conference in Little Rock, AR on the topic of Enterprise Risk Management. Enterprise risk management is about assessing all the risks of the institution, from operational, to information technology to reputational risk on an ongoing basis, establishing an appetite for risk, and making sure conformity to that risk appetite is monitored and pervades the institution. Enterprise risk management is about more than just insuring against known risks. It’s about what could happen in the future that you don’t even know about. Come learn how ERM may affect your bank.

DD&F to Speak at ACB Management & Directors Conference

editor — Fri, 28 Sep 2012 19:25:41 +0000

October 25, 2012- DD&F will speak at the Arkansas Community Bankers Association Management & Directors Conference in North Little Rock, AR on the topic of Basel III. “Basel Is Not Just A Big Bank Issue” will provide unique insights from both regulatory and “real world” consulting points of view, including how Dodd-Frank is affecting the current Basel III discussions.