Stress TestingOptimizing your risk identification to mitigate portfolio

risk.

Didi Frohardt- Senior Process Architect Lora Barry- Executive Vice President, Emprise Bank

Regulatory requirements Banks over $10 billion in assets are required to comply with the Dodd-

Frank Act Stress Testing (DFAST) regulation Banks over $50 billion in assets are required to comply with DFAST and

could be also be required to comply with the Comprehensive Capital Analysis & Review (CCAR).

Banks less than $10 billion are being told to stress test but there are no set rules for stress testing The OCC Stress Testing Guidance states:

Does not endorse a particular stress testing method for community banks. Stress tests do not need to involve sophisticate analysis or third party

consultative support. Methods can range from a single spreadsheet analysis to a more sophisticated

model, depending on portfolio risk and the complexity of the bank

Where to start?

Regulatory Guidance recommends starting with:

Concentration Analysis – understand your entire lending portfolio by determining what your concentrations are

Loan Types Collateral Industry Geography

Where to start?

Next up – what are the stress factors and/or the stress scenarios going to be…

Interest rate Vacancy rate on income properties Collateral valuations Amalgamation of several stress factors

Where to start?

How do you want to stress… By individual loan By total client By portfolio

Where to start?

Last but not least..

Data is key to determining whether or not a specific loan, customer, relationship or concentration may be a financial risk to the bank.

Optimizing your data

Customer details Loan details Collateral details Financial statement details

What data do I need?

Optimizing your data

Core systems Spreadsheets Manual input

Where does this data currently reside?

Optimizing your dataConsolidate data sources into Advisor

Core accounting systemso Is all required data being imported

into Advisoro What Advisor data may require

manual inputo Does any of the Advisor data need

cleanup Excel Spreadsheets

o Rent rollso Specialized spread calculationso Risk Ratings

Optimizing your dataReporting in Advisor

Standard reportso C&I report based on individual loanso CRE report based on Statement

Analyzer CRE templateo Standard or custom Stress Scenarioso Coming Soon – Standard CRE report

based on Statement Analyzer GMM template

Custom reportso The sky is the limit!!!

Let’s look at an actual client case…

Lora Barry- Executive Vice President Emprise Bank

Where we were.. January, 2007

Well below CRE concentration criteria In 2013

CRE Concentrations were growing larger 2014-2016

Concentrations triggering greater supervisory oversight

Emprise Bank

Best Practice considerations.. Start Now!

Stress formulas Segment CRE Portfolio Create realistic scenarios

Emprise Bank

THANK YOU

Optimize,

Change, Innovate#BHCM16@bakerhill

For more information, visit our Solutions Showcase, or, contact your presenter at Didi.Frohardt@bakerhill.com