Episode 28: Approaching $1B in Assets: How FNB of Middle Tennessee Optimizes Risk Management

In the dynamic landscape of banking, risk management plays a pivotal role in ensuring stability and growth, no matter the size of the bank. Scott Uselton, the Chief Risk Officer (CRO) at First National Bank of Middle Tennessee (FNBMT), shares valuable insights gained over his 12-year journey, shedding light on the bank's evolution, his experience as a Chief Risk Officer, and strategies for effective risk management approaching $1B in assets.

From Credit Administrator to CRO: A Journey Unveiled

Scott's journey began at FNBMT over a decade ago, where he established the Credit Administration Department. His transition to the CRO role was driven by the bank's vision for proactive risk management and the idea to manage the bank based on where they want to be in the future. When Scott joined the bank, the effects of the Great Recession were still being felt, resulting in a focus on credit risk and how it functions in relation to the comprehensive banking systems. This experience highlighted the interconnectedness of banking systems and the need for a comprehensive risk management approach.

"...if you imagine all of the risk areas in the bank as silos, the risk officer would be the one laying the planks across each silo to connect them all together" - Scott Uselton, CRO, First National Bank of Middle Tennessee

Three years ago, the CRO function was introduced at FNBMT, with Scott at the helm. The risk culture at that time was fragmented, with varied risk assessments and spreadsheet-based monitoring. Scott's leadership aimed to redefine the view of risk within the bank, emphasizing that risk, when properly managed, can be a positive force for financial institutions.

Shifting Risk Culture: A Necessity for Growth

Scott emphasizes the importance of understanding individual and corporate risk appetites. His experiences in the credit department during the $500M asset phase revealed diverse attitudes towards risk, both at a personal and institutional level. He provides the example of reviewing credit requests from different officers and how they can illustrate these different attitudes toward risk. On the institutional level, we can see some banks are willing to take on certain risks that the bank down the street isn't willing to. He advocates for clearly defined risk appetite statements that evolve with the changing banking landscape.

"Risk is like a power tool, you can use it to create wonderful things - or cut a finger off" - Scott Uselton, CRO, First National Bank of Middle Tennessee

As FNBMT's assets grew from $500M to $850M, Scott initiated changes to the bank's risk culture. Recognizing the siloed nature of risk management, he aimed to bridge these gaps, fostering communication and enhancing overall risk awareness. As the bank continues to mature closer to the $1 billion mark, they continue to work towards a holistic and comprehensive risk program.

Implementing A Risk Maturity Framework: A Critical Assessment

This past year, FNBMT conducted a self-assessment of the banks risk maturity leveraging an Enterprise Risk Maturity Framework tool, developed by The Risk Management Association (RMA) and SRA. Scott explained how much he appreciates the granularity of the framework, offering a clear view of the bank's maturity process and guiding against over-engineering risk management for a bank of its size. Utilizing the risk framework has allowed him to see where FNBMT is in their maturity process and provided process risk improvement activities to help FNBMT reach it's goals.

Adopting the Risk Maturity Framework successfully does require all of management to be engaged and well-informed. But once successfully adopted, it will assist in both board oversight responsibilities and regulator conversations revolving around risk.

Looking Ahead to 2024: Anticipating and Mitigating Risks

Scott foresees challenges in liquidity, interest rate risk, credit quality, and operational risk in 2024 across the banking industry. The objective for the risk team though is to monitor, measure, and determine risk strategies promptly. SRA Watchtower's framework remains instrumental in aligning risk management with the bank's strategic plan and staying proactive.

Key Takeaways for Small Banks Growing Toward $1B

Reflecting on his own experience and career journey, Scott imparts valuable insights for risk and compliance professionals of smaller banks aspiring to reach $1 billion in assets. He shares the critical importance of proactive risk management, emphasizing the need to start this process early on and comprehensively understand the inherent risks within the bank. This proactive approach not only serves as a preemptive shield against potential pitfalls but also positions the bank to capitalize on opportunities that align with its risk appetite and growth objectives.

Conclusion: Risk Management as a Driver of Future Earnings

Scott's insights highlight the significance of robust risk management, irrespective of a bank's size. As margins tighten, effective risk strategies become instrumental in maximizing earnings and ensuring long-term success. By acknowledging the inherent risks within your bank and seamlessly incorporating them into your strategic plan, Chief Risk Officers (CROs) can play a pivotal role in establishing more effective risk monitoring and reporting mechanisms, enabling the organization to make more informed business decisions.

Explore the full conversation for a deeper understanding of risk management strategies and the evolution of FNBMT's risk culture.