Problem Definition

Prior to engaging the services of Cobblestone Management, this community bank was experiencing very strong growth levels in its commercial real estate portfolio and was approaching a 300% level of CRE in relation to capital, yet the bank hadn’t increased any of its CRE portfolio oversight. Following a regulatory Safety & Soundness exam, the bank was put under order to satisfy the regulatory requirements pertaining to institutions with identified CRE concentrations. The bank had less than a month to formally reply to its regulator with a comprehensive plan of action.

To continue growing its loan portfolio and overall profitability, but in a safe and sound manner that would meet board and regulatory expectations, bank management knew that it needed to expand its CRE risk management platform and it needed a fast turnaround on a plan that covered all necessary aspects.

Problem Highlights

  • Outdated board reporting.
  • An antiquated loan policy that did not reflect heighted risk of CRE concentrations.
  • Inadequate real estate market analysis.
  • An absence of capital adequacy measurement and strategic contingency planning.

Cobblestone Approach

Because of Cobblestone’s reputation for independence, expertise in CRE concentration risk management and timeliness of service, the bank chose us to help redefine its CRE risk management platform.

Within three business days of initial inquiry by the bank, Cobblestone Management was on-site at the bank working in tandem with the senior management team to build a new credit infrastructure. Cobblestone, utilizing its collective experience in satisfying regulatory scrutiny, built a credit calendar of committed new board reports that would assist the bank in better understanding its risk concentration areas. Cobblestone then built a series of deeply insightful reports, which would then be periodically updated. Lastly, Cobblestone helped the bank identify best sources of real estate market data to assist the bank in its future strategic planning.

Solution Highlights

  • Significantly expanded board reporting that shed deeper insights into the CRE portfolio.
  • Improved loan policy to reflect heightened risk management of CRE concentrations.
  • Better documentation of the bank’s perceived and approved risk appetite.
  • Established measurement for capital adequacy and contingency planning for future CRE growth beyond acceptable levels.
  • Enhanced data on relevant real estate market trends, on which future bank decisioning would place reliance upon.
  • The creation of an inter-related set of risk enhancements, from which the bank could deliver a detailed well-conceived action plan response to its regulator.


The bank could deliver its action plan on time and to the satisfaction of its regulator. As a result, the bank is projected to continue the growth of its CRE portfolio (and profitability) in a sound manner. The bank now has the tools in place to proactively identity CRE concentration risks that will facilitate better strategic decisioning and future loan loss mitigation.