abc bank enterprise risk management policy...the enterprise risk management program (or erm) is a...
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ABC BANK ENTERPRISE RISK MANAGEMENT POLICY
______________________________________________________________________________ Policy for: Enterprise Risk Management Organizational Functional Area: All Board Approved: Department/Individual Responsible for Maintaining/Updating Policy: Chief Risk/Regulatory Officer
Policy: It is the Board’s policy to manage the risks facing the Bank by maintaining a risk-based culture consisting of an active Board and management team, a comprehensive set of internal controls, and a formal body of policies and procedures. For the purpose of this policy, the term “risk” refers to the potential that events, expected or unanticipated, may have an adverse impact on the Bank’s capital or earnings. The Enterprise Risk Management program (or ERM) is a formal representation of the Board’s risk management efforts. The program’s goal is to identify and manage potential risks, both external and internal, that will most likely impact the Bank’s ability to achieve its financial objectives and/or align with its strategic goals. To accomplish this, the impact of risks will be estimated, and mitigating strategies developed and implemented when necessary. Finally, the information will be communicated to the Audit Committee and incorporated into the Board’s strategic planning process. The primary risks facing ABC Bank are common to most community banks, and are as follows: Internal Risks
- Credit Risk - Operational Risk - Interest Rate Risk - Compliance Risk - Liquidity Risk - Strategic Risk
External Risks - Reputational Risk - Regulatory Risk - Economic Risk
CBA - ERM Page 1
ABC BANK ENTERPRISE RISK MANAGEMENT POLICY
Specific Responsibilities Under ERM: The Chief Risk/Regulatory Officer (CRO) – Working with the Audit Committee Chair and the CEO, the CRO is responsible for the development and implementation of an effective ERM program. The CRO Chairs the Management Risk Committee and provides ERM reporting to all levels of the organization – Board-level Committees, senior management, Bank staff, auditors and regulators. The Management Risk Committee (MRC) – Chaired by the CRO, the MRC will report to the Audit Committee. The MRC will consist of the CEO, CRO, CCO, and the CFO. The Audit Committee Chair will be invited to, and welcome at, all MRC meetings. The Committee may meet periodically during the year; however, it must meet at least annually. The MRC is responsible for:
• Identifying potential risks • Establishing the severity and likelihood of risk events • Estimating the impact of events severe or likely enough to warrant consideration • Determining feasible mitigating strategies and/or setting monitoring metrics • Reporting the results of its risk management activities to the Audit Committee • Keeping minutes, and submitting those minutes to the Audit Committee
The Audit Committee – The Audit Committee is generally1 responsible for establishing a comprehensive audit schedule for all areas of the Bank’s operations, engaging auditors, and reviewing their findings. This includes the annual financial statement audit, periodic loan and credit quality reviews, required regulatory reviews (BSA, IRR, ACH, and Wire Transfers), and any other operational audits deemed necessary. The Audit Committee is also responsible for monitoring and guiding the MRC’s activities, and reporting its results to the Board. The Board – To support the ERM program, the Board is responsible for establishing the Bank’s risk appetite. While a formal risk appetite statement is not required, risk tolerances should be established over time, and incorporated into ERM analyses. Finally, the Board should incorporate the RMC’s findings into its strategic planning process.
1 The Audit Committee’s comprehensive responsibilities are detailed in the Audit Charter.
CBA - ERM Page 2
Ris
k M
anag
em
en
t A
lign
me
nt
Gu
ide
Mit
igat
ed R
isk
Leve
l1
23
45
Ris
k C
ate
gori
es
Ris
k O
wn
er(
s)R
isk
Ap
pe
tite
M
on
ito
rin
gA
ctio
n P
lan
sC
om
pan
y
Ove
rsig
ht
Bo
ard
Ove
rsig
ht
Key
Ris
k In
dic
ato
rsLo
wH
igh
Ch
ange
(Pri
orQ
)C
om
men
ts
Cre
dit
Ris
k
Bo
ard
an
d
Mgt
Lo
an
Co
mm
's,
CEO
/CC
O
Low
"2
"
CC
O m
on
ito
rs d
aily
; TA
C
wee
kly;
Bo
ard
mo
nth
ly;
Au
dit
Co
mm
co
mm
issi
on
s an
d
revi
ews
cred
it q
ual
ity
aud
its;
FDIC
/DB
O q
uar
terl
y vi
a C
all
Rp
t an
d a
nn
ual
exa
ms
Get
/kee
p A
Q t
o
acce
pta
ble
leve
l by
curi
ng
NP
L's
and
gett
ing
OR
EO
occ
up
ied
an
d/o
r so
ld
CC
OLo
an C
om
m
Cla
ssif
ied
Ass
ets,
PD
,
Co
nce
ntr
atio
ns,
Lar
ge
Bo
rro
wer
s
2.2
(0
.4)
Cla
ssif
ied
loan
s ar
e d
ow
n t
o 8
.0%
of
cap
ital
& r
ese
rve
s, O
REO
is
red
uce
d t
o 4
.6%
, an
d n
on
-acc
rual
loan
s ar
e $
0.5
M. C
on
cen
tra-
tio
ns
in C
RE
are
re
lati
vely
hig
h a
nd
ris
ing,
an
d r
egu
lato
rs h
ave
hin
ted
mo
re c
apit
al m
ay b
e r
eq
uir
ed
. R
ecen
t st
ress
tes
t o
n t
he
loan
po
rtfo
lio f
or
dro
ugh
t, a
nd
an
an
alys
is o
f th
e C
RE
"Off
ice"
po
rtfo
lio s
ho
w in
her
ent
risk
is lo
w (
littl
e to
no
imp
act
on
cap
ital
wh
en s
tres
sed
). R
esu
lts
of
Jun
e A
Q a
ud
it w
ere
fully
Sat
isfa
cto
ry,
con
sist
ent
wit
h 2
.2 r
atin
g.
Inte
rest
Rat
e R
isk
CFO
Mo
der
ate
"3"
CFO
mo
nit
ors
mo
nth
ly;
ALC
O
qu
arte
rly;
Au
dit
Co
mm
ann
ual
ly t
hru
au
dit
; FD
IC/D
BO
ann
ual
ly
Mai
nta
in a
reas
on
ably
bal
ance
d
po
siti
on
CFO
ALC
O
Pro
ject
ed Im
pac
t o
f
RSA
/RLS
on
Ear
nin
gs &
MV
E, M
arke
t V
ola
tilit
y
2.2
(0
.2)
Mar
ket
rate
s re
mai
n v
ery
low
an
d s
tab
le w
ith
litt
le c
han
ge
exp
ecte
d. A
ll in
dic
ato
rs s
ugg
est
rate
s m
ay r
ise
even
tual
ly;
ho
wev
er,
on
ly a
slig
ht
incr
ease
is f
ore
seen
by
mid
-20
15
. O
nly
ne
gati
ve is
NIM
, wh
ich
is lo
w a
nd
fal
lin
g. IR
R m
od
elin
g sh
ow
s th
e B
ank
is n
ow
asse
t-se
nsi
tive
, be
ne
fiti
ng
slig
htl
y sh
ou
ld r
ate
s ri
se. J
un
e au
dit
fin
din
gs in
dic
ate
the
IRR
man
agem
ent
pro
gram
is "
Sati
sfac
tory
."
