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Baker Hill Prosper 2017 - What 2017 Will Bring to the Credit Picture

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Presented by Stephanie Butler and co-presented by Tony Hueston of Star Financial Bank and Sherri Slayton of Western Alliance Bank
The OCC has indicated that underwriting standards continued to ease at all sizes of financial institutions. In addition, CRE portfolios have more than doubled at many banks and credit unions. Is this a sign of continued growth in 2017 or a harbinger of something more? Is the industry losing sight of credit discipline? In this session, Stephanie met with credit officers from two banks in different regions to ask just that question.

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Baker Hill Prosper 2017 - What 2017 Will Bring to the Credit Picture

  1. 1. WHAT 2017 WILL BRING TO THE CREDIT PICTURE Stephanie L Butler - Director, Advisory Services Tony Hueston - VP, Star Financial Sherri Slayton - EVP, Western Alliance Bank
  2. 2. Confidential & Privileged Document Agenda • Welcome and introduction • Ask the experts • Summary • Action items
  3. 3. Confidential & Privileged Document Introduction • Stephanie L. Butler – Director of Advisory Services, Baker Hill • Tony Hueston - VP Credit Risk Specialist, Star Financial Bank • Sherri Slayton - EVP, Western Alliance Bank
  4. 4. Confidential & Privileged Document Introduction The old credit maxim “that the worst of loans are made during the best of times” has been shown to be true over and over again, yet is often recognized only in retrospect. -American Banker, February 2016
  5. 5. Confidential & Privileged Document Question 1: Credit Risk and Underwriting • The OCC’s 21st Annual Survey of Credit Underwriting Practices showed easing of underwriting standards within commercial and retail products…reflecting trends similar to those seen from 2005 through 2007.
  6. 6. Confidential & Privileged Document Question 1: Credit Risk and Underwriting • Is the OCC right? • Has banking lost sight of credit discipline? • Have we forgotten the past, again?
  7. 7. Confidential & Privileged Document Question 1: Credit risk and underwriting • Address credit discipline in your FI. • How is competition addressing credit discipline? • Have lessons been forgotten?
  8. 8. Confidential & Privileged Document Question 2: Commercial Real Estate It’s in this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk. CRE portfolios have seen rapid growth, particularly among small banks, and concentration risk management has become an area of emphasis for regulators. -Thomas Curry, US Comptroller of the Currency
  9. 9. Confidential & Privileged Document Question 2: Commercial Real Estate • Several articles cite the continued growth of CRE portfolios. • The OCC found that 406 banks saw their CRE portfolios more than double over the last three years.
  10. 10. Confidential & Privileged Document Question 2: Commercial Real Estate • Has your FI’s CRE portfolio increased significantly? • Do you believe CRE represents a real risk in your market? Nationally? • How has your loan policy evolved with respect to CRE?
  11. 11. Confidential & Privileged Document Question 3: Concentration Risk Mgmt. • As noted in the previous quote by the Comptroller of the Currency, concentration risk management is an area of emphasis for regulators.
  12. 12. Confidential & Privileged Document Question 3: Concentration Risk Mgmt. • How is your FI viewing concentration risk, specifically around CRE? • Is it viewed as an immediate risk? • What is your FI’s risk management practices today? CRE and C&I?
  13. 13. Confidential & Privileged Document Question 4: Bonus Question • In your opinion, what is the biggest issue or concern FI’s will face in 2017 and 2018?
  14. 14. Confidential & Privileged Document Summary • No one knows the future. • We do know history tends to repeat itself. • Know your portfolio.
  15. 15. Confidential & Privileged Document Recommended action items • Determine your FI’s portfolio concentrations. • Review your FI’s underwriting standards and risk management policy. – Are they being followed? • What is your proactive risk management strategy?
  16. 16. BE PREPARED. NOT SURPRISED. Stephanie L Butler Stephanie.butler@bakerhill.com

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