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FDIC Federal Register Citations
Kennebunk Savings Bank
From:
Jay Hallam [mailto:Jay.Hallam@kennebunksavings.com]
Sent: Wednesday, June 29, 2005 4:05 PM
To: Comments
Subject: Interagency Proposal on the Classification of Commercial Credit
Exposures
Thank you for the opportunity to submit a response to the proposed
changes to the commercial classification system.
Although the present system has been a sufficient monitoring tool in
classifying commercial exposures for many years, the proposed changes have
merit. This will allow for the reduction in classified credit totals based
on the realistic loss exposure. Further breakout of the classifications can
only result in a more informed management team and uniformed approach to
portfolio risk.
However, consideration should be given to the following:
1. Some conservative institutions place “substandard” relationships on
non-accrual status and aggressively charge off uncollectible portions of the
exposure, thereby forsaking the use of the “doubtful” and “loss” categories.
If we were to adopt this new rating system, non-accrual loans would be
categorized as “default”, thus potentially indicating a drop in overall
credit quality simply by instituting a change in systems.
2. Does instituting a “range” of loss severity for “default” categories
diminish the effectiveness of specific reserve calculations? In addition,
how do the ranges relate to the overall adequacy of the ALLL if, in fact,
these range are to replace the specific allocations?
3. The new process will have financial impact on small institutions that
have adequate processes in place.
Thank you for the opportunity to respond to this proposal.
Sincerely,
James C. Hallam, Jr.
Vice President
Commercial Risk Management
Kennebunk Savings Bank
104 Main Street
Kennebunk, Maine 04043
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