Liq
uid
ity
CFO
Mo
der
ate
"3"
CFO
mo
nit
ors
dai
ly;
Bo
ard
mo
nth
ly, A
LCO
qtl
y; F
DIC
/DB
O
ann
ual
ly
Mai
nta
in a
deq
uat
e
liqu
idit
y, e
mp
loy
exce
ss f
un
ds
safe
ly,
CFO
ALC
OLi
qu
idit
y R
atio
, LTD
Rat
io, A
cces
s to
LO
C1
.4
(0.2
)
The
B/S
rem
ain
s ve
ry li
qu
id (
liq
uid
ass
ets
are
22
% o
f d
ep
osi
ts)
and
ext
ern
al L
OC
's a
re h
eal
thy.
Lar
ge d
epo
sito
r co
nce
ntr
a-ti
on
s ar
e
sign
ific
ant,
bu
t sh
ock
s sh
ow
ris
k is
mit
igat
ed.
[Liq
uid
ity
Rat
io]
GT
20
%1
5%
-20
%1
0%
-15
%5
%-1
0%
LT 5
%Ju
ne
aud
it f
ind
ing
is "
Sati
sfac
tory
" p
rogr
am m
gt.
Op
erat
ion
alR
isk
CFO
/CR
OLo
w "
2"
Op
erat
ion
s an
d IT
Man
agm
ent
dai
ly m
on
ito
rin
g an
d r
epo
rtin
g,
Au
dit
Co
mm
itte
e th
ru p
erio
dic
aud
its
Mo
nit
or
and
co
ntr
ol
thro
ugh
au
dit
acti
vity
, sta
ff t
rain
ing
CFO
/CR
O/
Bra
nch
Ad
min
istr
ato
r
Au
dit
Co
mm
itte
e
Au
dit
Fin
din
gs;
New
Pro
du
cts,
Bra
nch
es o
r
key
per
son
el
0.9
(0
.6)
Mo
st o
per
atio
nal
au
dit
s fo
r 2
01
4 a
re c
om
ple
te, w
ith
no
mat
eria
l
fin
din
gs. R
ecen
tly
com
ple
ted
au
dit
s fo
r IR
R, L
iqu
idit
y, W
ires
,
Safe
guar
din
g C
ust
om
er In
fo a
nd
E-b
anki
ng.
Ou
tso
urc
ed IT
con
tin
ues
to
red
uce
IT-r
elat
ed r
isk,
Mo
rtga
ge D
ept
clo
sure
red
uce
s
op
erat
ion
al a
nd
co
mp
lian
ce r
isk,
an
d c
riti
cal v
end
ors
are
str
on
g.
"Cyb
er t
erro
rism
" co
nce
rns
are
hig
h, b
ut
mit
igat
ed b
y st
ron
g
net
wo
rk s
ecu
rity
co
ntr
ols
. No
ch
ange
s to
sta
ff o
r p
rod
uct
s.
Co
mp
lian
ce R
isk
CR
O/M
gt
Co
mp
lian
ce
Co
mm
Low
"2
"
Au
dit
Co
mm
via
au
dit
s,
man
agem
ent
thru
qu
arte
rly
Co
mp
mtg
s, F
DIC
th
ru p
erio
dic
exam
s
Imp
lem
ent
com
pre
hen
sive
Co
mp
lian
ce M
gt
Pro
gram
CR
OA
ud
it
Co
mm
itte
e
Pac
e &
Sco
pe
of
Reg
Ch
ange
, In
crea
sin
g
Co
mp
lexi
ty
2.0
0
.0
Low
ris
k as
FD
IC C
om
plia
nce
rat
ing
is "
SAT"
(2Q
'13
). N
ew
regu
lati
on
s re
qu
ired
by
Do
dd
-Fra
nk
Act
are
imp
lem
ente
d, b
ut
will
req
uir
e so
me
"sea
son
ing"
as
staf
f an
d s
yste
ms
adju
st t
o t
he
chan
ges.
Ou
tso
urc
ing
mo
rtga
ge le
nd
ing
also
red
uce
d r
isk
her
e.
Stra
tegi
c R
isk
CO
B/C
EOLo
w "
2"
Bo
ard
dis
cuss
es m
on
thly
,
form
al S
trat
egic
Pla
nn
ing
Mee
tin
g an
nu
ally
Co
mp
are
gro
wth
targ
ets
wit
h a
ctu
al,
new
pro
du
cts
CEO
Full
Bo
ard
Pro
gres
s to
war
d
Stra
tegi
c G
oal
s, G
row
th
Rat
es
2.3
0
.3
Ban
k is
gen
eral
ly o
n t
rack
to
ach
ieve
LT
fin
anci
al g
oal
s: Y
TD 2
01
4
ass
et g
row
th r
ate
res
ult
s in
$1
B a
sset
go
al i
n 1
0 y
ears
, bu
t N
IM is
bel
ow
ta
rget
. Ass
et g
row
th (
5-y
r av
g is
7.9
%)
is o
utp
acin
g ca
pit
al
gro
wth
(6
.6%
incl
ud
ing
year
s w
ith
cap
ital
rai
ses)
, res
ult
ing
in a
7.6
5%
cap
ital
rat
io a
t $
1B
. Ban
k w
ill n
eed
to
rai
se $
52
M b
y 2
02
5 t
o
reac
h 9
% e
qu
ity
goal
. Cap
ital
pla
n is
un
der
rev
isio
n t
o in
crea
se
earn
ings
ret
enti
on
fo
r go
al, a
nd
to
inco
rpo
rate
Bas
el II
I lim
its.
New
bra
nch
pla
nn
ed f
or
NO
V'1
4.
Rep
uta
tio
n R
isk
CEO
Ver
y Lo
w
"1"
Co
rpo
rate
Co
mm
un
icat
ion
s
and
CR
O m
on
ito
r, r
epo
rt
qu
arte
rly
Mo
nit
or
med
ia
(in
clu
din
g so
cial
)C
EOFu
ll B
oar
dV
olu
me
and
Nat
ure
of
Pu
blic
ity
1.0
0
.0
Lim
ited
men
tio
n o
f B
ank
in m
edia
(p
rin
ted
an
d e
lect
ron
ic),
wit
h n
o
der
oga
tory
men
tio
ns.
Ad
dit
ion
al d
irec
tio
n m
ay b
eco
me
app
rop
riat
e as
FSB
's s
oci
al m
edia
pro
file
gro
ws.
