Lenders Trade Group on Course As Members Face Credit Storm
Commercial lenders may have faced tougher times before, but not in Clarence Reed's memory - and that's saying a lot.
For 30 years, Mr. Reed has been the top staff officer at Robert Morris Associates, the Philadelphia-based trade group for bank loan and credit officers.
"This is the greatest period of industry unrest, turmoil, and losses that has occurred since 1958, that's for sure," said Mr. Reed, referring to the year he first joined the trade association that he has headed since 1961.
Unruffled by Storm
Though RMA's own fortunes are certainly tied to the industry it serves, the trade group seems to be riding out the current storm in surprisingly good shape.
Despite a raft of mergers and bank failures, RMA's membership is off only about 5% from its peak in 1988. Meanwhile, revenues from dues, conferences, and various RMA products continue to rise steadily.
For the year ending Aug. 31, revenues are projected to rise almost 17% to $11.2 million, from $9.6 million last year.
"Why are they doing so well when the industry is [troubled]? Because they have a story to tell," said Michael Pimley, a vice president for structured finance at Continental Bank and an RMA director.
Since its inception in 1914, the trade group has espoused sound lending principles.
Sometimes, though, the message has fallen on deaf ears.
"The problem and challenge RMA faces is getting its constituents to listen to it," said Davide Eyles, vice chairman of Mellon Bank, who is also an RMA director.
Given the credit woes that are now besetting the banking industry, the time may be ripe for RMA to grab the industry's attention.
A Stress on Fundamentals
Indeed, the trade group is about to embark on a new awareness campaign, dubbed "focusing on fundamentals."
"This is a new program, and it's geared to address the decline in credit quality that the industry has been experiencing," Mr. Eyles said.
"It could be argued that behind just about every problem loan, there were one or more times when some lending fundamental was either not known in the first place, or ignored," said Mr. Reed.
The idea for the campaign came from Lee Murphey, executive vice president and senior credit officer at Liberty Savings Bank in Macon, Ga., and is strongly supported by incoming RMA president Robert Greene, executive vice president and chief credit officer of First Interstate Bancorp in Los Angeles.
Reminder and Promotion
"Our campaign will be to make sure the errors of the past are better understood," so they are not repeated in the future, Mr. Greene said. Along the way, the campaign will also promote RMA's product line.
Mr. Greene's own bank is certainly no stranger to problem loans.
First Interstate reported an unexpected loss of $80 million in the second quarter as a result of credit problems in Nevada and Oregon.
Acknowledging that the bank's credit controls aren't tight enough, First Interstate has embarked on an internal program to bring the credit skills of its lending officers up to snuff.
Training Program a Winner
Most of RMA's member banks, though, do not have the resources to launch an expensive in-house program for its lending officers.
That is why the trade group established its so-called mentor training program several years ago. The program offers bankers a soup-to-nuts curriculum, ranging from basic lending fundamentals to advanced cash-flow analysis.
"People absolutely need training and RMA delivers a high-quality product," said Mr. Pimley. "That's why their revenues are up."
Product Revenues on Top
This year, 62% of the revenues will come from products and services, while membership dues will account for 34%, and the interest on RMA's reserves the remaining 4%.
Though RMA is a nonprofit organization, it runs a surplus almost every year, which is considered members' equity.
Right now, reserves stand at about $3.7 million.
The funds are "very, very conservatively invested," Mr. Reed said, mainly in government bonds and certificates of deposit.
Though RMA's revenues have been rising, its membership ranks have been thinning, but the falloff has not been precipitous. Moreover, the loss of existing members has been partially offset by a steady stream of new RMA members.
Decline Is Less than 5%
From a high point of 3,141 institutions in fiscal 1989, RMA's membership stood at 2,976 banks as of the end of June, a decline of 5%.
However, the number of individual bankers belonging to RMA has barely budged from a high of 15,079 reached last year. As of the end of June, there were 14,964 individual members, a decline of less than 1%.
"Given what's happening to our industry, to have these relatively small declines is just great," Mr. Reed said.
PHOTO : CLARENCE REED has guided the national trade group of loan officers for 30 years.
PHOTO : LESSONS: Robert Greene, incoming RMA president, says understanding past errors will be the focus of the group's training programs.