CEIS REVIEW QUARTERLY REPORT Q2-2015

ON MY MIND – CEIS PRESIDENT, JOE HILL

Community banks in our client base are nearly all showing growth

While the growth of loans have increased, the qualities of our clients’ portfolios have not deteriorated

This is important to highlight because this across-the-board loan growth has been caused by an easing in the underwriting process which brings with it a potential rise in credit risk within portfolios. This is not the case for CEIS’s clients.

IN THE SPOTLIGHT – JOHN P. MACUKAS

Managing Director

Overseas Leveraged Lending and Structured Finance engagements

Manages a team that overseas the due diligence process for these engagements

Full bio available: http://www.ceisreview.com/biographies/CEIS-Management

REGULATORY RELEASES Recent releases which pertain to our clients

OCC - Thomas Curry addressed efforts to ease the burden of regulation on community banks.

OCC - Financing Small Multifamily Rental Properties

Interagency - Final Rule on Minimum Requirements for Appraisal Management Companies

CREATING A EFFECTIVE CREDIT POLICY

A credit policy is the main way in which a Board of Directors can establishes the culture of the bank

What the bank identifies as its appetite for risk What levels decision-making discretion is delegated How the bank will measure, monitor, control and report inherent risks in its loan portfolio

Credit Policies must be comprehensive, strictly enforced and kept up to date with modern times.

Without these objectives the Policy will almost always fail

LEGISLATE A POLICY WITH CLARITY 1. Policy, Not Procedure

Each credit policy is generally unique per institution It should not focus so closely on “how to” guidelines and

more so on what the rules should be when defining the needs of the bank

2. Clarity Policies must contain clear language so that its law is not

just lines drawn in the sand This facilitates the enforceability of the policy Resist the temptation to adopt softer regulations so to

attract better business Trade flexibility for an exception clause instead

KEEPING YOUR CREDIT POLICY CURRENT AND ORGANIZED

3. Keeping it Current Make sure that the policies are kept up to date with the latest

regulatory guidelines Remove dated material from you policies If clauses in the policy are obsolete or inaccurate, it makes the

entire policy harder to enforce or simply to be used as a guide4. Organization

Keep a living copy on your network that is constantly updated with the contemporary changes

Have every page of the policy carry the date of the last update, to show when changes have been implemented

Pay attention to the pagination of your document, as pages are removed and added there can be inconsistencies in the document

MAKE YOUR POLICY ACCESSIBLE AND BE WARY OF AMENDMENTS

5. Access Minimal access will discourage staff from regularly using the

Credit Policy Allow privileges to people with jobs that require consulting the

policy while still keeping its contents private to the majority Make your document searchable on the computer so time won’t

be wasted navigating the multi-hundred page document An index is also incredibly helpful for the above objective

6. Amendments Limit their frequencies, there are only rare cases in which

Amendments are necessary Frequent changes can bring integrity and direction into question It is a time consuming procedure for the Board of Directors

EXCEPTIONS AND WRITING YOUR POLICY

7. Exceptions A much better option than amendments Exceptions can test the quality of the Credit Policy, if the same

exceptions continually need to be made, maybe a change should be considered

Minimal exceptions may indicate a bank’s policies are tight enough Allow insight into the current state of the market, and the bank’s

position

8. Writing your policy Consider the pros and cons of looking for an independent writer to

draft your policy The more complex your operations, the more necessary a consultant

will become A consultant’s policy may not be unique and be a “one size fits all

policy”

CONCLUSION As Banking becomes more competitive, effective

management increases in difficulty

It is important that the BoD and Management are upfront and provide clear guidelines for their staff

The Credit Policy is a key factor in communicating these guidelines

A well written Credit Policy means a well-run, and successful bank

A unsatisfactory Credit Policy can have a direct impact on a banks ability to thrive.