Reg
ula
tory
Ris
kC
EO/C
RO
Low
"2
"
Au
dit
Co
mm
th
ru e
xam
rev
iew
,
CR
O a
nd
Mgt
Co
mp
lian
ce
Co
mm
qu
arte
rly
Co
mm
un
icat
e w
ith
regu
lato
rs, a
tten
d
trai
nin
g, m
on
ito
r
bu
lleti
ns
CR
OA
ud
it
Co
mm
itte
e
CA
MEL
S C
om
po
nen
ts
and
Co
mp
lian
ce
Pro
gram
s
2.3
0
.0
The
Ban
k's
ove
rall
re
gula
tory
sta
nd
ing
is s
atis
fact
ory
, bu
t so
me
pre
ssu
re t
o in
cre
ase
cap
ital
giv
en
CR
E co
nce
ntr
atio
n a
nd
gro
wth
.
Als
o, n
ew F
DIC
gu
idan
ce is
exp
ecte
d f
or
con
cen
trat
ion
s (l
oan
s &
dep
osi
ts),
str
ess
test
ing
in E
RM
, bro
kere
d d
epo
sits
, BSA
, co
nsu
mer
len
din
g an
d f
loo
d in
sura
nce
lim
its.
Ban
k h
as in
corp
ora
ted
mo
st,
bu
t m
ust
dem
on
stra
te c
om
plia
nce
at
its
nex
t ex
am.
Eco
no
mic
Ris
kM
gt R
isk
Co
mm
N/A
CR
O a
nd
RM
C r
epo
rt q
uar
terl
yM
on
ito
r ec
on
om
ic
rep
ort
s, f
ore
cast
sC
RO
Au
dit
Co
mm
itte
e
Glo
bal
, Nat
ion
al, S
tate
and
Lo
cal E
con
om
ies
(no
ris
k to
lera
nce
)
3.0
(0
.5)
Emp
loym
ent
and
CR
E m
arke
ts c
on
tin
ue
slo
w im
pro
vem
ent,
an
d
FOM
C c
on
tin
ues
to
acc
om
od
ate.
Th
e St
ock
mar
ket
is im
pro
vin
g,
bu
t al
so r
eact
ing
to in
tern
atio
nal
issu
es (
Ru
ssia
/Ukr
ain
e an
d
Isra
el/H
amas
). F
or
CA
, wil
d f
ire
s an
d d
rou
ght
are
pro
ble
ms.
Mo
st
eco
no
mis
ts a
gre
e r
eco
very
is u
nd
erw
ay, b
ut
it w
ou
ldn
't t
ake
mu
ch t
o s
tall
it.
Agg
rega
te R
isk
17
.2
(1.6
)
Ove
rall
ris
k is
wit
hin
th
e B
oar
d's
to
lera
nce
leve
l an
d d
ecr
eas
ing.
Man
age
me
nt
is w
ork
ing
to im
pro
ve A
Q b
y re
ne
goti
atin
g
un
de
rpe
rfo
rmin
g lo
ans
and
se
llin
g O
RE.
Ris
k in
th
e C
RE
"Off
ice
"
con
cen
trat
ion
ap
pe
ars
low
, ye
t lo
an s
tre
ss t
est
ing
wil
l co
nti
nu
e.
Oth
er
regu
lato
ry in
itia
tive
s m
ust
be
ad
dre
sse
d, i
ncl
ud
ing
cap
tial
,
cyb
er
terr
ori
sm, a
nd
ve
nd
or
man
age
me
nt.
Liq
uid
ity
is s
tro
ng,
an
d
op
era
tio
nal
au
dit
s ar
e g
oo
d f
or
20
14
. M
ild
ly im
pro
vin
g e
con
om
ic
con
dit
ion
s m
ay e
nh
ance
eff
ort
s to
gro
w t
ow
ard
s st
rate
gic
init
iati
ves.
LT 1
3.5
13
.6-2
2.5
22
.6-3
1.5
31
.6-4
0.5
GT
40
.6
Med
ium
CB
A -
ER
M P
age
3
Risk Management Alignment GuideMitigated Risk Level 1 2 3 4 5
Risk Categories Key Risk Indicators Low HighChange
(PriorQ)Comments
Credit Risk
Classified Assets, PD,
Concentrations, Large
Borrowers
2.2 (0.4)
Classified loans are down to 8.0% of capital & reserves, OREO is
reduced to 4.6%, and non-accrual loans are $0.5M. Concentra-
tions in CRE are relatively high and rising, and regulators have
hinted more capital may be required. Recent stress test on the loan
portfolio for drought, and an analysis of the CRE "Office" portfolio
show inherent risk is low (little to no impact on capital when
stressed). Results of June AQ audit were fully Satisfactory,
consistent with 2.2 rating.
Interest Rate Risk
Projected Impact of
RSA/RLS on Earnings &
MVE, Market Volatility
2.2 (0.2)
Market rates remain very low and stable with little change expected.
All indicators suggest rates may rise eventually; however, only a
slight increase is foreseen by mid-2015. Only negative is NIM,
which is low and falling. IRR modeling shows the Bank is now asset-
sensitive, benefiting slightly should rates rise. June audit findings
indicate the IRR management program is "Satisfactory."
LiquidityLiquidity Ratio, LTD Ratio,
Access to LOC1.4 (0.2)
The B/S remains very liquid (liquid assets are 22% of deposits) and
external LOC's are healthy. Large depositor concentra-tions are
significant, but shocks show risk is mitigated.
[Liquidity Ratio] GT 20% 15%-20% 10%-15% 5%-10% LT 5% June audit finding is "Satisfactory" program mgt.
OperationalRisk
Audit Findings; New
Products, Branches or
key personel
0.9 (0.6)
Most operational audits for 2014 are complete, with no material
findings. Recently completed audits for IRR, Liquidity, Wires,
Safeguarding Customer Info and E-banking. Outsourced IT continues
to reduce IT-related risk, Mortgage Dept closure reduces operational
and compliance risk, and critical vendors are strong. "Cyber
terrorism" concerns are high, but mitigated by strong network
security controls. No changes to staff or products.
Compliance Risk
Pace & Scope of Reg
Change, Increasing
Complexity
2.0 0.0
Low risk as FDIC Compliance rating is "SAT"(2Q'13). New regulations
required by Dodd-Frank Act are implemented, but will require some
"seasoning" as staff and systems adjust to the changes. Outsourcing
mortgage lending also reduced risk here.
Strategic RiskProgress toward Strategic
Goals, Growth Rates2.3 0.3
Bank is generally on track to achieve LT financial goals: YTD 2014
asset growth rate results in $1B asset goal in 10 years, but NIM is
below target . Asset growth (5-yr avg is 7.9%) is outpacing capital
growth (6.6% including years with capital raises), resulting in a
7.65% capital ratio at $1B. Bank will need to raise $52M by 2025 to
reach 9% equity goal. Capital plan is under revision to increase
earnings retention for goal, and to incorporate Basel III limits. New
branch planned for NOV'14.
Reputation RiskVolume and Nature of
Publicity1.0 0.0
Limited mention of Bank in media (printed and electronic), with no
derogatory mentions. Additional direction may become appropriate
as FSB's social media profile grows.
