A Solid Enterprise Risk Management Program Sustains Growth at Pacific Premier
Challenge
Ten years ago, Pacific Premier Bank®—a state-charted bank founded in 1983 and headquartered in Irvine, California—had 75 employees and $675 million in assets. Today, through organic growth and acquisitions, it has 1,100 employees and $12 billion in assets.
Simple math gives this fast-growing community bank a high growth rating. But what internal processes are needed for this type of rapid acceleration? This phenomenal boom creates the need for risk management investments as a necessary component for strategic growth management.
Operating an Enterprise Risk Management (ERM) program can be one of the most time-consuming activities in banks today, but it’s needed to sustain growth of this magnitude. Industry average estimates place risk/compliance at .15-.20% total of operating costs. Pacific Premier knew that to embrace an aggressive risk strategy, an ERM program became a necessity. Although components of risk management were always a part of the bank’s internal fabric, this fast-growing financial institution did not initially implement a formal, solid structure. As they began approaching the $10 billion asset threshold, a concerted new effort was incorporated and resulted in a favorable and measurable solution.
Solution
In creating a more robust risk management function, the overall goal for Pacific Premier’s ERM program was to monitor and report on company activities in relation to risk appetite, as well as to help the company achieve its strategic objectives. Pacific Premier needed help with further developing the ERM role within the company and further defining procedures for their ERM processes.
WolfPAC laid the groundwork for Pacific Premier by providing an ERM implementation roadmap, and by helping to develop some of the core competency of their risk management needs. By organizing their objectives, providing a risk management framework gap analysis, providing a risk monitoring activity gap analysis, and identifying measurable KRIs, WolfPAC established a foundation for building the department and ensconced a more defined role for risk management. WolfPAC provided a gap analysis for Pacific Premier that assessed where their processes were and how mature the processes were, along with a risk management report of the gaps and a road map for more effective risk management best practices.
Result
WolfPAC’s risk management process aligns risk management to the strategic objectives of the organization. WolfPAC provided Pacific Premier a new risk management framework to evaluate all their supporting processes and worked with them to determine their KRIs. Pacific Premier defines this as an ‘aha moment’ as they now had a new way to evaluate their risk management activities.
Through WolfPAC’s advisory services, Pacific Premier experienced a cascading effect still followed at the organization today, in which WolfPAC helped them see that if their key monitoring activities are operating within tolerance (e.g. asset quality and liquidity ratios, employee turnover metrics), then all the ancillary/supporting activities are also functioning as intended.
The methodology WolfPAC provided helped Pacific Premier understand that they are within the bounds of risk appetite, saving them time and effort as they adjusted their monitoring activities to efficiently achieve their risk management objectives.
Conclusion
ERM is an emerging discipline in all companies, not just financial institutions. Prior to the enactment of the Dodd-Frank Act, financial institutions primarily dealt with risk on a day-to-day basis, and it was informally rolled into what they did.
Today, ERM is a more formalized discipline, with a formal risk appetite statement that measures how much risk the organization is willing to accept, in order to determine whether the risk profile and practices are within your defined risk appetite.
Because risk management is now much more formal, this structure has to become more mature as all companies accelerate their growth. In this community bank’s early stages of growth, Pacific Premier dealt with risks and had various committees, meetings, reports reviewed, and metrics analyzed— however, it was not a centralized risk management activity. Risk components operated individually without an overarching summary.
This overarching summary is what many financial institutions now must build into their process, and part of that is implementing a good ERM software platform. As the need for reporting to Boards and risk committees evolved, Pacific Premier—through WolfPAC’s advisory services—was able to align their risk management activities with the strategic objectives of the organization.
This advantage allowed them to quantify their risk management program metrics, communicate the program internally, and effectively present results to management and Board committees, as well as to internal and external auditors and bank examiners.