Making a Great Bank Examinable

The Challenge

By the numbers the bank looked strong. On examination it was hard to defend

The bank came under heightened supervisory attention following a safety-and-soundness examination that downgraded its rating and raised examiner expectations across capital, concentration, funding, credit administration, and governance. By the numbers it looked strong. On examination it was difficult to defend. What the examination found was specific. A single specialty relationship represented roughly 27 percent of the loan portfolio and nearly 194 percent of capital. Wholesale dependency ran to approximately $75 million in brokered deposits against a loan-to-deposit ratio near 100 percent. Commercial credits had been underwritten on a one-page personal-loan form with no cash-flow analysis. And board structure and reporting did not give directors visibility into the risks the bank was actually running.

KEY TAKEAWAY

A bank can be a strong performer and still be unexaminable Earnings and growth told one story; the one-page underwriting forms, the unreported concentration, and the thin governance told another. Examiners do not grade only results. They grade whether an institution can demonstrate that it understands and controls its own risk. The remediation did not make the bank more profitable. It made the bank’s quality provable.

What the remediation covered

Performance and examinability are different things. Strong ratios do not survive thin documentation.
Concentration you do not report is concentration you cannot manage. Reporting is the first control.
Re-underwrite the riskiest credits before the examiners return, not after they ask.
Give directors reporting matched to the risks the bank actually runs, not to the risks the template anticipates.

Rebuilt capital through a bank stock loan, lifting ratios above supervisory targets.
Redesigned board governance into a three-committee structure, with reporting that surfaced concentration and funding risk to directors.
Authored a full policy suite and put it on a quarterly review cadence.
Re-underwrote the riskiest credits ahead of the examiners’ return, with real cash-flow analysis.
Cut brokered deposits by $40 million and stood up concentration reporting and a loan-participation network to manage exposure going forward.
Produced a three-year strategic plan to give the board and regulators a credible forward path.

THE PROCESS

Rebuild capital, governance, and credit discipline before the examiners returned

Endurance Advisory served as remediation lead.

What the engagement covered

Bank stock loan and capital rebuild, three-committee governance redesign, full policy suite, re-underwriting of the riskiest credits, brokered deposit reduction, three-year strategic plan

Where the bank landed

Tier 1 leverage against a 10.0% supervisory target

Outcomes

Where the bank landed

Tier 1 leverage against a 10.0% target

Capital ratios were rebuilt above supervisory targets, including a Tier 1 leverage ratio of 10.7 percent.

Brokered deposits removed

Wholesale dependency was cut by $40 million, with concentration reporting and a participation network stood up to manage exposure going forward.

Concentration brought into view

A single specialty relationship representing roughly 27 percent of loans and nearly 194 percent of capital was surfaced to directors through new reporting.

Institution created by the subsequent sale

With its risk profile and documentation rebuilt, the bank was acquired in a transaction that created an institution of roughly $1.2 billion in assets.

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THE SOLUTION

The bank’s quality became provable

Capital ratios above supervisory targets, including a Tier 1 leverage ratio of 10.7 percent against a 10.0 percent target. Brokered deposits reduced by $40 million, with concentration reporting and a participation network in place to manage exposure going forward. A three-committee board structure with reporting that surfaced the risks directors needed to see. With its risk profile, governance, and documentation rebuilt, the bank was subsequently acquired in a transaction that created an institution of roughly $1.2 billion in assets.

A bank can be a strong performer and still be unexaminable Earnings and growth told one story; the one-page underwriting forms, the unreported concentration, and the thin governance told another. Examiners do not grade only results. They grade whether an institution can demonstrate that it understands and controls its own risk. The remediation did not make the bank more profitable. It made the bank’s quality provable.

Banks carrying a single large relationship or sector concentration, institutions dependent on wholesale funding, and any high performer whose documentation has not kept pace with its balance sheet.

The Approach

Rebuild capital, governance, and credit discipline before the examiners returned

Endurance Advisory served as remediation lead.

Outcomes

Where the bank landed

Tier 1 leverage against a 10.0% target

Capital ratios were rebuilt above supervisory targets, including a Tier 1 leverage ratio of 10.7 percent.

Brokered deposits removed

Wholesale dependency was cut by $40 million, with concentration reporting and a participation network stood up to manage exposure going forward.

Concentration brought into view

A single specialty relationship representing roughly 27 percent of loans and nearly 194 percent of capital was surfaced to directors through new reporting.

Institution created by the subsequent sale

With its risk profile and documentation rebuilt, the bank was acquired in a transaction that created an institution of roughly $1.2 billion in assets.

Explore the Framework

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