Regulatory Risk
CAMELS Components
and Compliance
Programs
2.3 0.0
The Bank's overall regulatory standing is satisfactory, but some
pressure to increase capital given CRE concentration and growth.
Also, new FDIC guidance is expected for concentrations (loans &
deposits), stress testing in ERM, brokered deposits, BSA, consumer
lending and flood insurance limits. Bank has incorporated most, but
must demonstrate compliance at its next exam.
Economic Risk
Global, National, State
and Local Economies
(no risk tolerance)
3.0 (0.5)
Employment and CRE markets continue slow improvement, and
FOMC continues to accomodate. The Stock market is improving, but
also reacting to international issues (Russia/Ukraine and
Israel/Hamas). For CA, wild fires and drought are problems. Most
economists agree recovery is underway, but it wouldn't take much
to stall it.
Aggregate Risk 17.2 (1.6)
Overall risk is within the Board's tolerance level and decreasing.
Management is working to improve AQ by renegotiating
underperforming loans and selling ORE. Risk in the CRE "Office"
concentration appears low, yet loan stress testing will continue.
Other regulatory initiatives must be addressed, including captial,
cyber terrorism, and vendor management. Liquidity is strong, and
operational audits are good for 2014. Mildly improving economic
conditions may enhance efforts to grow towards strategic
initiatives.
LT 13.5 13.6-22.5 22.6-31.5 31.6-40.5 GT 40.6
Acceptable Risk Range
X.X Perceived "Actual" Risk
Directional tendancies
1 2 3 4 5
Low High
Acc'ble Range 3.2
Example: While still out-of-toerance, the risk is moderate (3) and the
trend is improving and expected to be in an acceptable range soon;
therfore of moderate concern.
Medium
Medium
CBA - ERM Page 4
ERM
- C
red
it R
isk
Sup
po
rt
CR
EDIT
RIS
K3
Q2
01
34
Q2
01
31
Q2
01
42
Q2
01
4P
olic
y4
Q T
ren
dSc
ore
We
igh
tC
om
me
nt
Loan
Po
licy
PD
30
+ &
NA
/To
tal A
sset
s <
1%
(U
BP
R)
0.4
%0
.3%
0.4
%0
.2%
1.0
%D
ecre
asin
g2
.02
0%
Bel
ow
Po
licy
and
dec
linin
g
Cla
ss'd
Lo
ans/
Cap
ital
& R
es <
20
%1
9.0
%1
6.6
%1
1.6
%8
.0%
20
.0%
Dec
reas
ing
2.0
20
%B
elo
w P
olic
y an
d d
eclin
ing
OR
EO
OR
EO/C
apit
al &
Res
7.1
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.7%
4.6
%4
.6%
(no
ne)
Dec
reas
ing
2.0
20
%So
ld 1
of
4 p
arce
ls 4
Q2
01
3
Bo
ard
Rp
ts/F
inc
Pe
rfo
rman
ce
Ad
v C
lass
Item
s to
Tie
r 1
Ca
p &
Res
26
.1%
21
.1%
16
.1%
12
.6%
Dec
reas
ing
NA
Cla
ss. L
oan
s an
d O
RE
each
mea
sure
d a
bo
ve
Texa
s R
atio
10
.0%
6.5
%6
.7%
5.7
%5
0.0
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ecre
asin
gN
A
Co
nce
ntr
atio
ns
(me
tho
d r
evi
sed
20
12
)C
om
mit
men
ts a
s %
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BC
Rea
l Est
ate
- n
on
-OO
'd2
58
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64
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69
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75
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50
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crea
sin
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igh
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sin
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end
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Q a
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)
All
RE
Co
nst
ruct
ion
35
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39
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0%
20
0%
Incr
easi
ng
Wel
l bel
ow
po
licy,
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t in
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g
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50
%In
crea
sin
g3
.02
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Bel
ow
po
licy
bu
t in
crea
sin
g (r
isk)
Rea
l Est
ate
OO
'd (
no
po
licy)
24
0%
25
0%
26
0%
27
0%
(no
ne)
(To
tal O
O'd
an
d n
on
-OO
'd)
49
8%
51
4%
52
9%
54
5%
(no
ne)
This
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pea
rs t
o b
e th
e ra
tio
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on
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rs
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icu
ltu
ral
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ng
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I9
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able
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nsu
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st C
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Off
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d A
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no
re
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lags
Use
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nd
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o T
RB
C
Loan
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vie
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esu
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erat
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ud
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iew
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d A
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le2
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der
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2.2
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rall
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ing
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m U
BP
RSc
ore
Leve
lTr
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d
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ity
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ital
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00
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00
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ell B
elo
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olic
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ecre
asin
g
Un
real
ized
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ain
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oss
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00
$4
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ig In
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ow
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licy
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erve
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$5
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ow
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licy
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ua
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38
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ity
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tial
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ese
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0$
42
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0$
43
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0$
43
,50
02
At
Po
licy
Dec
reas
ing
Tot
RB
C (
T1 a
nd
T2
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42
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0$
42
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43
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8$
43
,52
83
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licy
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le
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l Ass
ets
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00
,00
0$
41
0,0
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$4
15
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0$
43
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t P
olic
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ssif
ied
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ans
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uts
ide
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licy
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reas
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olla
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$2
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00
$2
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Ou
tsid
e P
olic
ySt
able
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ans
(30
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00
$3
50
$6
00
$3
50
5O
uts
ide
Po
licy
Incr
easi
ng
NA
Lo
ans
$1
,20
0$
75
0$
90
0$
50
0
Sup
po
rtin
g P
olic
ies
(Bo
ard
Ap
pro
ved
):
Loan
Po
licy
Loan
Co
mp
lian
ce P
olic
y
CR
A P
olic
y
SAFE
Act
Po
licy
The
rati
o o
f C
lass
ifie
d L
oan
s to
Cap
&R
es is
wel
l bel
ow
th
e 2
0%
po
licy
limit
an
d d
ecre
asin
g. O
REO
is a
lso
dec
reas
ing,
wit
h o
nly
3 p
rop
erti
es r
emai
nin
g.
The
CR
E co
nce
ntr
atio
n i
s in
crea
sin
g, b
ut
rem
ain
s w
ith
in t
he
no
rmal
o
per
atin
g ra
nge
. Str
ess
test
s re
veal
bel
ow
ave
rage
ris
k in
th
e A
G a
nd
CR
E O
ffic
e p
rotf
olio
s.
