1 ALLL for the Non-Accountant Presentation by: Ancin Cooley, CIA, CISA Lindgren, Callihan, VanOsdol, & Co. Ltd. THE 7 HABITS OF HIGHLY EFFECTIVE LOAN COMMITTEES.

1ALLL for the Non-AccountantALLL for the Non-AccountantALLL for the Non-AccountantALLL for the Non-Accountant

Presentation by:Ancin Cooley, CIA, CISALindgren, Callihan, VanOsdol, & Co. Ltd.

THE 7 HABITS OFHIGHLY EFFECTIVE LOAN COMMITTEES

What is a Loan Committee?2

The purpose of a Loan Committee is to oversee the credit and lending strategies and objectives of the Bank. This includes: Overseeing credit risk managementReviewing internal credit policies Establishing portfolio limitsReviewing the quality and performance of the loan portfolio

3

Total Bank Failures in 2009 Rise To 69Common characteristics among failed

institutions Credit Risk

Commercial real estate concentrations Weak credit administration practices Poor risk selection

Effective Loan Committees 4

Understand and define its purpose Create a diverse membership mix Communicate effectively Take minutes that matter Obtain the right information Ask the right questions... Maintain a safe and sound Credit

Culture

Understand and Define its Purpose5

The Loan Committee charter outlines the committee’s : Roles Scope of responsibilities CompositionAuthority

Create a Diverse Membership Mix 6

Ideally, a Loan Committee should be comprised of individuals with different skills and approaches to solving problems.

7

Loan Committee Member Matrix

Incr

easi

ng e

mph

asis

on

rela

tion

ship

s

Take Minutes that Matter8

Ensure accurate minutes are kept to provide a high-level summary of meeting discussions

Include relative insight on the topics and subtopics

Capture specific approvals and follow-up actions for accountability

Communicate Effectively9

Loan Committee meetings should serve as a forum for lively debate and airing thoughts on issues brought to the committee for its consideration.

Committee members must be open to and encourage diversity of ideas and candid discussions in order to thoroughly consider all aspects of the agenda topics. Thus, tolerance and a willingness to listen are important traits for Loan Committee members.

“Loan Discussion”10

Obtain the Right Information11

The primary considerations of the Loan Committee in reviewing loan requests are: Ability to repay (cash flow) Balance sheet condition Collateral Management Trends and prospects for the future

Ask the Right Questions...12

As a Loan Committee member, what types of question should you ask the loan officer about the:Ability to repay (cash flow) Balance sheet condition Collateral Management Trends and prospects for the future

Maintain a Safe & Sound Credit Culture13

Financial institutions with strong credit cultures learn from past mistakes and replicate success

WHAT’S ON THE HORIZON FOR 2010?

14

Questions?

15

Ancin Cooley, CIA, CISASenior Bank Consultant

Lindgren, Callihan, VanOsdol, & Co. Ltd.

4949 Harrison AvenueRockford, IL 61125(224) 475-7551

[email protected]