CB
A -
ER
M P
age
5
ERM - IRR Support
Jul-13 Sep-13 Dec-13 Mar-14 Jun-14 Score
Change in Net Interest Income 2
+400bps for 1 year -10.0% -7.0% -4.0% 2.0% 5.0% Decreasing (risk)
-400bps for 1 year NA NA NA NA NA
+400bps for 2 years -13.0% -10.0% -6.0% 3.0% 8.0% Decreasing (risk)
-400bps for 2 years NA NA NA NA NA
Change in MV Equity 2
+400bps for 1 year -25% -15% -5% -3% 2% Decreasing (risk)
Adjusted Capital Ratio 6.50% 7.00% 7.50% 7.80% 8.90% (* see comment)
Other Factors
Net Interest Margin (Bank F/S) 3.50% 3.40% 3.45% 3.48% 3.51% Below goal 3
Rate Forecast (FOMC Comment) Low Low Low Low Low Low, Stable 3
IRR Audit Findings EXC SAT EXC Low, Stable 1
* assumes mgt doesn't adjust (FDIC) Score 2.2
the B/S while rates increase 400bps over a 1-year period.
Supporting Policies (Board Approved): Score Level Trend
ALCO Policy 1 Well Below Policy Decreasing
1 Well Below Policy Stable
2 Well Below Policy Increasing
2 Below Policy Decreasing
2 Below Policy Stable
3 Below Policy Increasing
2 At Policy Decreasing
3 At Policy Stable
4 At Policy Increasing
4 Outside Policy Decreasing
5 Outside Policy Stable
5 Outside Policy Increasing
PCBB August ALCO Package FOMC – There was a meeting ending July 30 with no real changes in the tone or content of the policy statement. QE3 purchases were reduced by another $10B to $25B and will most likely end later this year with a final $15B reduction announced at the October meeting of the Federal Reserve. General Economy – Most indicators are pointing to modest growth and GDP posted a healthy rebound from the negative Q1 number. Q2 GDP grew by 4% with the economy finally waking up from winter hibernation. The housing market is showing some weakness with the Case Shiller Home Price Index showing a decline, the first since February of 2012. At the same time, consumer confidence rose and reached the highest level since October of 2007, with gains in the stock market and jobs driving a more optimistic outlook. Retail sales rose but were less than expected. Housing starts also grew less than expected, as did building permits. Existing home sales topped 5mm and were slightly better than expected. New home sales fell short at 406K with expectations for an increase of 475K. Durable Goods orders were strong and capital goods orders shrank. Finally vehicle sales posted a modest decline to 16.4 million units, but this comes after a couple of banner months and overall sales are 16% above the level of a year ago.
CBA - ERM Page 6
ERM
- L
iqu
idit
y R
isk
Sup
po
rt
LIQ
UID
ITY
RIS
K3
Q2
01
34
Q2
01
31
Q2
01
42
Q2
01
4P
olic
y4
Q T
ren
dSc
ore
Wei
ght
Co
mm
ent
Liq
uid
Ass
ets
to D
epo
sits
24
.00
%2
2.0
0%
21
.00
%2
2.0
0%
15
%H
i - s
tab
le1
40
%
Loan
to
Dep
osi
t R
atio
78
.99
%8
7.2
1%
85
.60
%8
1.6
7%
LT 1
00
%M
od
- S
tab
le2
20
%N
orm
al lo
an g
row
th, r
isk
is lo
w b
ut
incr
easi
ng
Dep
osi
t C
on
cen
trat
ion
s2
10
%
Exte
rnal
LO
C a
s %
Ass
ets
21
%2
1%
20
%2
0%
Am
ple
- S
tab
le1
20
%Li
ne
s ar
e la
rge
and
sta
ble
Au
dit
Res
ult
s (L
iqu
idit
y &
IRR
)SA
T2
10
%A
ud
it r
esu
lts
are
Exce
llen
t
SCO
RE
1.4
Exte
rnal
LO
C's
fro
m A
LCO
Mat
eri
als
($0
00
's)
10
/31
/20
13
12
/31
/20
13
4/3
0/2
01
46
/30
/20
14
Co
rres
po
nd
en
t B
ank
$5
,00
0$
5,0
00
$5
,00
0$
5,0
00
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cou
nt
Win
do
w$
4,5
00
$4
,60
0$
5,5
00
$5
,75
0
FHLB
LO
C (
avai
lab
le)
$7
5,0
00
$7
6,0
00
$7
4,5
00
$7
5,6
00
To
tal
$8
4,5
00
$8
5,6
00
$8
5,0
00
$8
6,3
50
Co
nti
nge
ncy
Fu
nd
ing
Test
Sco
re
1Lo
wD
ecre
asin
g
1Lo
wSt
able
2Lo
wIn
crea
sin
g
2M
od
erat
eD
ecre
asin
g
2M
od
erat
eSt
able
3M
od
erat
eIn
crea
sin
g
2A
t P
olic
yD
ecre
asin
g
3A
t P
olic
ySt
able
4A
t P
olic
yIn
crea
sin
g
4O
uts
ide
Po
licy
Dec
reas
ing
5O
uts
ide
Po
licy
Stab
le
Sup
po
rtin
g P
olic
ies
(Bo
ard
Ap
pro
ved
):5
Ou
tsid
e P
olic
yIn
crea
sin
g
Inve
stm
ent
Po
licy
Dep
osi
t C
on
cen
trat
ion
s
AP
R 2
01
4 C
on
t Fu
nd
ing
Str
ess
Test
*
Sho
rt-t
erm
loss
of
10
% o
f d
epo
sits
can
be
fun
ded
wit
h In
t B
eari
ng
Bal
s (I
BB
s). N
o a
dve
rse
imp
act.
*
Loss
of
20
% o
f d
epo
sits
($
80
M)
can
be
fun
ded
wit
h IB
B's
, lis
ted
CD
s &
$2
0M
FH
LB a
dva
nce
. Res
ult
s in
a L
iqu
idit
y ra
tio
of
12
%.
* Lo
ss o
f to
p 5
dep
osi
t cu
sto
mer
s (s
ever
e st
ress
of
$1
00
M)
can
be
fun
ded
wit
h $
40
M IB
B's
; $1
0M
list
ed C
Ds;
$1
5M
b
roke
red
dep
osi
ts a
nd
a $
35
mill
ion
FH
LB a
dva
nce
. Res
ult
s in
a L
iqid
ity
rati
o o
f 1
3%
CB
A -
ER
M P
age
7
ERM - Operations Risk Support
2012 2013 2014
AUDIT FINDINGS Date Rating Date Rating Date Rating
Network Penatration Test & Social Engineering 1/16/12 S 2/11/13 M 2/25/14 S
Network Penatration Test & Social Engineering 8/8/12 S 9/25/13 S
Affiliated Party Transactions - Regulation W
Accounting and Financial Reporting 11/20/12 E 3/20/14 E
Automated Clearing House (ACH) 11/20/12 E-S 11/25/13 E
BSA / CIP / OFAC / USA PATRIOT 1/21/12 S 4/25/13 E-S 5/15/14 S
Branch and Teller Operations:
Sacramento 4/25/13 S
El Dorado Hills 4/25/12 S 6/10/14 E
Carmichael 7/25/12 E 6/5/14 E
Citrus Heights 5/15/12 E
Red Bluff 3/14/12 S
Central Operations and Support Services 4/25/13 S
Deposit Operations Compliance 12/16/13 E
Electronic Banking & Retail Payment Systems 3/26/12 S 7/25/14 E
Human Resources - Payroll and Personnel 8/8/12 E 4/9/14 S
Identity Theft/Red Flags Program 4/25/13 E
Information Technology 2/21/12 E-S 6/21/13 E-S
IRR/Liquidity/Reg F Management 12/19/12 E 1/4/13 E 7/11/14 ESS
Investment Securities 7/2/12 E
Loan File and Servicing Compliance 11/18/13 S
Loan Operations (Note Department)
Loan Participations Purchase and/or Sold
Loans to Insiders/Regulation O
Mortgage Loan Compliance 6/11/12 S 2/22/13 M 1/30/14 S
Safeguarding of Customer Information (GLBA) 2/21/12 E-S 6/21/13 S 7/28/14 E-S
Wire Funds Transfer (Wholesale Payments System) 5/9/12 E 4/26/13 S 7/18/14 E
CSI/HEIT Control Assessment S S
Ratings: E=Excellent; S=Sat; M=Marginal; U=Unsat
# Pts # Pts # Pts
Excellent (.5 pt) 6 3.0 5 2.5 7 3.5
Excellent/Satisfactory (.5 pts) 3 3.0 2 2.0 1 1.0
Satisfactory (1.5 pts) 7 10.5 8 12.0 4 6.0
Marginal (2 pts) 1 2.0 1 2.0 0.0
Unsatisfactory (3 pts)
Audit Score Average 17 1.1 16 1.2 12 0.9
New Products:
Supporting Policies (Board Approved):
ACH Policy Privacy Policy
Affiliate Policy Reg GG Internet Gambling
Audit Policy Reg R Policy
Bank Security Policy Reg W Policy
Branch Closure Policy Vital Records Policy
BSA Policy Wire Policy
Code of Ethics
Complaint Policy
Correspondent Bank Policy
Elder Abuse Policy
Electronic Banking Policy
Changes in Key Management: Mortgage operations outsourced in 4Q'13 reduced risk. Changes in Products/Services: Ag loan portfolio is growing . Vendor Management: Critical vendors are strong and stable.
CBA - ERM Page 8
Exam Ratings JUN'06 (Joint) JUN'10 (FDIC) JUN'13 (FDIC)
Compliance * * *
CRA SAT SAT SAT
Mortgage Reforms issued by CFBP Jan'13 - see memo
Outsourced mortgage lending reduces impact.
Supporting Policies (Board Approved):
Compliance Policy
Dodd-Frank Implementation JAN'14
Flood Regulations Revisions - Multifamily from $250K to $500K
Cyber Threat Alerts
CBA - ERM Page 9
ERM
- S
tate
gic
Ris
k Su
pp
ort
LT F
inan
cial
Go
als
($0
00
's)
Go
als
Jun
-14
Sco
reC
om
me
nt
De
c-1
3D
ec-
12
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c-1
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l Ass
ets
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rs t
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sted
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ity
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es
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BP
R)
Ass
ets
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m U
BP
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%7
.89
%5
.56
%9
.09
%4
.75
%
Tier
1 C
apit
al5
.41
%8
.19
%5
.56
%9
.09
%4
.75
%
Loan
s1
1.0
0%
7.0
0%
4.5
0%
8.0
0%
4.0
0%
Dep
osi
ts (
YOY
Ch
ange
)9
.00
%6
.00
%4
.00
%7
.00
%4
.30
%
2.3
SCO
RE
Ye
arTo
t A
ssts
Eq C
apC
apit
al%
Sco
reLe
vel
Tre
nd
Pro
ject
ed $
1 B
illio
n A
sset
sC
urr
ent
$4
35
,00
0$
38
,00
08
.74
%1
Go
alD
ecre
asin
g
bas
ed o
n 5
-yea
r av
g gr
ow
th2
01
5$
46
9,3
53
$4
0,5
07
8.6
3%
1G
oal
Stab
le
20
16
$5
06
,41
9$
43
,18
08
.53
%2
Go
alIn
crea
sin
g
20
17
$5
46
,41
2$
46
,02
98
.42
%2
On
Pac
eD
ecre
asin
g
20
18
$5
89
,56
4$
49
,06
68
.32
%2
On
Pac
eSt
able
20
19
$6
36
,12
3$
52
,30
38
.22
%3
On
Pac
eIn
crea
sin
g
20
20
$6
86
,36
0$
55
,75
48
.12
%2
Off
Pac
eD
ecre
asin
g
20
21
$7
40
,56
3$
59
,43
28
.03
%3
Off
Pac
eSt
able
20
22
$7
99
,04
8$
63
,35
37
.93
%4
Off
Pac
eIn
crea
sin
g
20
23
$8
62
,15
1$
67
,53
37
.83
%4
Can
't G
oal
Dec
reas
ing
20
24
$9
30
,23
7$
71
,98
97
.74
%5
Can
't G
oal
Stab
le
Re
ach
Go
al2
02
5$
1,0
03
,70
0$
76
,73
97
.65
%5
Can
't G
oal
Incr
easi
ng
Ass
et G
row
th A
ssu
mp
tio
n7
.9%
(5-y
ear
aver
age)
Cap
ital
Gro
wth
Ass
um
pti
on
6.6
%(5
-yea
r av
erag
e)
Cap
ital
rai
se t
o $
90
M:
$5
2,0
00
Sup
po
rtin
g P
olic
ies
(Bo
ard
Ap
pro
ved
):
ERM
Po
licy
Cap
ital
Po
licy
(un
der
rev
isio
n)
Cap
ital
Str
ess
Test
- F
DIC
mo
del
CB
A -
ER
M P
age
10
ERM - Reputational Support
Traditional Media 2Q 2014 1Q 2014 4Q 2013 3Q 2013 2Q 2013 1Q 2013 4Q 2012
Print Media Mentions 6 8 5 0 2 9 3
Online Mentions 4 5 2 6 2 7 1
Broadcast Media Mentions 1 1
Social Media
Website Visits 24,475 23,690 21,750 19,000 18,250 17,085 15,500
Twitter (tweets/followers) 24/681 11/650 11/616 14/589 30/556 40/530 41/503
Facebook "Likes" 304 287 273 257 258 251 244
YouTube Views 314 371 337 378 392 445 463
Yelp Views:
Sacramento 45 68 31 48 36 152 168
El Dorado Hills 28 18 35 14 41 50 42
Carmichael 4 21 12 34 6 11 14
Citrus Heights 3 5 11 4 9 15 7
Red Bluff 8 21 12 5 7 9 10
Adverse Mentions? No No No No No No No
FFIEC Social Media Guidance revised, approved by Board and accepted by employees
Events/Sponsorships (Sponsorships in BOLD)
• 4/13/13 – 4/17/13 – Metro Chamber Cap-to-Cap
• 4/23/13 – ICBA Washington Policy Summit
• 4/25/13 – CSUS Distinguished Alumni Awards
• 5/2/13 – Cristo Rey Scholarship Dinner
• 5/3/13 – Next Ed Convergence
• 5/4/13 – Les Miz Gala
• 5/7/13 – Sac State CBA Awards Banquet
• 5/9/13 – St. Francis Golf Tournament
• 5/9/13 – California Bountiful Event
• 5/14/13 – SARTA Med Tech Showcase
• 5/15/13 - The Intersection of Mayor Johnson's Year of Food & our Region's Ag Economy
• 5/16/13 – Annual Shareholders Meeting
• 5/16/13 – UCP Humanitarian of the Year Awards
• 5/16/13 – Valley Vision Legacy Feast
• 5/22/13 – Sacramento Host Breakfast
• 5/22/13 – Sacramento Tree Foundation Tree Hero Awards
• 5/22/13 – Way Up Sacramento Reception
• 5/31/13 – Roseville 2013
• 6/4/13 - Hispanic Chamber Small Biz Symposium
• 6/5/13 – Sacramento Zoo Annual Benefactor Reception
• 6/5/13 – Center for Fathers and Families Father of the Year Awards
• 6/7/13 – Sac Regional Conservation Corps Breakfast on the River
• 6/23/13 – Ronald McDonald House Red Shoe Crawl
• 6/24/13 – KVIE Golf Tournament
• 6/29 & 30/13 – Celebrate America
CBA - ERM Page 11
ERM - Regulatory Support
Exam Ratings JUN'11(DFI) JUN'12(FDIC) JUL'12 FRB JUN'13(DBO) JUL'13 FRB
Capital 2 2 (Bancorp) 2 (Bancorp)
Asset Quality 2 2 2
Management 2 2 2 2 2
Earnings 2 2 2
Liquidity 2 2 2
Sensitivity 2 2 2
IT 2
Composite 2 2 2 2 2
Compliance FEB'13 (2)
CRA SAT
Numeric AVG 2.00 2.00 2.00 2.00 2.00
Updates Updates
7/7/2010 6/30/2013 Initial Response to Exam
11/1/2010 8/30/2013 Update & Meet FDIC/DBO
11/30/2010 1/20/2014 Qtrly update to Exam
1/31/2011 4/15/2014 Heartbleed Response to FDIC
4/5/2011 5/15/2014 Initial Response to Exam
7/5/2011 6/4/2014 Application for new Branch
10/4/2011 10/13/2014 Update to Exam
1/27/2012
5/4/2012
8/6/2012
Capital Ratios 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 Basel III + B New Capital Ratios (Buffer) effective 1-1-15
Leverage 8.90% 8.75% 8.80% 9.02% 9.00% 8.74% 7.00% Stable
Tier 1 RBC 10.20% 10.10% 10.15% 10.20% 10.05% 10.10% 8.50% Stable
Total RBC 11.90% 12.00% 12.10% 11.85% 11.75% 11.60% 10.50% Stable
New Regulations
o Now perform Capital Stress Tests for new Basel III ratios and buffer
o Developing a Capital Plan, consistent with new environment
Exam Ratings Risk 2 AQ is SAT, Earns SAT, Composit SAT and avg 2.0
Communication w/Regs 2 Regular updates to FDIC/DBO
Capital Risk 2 Regulators suggested more capital needed
New Regulations Risk 3 Additional FDIC guidance in several areas
Overall Risk 2.3
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
12.00%
13.00%
1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014
Leverage Tier 1 RBC Total RBC
CBA - ERM Page 12
ERM - Economic Support
ECONOMIC CYCLE
1 Current 4
2
2
3
3
4 3.5
4
5
Rating Description
1 Strong and stable, with no significant threats on the horizon
2 Good fundamentals, but peak of the cycle
3 Decent fundamentals, but some uncertanty or signals of down cycle
4 Unstable, poor & flat, or declining; or unsustainable growth (bubble?)
5 Economy in recession or crisis, stock market crashing
Fundamentals: 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 LT Proj Source:
GDP 2.7% 1.8% 4.5% 3.5% -2.1% 4.0% 3.0% Low, improving http://online.wsj.com/mdc/public/page/2_3024-ecocharts.html
Annual Inflation (12 mos all items) 1.7% 1.4% 1.6% 1.2% 1.4% 2.1% 2.0% low & flux http://online.wsj.com/mdc/public/page/2_3024-ecocharts.html
National Unemployment 7.7% 7.5% 7.2% 7.0% 6.7% 6.2% 6.1% Mod & falling http://online.wsj.com/mdc/public/page/2_3024-ecocharts.html
Sacramento Unemployment 9.2% 8.4% 7.9% 7.5% 8.1% 6.9% 7.6% Mod & flux http://www.bls.gov/eag/eag.ca_sacramento_msa.htm
Redding Unemployment 12.5% 10.9% 9.5% 9.6% 11.0% 8.6% High & flux http://www.bls.gov/eag/eag.ca_redding_msa.htm
2014 2Q RE Market Forecast
Vacancy Lease RatesAbsorp-
tionNew Const Vacancy
Lease
Rates
Absorp-
tionNew Const
Office 14.8%-19.5% $1.68-$1.69 259,449 62,440 Decrease Increase Increase Decrease Colliers/CBRE
Industrial 11.1%-11.7% $0.40-$0.43 697,659 448,744 Decrease Increase Increase Increase Colliers/CBRE
Retail 10.9%-12.3% $1.40-$1.50 17,074 176,347 Decrease Increase Increase Increase Colliers/CBRE
Apartmnt 3.6% $995/mos 888 units 320 units 4.4% Stable Stable 350-500 u Marcus & Millichap
Vasco Curdia, senior economist at the Federal Reserve Bank of San Francisco FedViews - February 2014 "Recent data continue to indicate a strengthening recovery" and "...we expect more solid [GDP] growth overall for 2014."
Sacramento Regional Business Forecast - Center for Economic Research (full report attached) "The first quarter 2014 update to the Sacramento Region Business Forecast shows that annual job growth in the six-county Sacramento Region will slow over the next 12 months. On average during the forecast period covering April 2014 to March 2015, the Region will see 1.8 percent annual job growth, which equates to a gain of approximately 16,400 jobs. In the previous 12 months, Sacramento experienced annual average job growth of 2.2 percent, adding over 19,000 jobs to payrolls. Banking Sector" PCBB June 2014- Steve Brown "General Economy – Q1 GDP disappointed with a decline of -1.0% but expectations were for -0.5% so that is the silver lining. Pending home sales also declined and were weaker than expected. The CaseShiller Home Price Index rose more than expected, rising 12.4% from the level of 1Y ago. Durable goods increased by 0.8% (a decline was expected) and some strong numbers were seen in housing—new home sales increased by 433K, the most in 6 months; existing home sales, building permits and housing starts rose as well. The index of leading indicators rose in April for the fourth straight month. Finally, motor vehicle sales in May rose to 16.7 million units, the best level since Feb. 2007 and 15.7% above the level of 1Y ago. While economic news is still mixed, there are a number of indicators that have reached levels not seen since before the recession and this is good news."
LA Times - 8/5/2014 "California gets an "F" for friendliness to small businesses, one of the worst grades in the country, according to a survey of 12,632 businesses nationwide." "Among the 82 cities included in the final data, Sacramento was voted the worst for small businesses. San Diego was 78th, Oxnard was 76th and Los Angeles was 74th." "Overall, California received the lowest grade possible for small businesses’ experiences with labor and hiring, health and safety, regulations and ease of starting a company."
CBA - ERM Page 13
ERM
Goa
ls an
d Ev
ents
Rep
ort
Risk
Eve
nt
Con
cern
s, Po
tent
ial I
mpa
ct
Mon
itori
ng, C
ontin
genc
y Pl
ans
Prot
ract
ed E
cono
mic
Re
cove
ry
Glo
bal,
Nat
iona
l and
Cal
iforn
ia fi
nanc
ial w
oes r
emai
n sig
nific
ant.
Alth
ough
June
201
1 m
arke
d th
e 2-y
ear
anni
vers
ary
of th
e “re
cove
ry,”
the m
etric
s bar
ely
supp
ort i
t. G
DP
grow
th an
d em
ploy
men
t are
impr
ovin
g sli
ghtly
in 2
012,
with
littl
e inf
latio
nary
pre
ssur
e. H
ousin
g m
arke
ts, h
owev
er, a
re n
ot re
cove
ring.
The C
RO w
ill m
onito
r eco
nom
ic fu
ndam
enta
ls an
d re
liabl
e new
s sou
rces
(WSJ
, The
Eco
nom
ist),
and
upda
te
the E
RM R
isk A
sses
smen
t. U
pdat
es w
ill b
e rep
orte
d to
th
e Aud
it Co
mm
ittee
.
Floo
d ev
ent i
n To
wns
hip
Bank
ope
ratio
ns w
ould
be i
mpa
cted
, as w
ould
RE
colla
tera
l in
that
area
. M
anag
emen
t is r
evisi
ng co
ntin
genc
y pl
ans n
ow to
ens
ure
oper
atio
nal c
once
rns a
re a
ddre
ssed
. Flo
od in
sura
nce a
nd
third
-par
ty p
olic
y m
onito
ring
are i
n pl
ace f
or al
l RE
loan
s w
ith st
ruct
ures
. Co
ntin
ued
low
inte
rest
rate
s N
et in
tere
st m
argi
n w
ill co
ntra
ct as
VR
loan
s re-
pric
e do
wnw
ard.
In
tere
st ex
pens
e mus
t be r
educ
ed as
muc
h as
pos
sible
, by
elim
inat
ing
high
er co
st de
posit
s (br
oker
ed d
epos
its),
gene
ratin
g m
ore D
DA
bal
ance
s, an
d re
duci
ng ra
tes p
aid
on ti
me a
nd M
MD
As.
Poss
ible
Rec
omm
enda
tions
:
• Pr
otra
cted
Eco
nom
ic R
ecov
ery
– th
e inv
estm
ent p
ortfo
lio w
as re
-alig
ned
for p
oten
tial e
xpos
ure t
o a d
efau
lt by
the U
S go
vern
men
t in
AU
G’1
1. C
redi
t Adm
inist
ratio
n is
deve
lopi
ng an
adva
nced
war
ning
syste
m fo
r lar
ge C
RE d
efau
lts.
•
Floo
d Ev
ent i
n To
wns
hip
– Id
entif
y RE
colla
tera
l in
the T
owns
hip
flood
area
as a
perc
enta
ge o
f the
por
tfolio
, and
revi
ew th
e flo
od
insu
ranc
e cov
erag
e an
all p
rope
rties
abov
e a ce
rtain
dol
lar t
hres
hold
(say
$25
0,00
0).
•
Cont
inue
d lo
w in
tere
st ra
te en
viro
nmen
t – M
anag
emen
t and
the A
LM C
omm
ittee
will
focu
s on
redu
cing
inte
rest
expe
nse a
nd
gene
ratin
g m
ore D
DA
acco
unts.
CB
A -
ER
M P
age
14
ERM
Goa
ls an
d Ev
ents
Rep
ort
LT F
inan
cial
Goa
ls Co
mm
ent
Risk
Eve
nts
Miti
gatin
g St
rate
gy
Tota
l Ass
ets o
f $1
Billi
on in
10
year
s.
Curre
ntly
$43
5 m
illio
n (J
une
2014
) Pr
otra
cted
econ
omic
reco
very
, flo
od, a
nd/o
r mar
gin
com
pres
sion
Re-a
lign
inve
stmen
t por
tfolio
, en
sure
floo
d in
sura
nce m
onito
ring
is so
und,
and
redu
ce in
tere
st ex
pens
e.
Inve
sted
Capi
tal o
f $90
Mill
ion
in
10 y
ears
.
Curre
ntly
$38
mill
ion
(Jun
e 201
4)
Una
ntic
ipat
ed g
row
th o
r loa
n lo
sses
Revi
se ca
pita
l pla
n to
reta
in
earn
ings
nee
ded,
com
mun
icat
e po
tent
ial f
or ad
ditio
nal c
apita
l ra
ise w
ith S
/H b
ase
Effic
ienc
y Ra
tio L
ess T
han
60%
June
YTD
58%
. Sp
ike i
n pr
oble
m lo
ans c
ould
re
quire
addi
tiona
l res
ourc
es.
CRE
unde
rwrit
ing
stand
ards
are
bein
g tig
hten
ed, a
nd p
robl
em lo
ans
are b
eing
redu
ced.
Non
-Per
form
ing
Ass
ets <
1%
June
201
4 is
0.57
% (N
PA o
f $2
.5M
is $
0.5M
non
-acc
rual
loan
s +
$2.0
ORE
O o
n as
sets
of
$435
,000
M)
Prot
ract
ed E
con
Reco
very
, can
’t re
solv
e exi
sting
NPA
s or n
ew
NPA
’s ar
e boo
ked
Tigh
ten
U/W
stan
dard
s to
avoi
d ta
king
on
new
risk
. Con
tinuo
usly
m
onito
r exi
sting
loan
por
tfolio
for
wea
knes
s, an
d w
ork
with
bo
rrow
ers s
trugg
ling
due t
o ec
onom
y. A
ggre
ssiv
ely
mar
k do
wn
ORE
O an
d se
ll.
Net
Inte
rest
Mar
gin
> 4.
0%
June
NIM
is 3
.51%
; Y
TD N
IM is
3.6
0%
Prot
ract
ed E
con
Reco
very
and
low
ra
te en
viro
nmen
t
Wor
k to
achi
eve t
he b
est i
nter
est
rate
s on
loan
s and
dep
osits
, whi
le
depl
oyin
g ex
cess
liqu
idity
as
prof
itabl
y as
can
be d
one s
afel
y.
CB
A -
ER
M P
age
15