Presented by:

Jay Borkowski, Vice President, Sageworks

Joe Waites, President, CECO Management Consultants

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Financial information company that provides credit and risk management solutions to financial institutions

Data and applications used by thousands of financial institutions and accounting firms across North America

Awards

◦ Named to Inc. 500 list of fastest growing privately held companies in the U.S.

◦ Named to Deloitte’s Technology Fast 500

CECO (Capital Efficiency Consulting) has provided consulting services to financial services companies for over nine years

Areas of expertise include strategy, credit, revenue optimization, operational effectiveness, market and customer build and others

We are committed to delivering tangible, measurable benefits to the operating results of our clients

Jay Borkowski Jay Borkowski is a principal of Sageworks and vice

president of the company’s financial institutions division. He oversees a team responsible for assisting banks and credit unions with risk management.

Joe Waites Joe Waites is the founder and president of CECO

Management Consultants. He has over 30 years of financial services consulting experience. He manages many of CECO’s practice areas.

What is Relationship-Based Banking?

What is Relationship-Based Lending?

Advantages of Relationship-Based Lending for the Institution & Borrower

Areas of Caution

3 Ways to Balance Risk & Relationships ◦ Outlining key credit risk metrics & thresholds

◦ Defining roles and responsibilities among staff members

◦ Implementing standardized credit risk analysis systems

Benefits of Balancing Relationships & Risk

Examples

Provision of financial services by a financial

intermediary on the basis of long-term investment

in obtaining firm-specific information through

multiple interactions with the customer

When, in lending, financial institutions use

personal knowledge of the business borrower over

time to overcome issues of information opacity

Smaller financial institutions have traditionally held

an edge over larger financial institutions

Boosts likelihood of winning the borrower’s future

loan business

Could mean more revenues from multiple product

lines and referral business

Businesses may be willing to pay a slight premium

to borrow from a local bank

Longer duration of the relationship, greater credit

availability and understanding of needs

Lower collateral requirements for the borrower

Personalized service and increased chances of loan

approval

Minimal analysis of credit risk during underwriting

Subjective assessments of creditworthiness

Less comprehensive annual review

Difficulty justifying relationship-based loan

decisions in exams and to board

When determining the market capacity, with

regards to lending, relationships must be

considered

When determining the industry capacity, with

regards to lending, relationships must be

considered

1. Outline key credit risk metrics and thresholds

2. Define roles and responsibilities among staff

members

3. Implement standardized credit risk analysis

systems

Business credit scores Personal credit scores

Probability of default metrics

Debt service coverage ratios

Loan to value ratios Overall ratio analysis

Global cash flow analysis UCA cash flow analysis

Outline, in policy, who is assigned to:

◦ Initial credit analysis

◦ Loan review

◦ Post-funding analysis

Assign responsibilities and reinforce accountability

Components of post-funding analysis that tend to

slip through the cracks:

◦ Who must obtain financial statements or other documents

◦ Who must conduct a global credit analysis

Can improve consistency and objectivity by separating

credit analysis function from lending

With proper responsibilities defined processes with

approval will not be skipped

Train staff not only in the institution’s products and

policies, but also in understanding all of the client’s

needs to offer relationship-based solutions

Educate staff so they can properly set expectations with

clients

Standardized credit risk systems in a relationship-

based banking environment help with:

◦ Uniformity of credit analysis and loan files across borrowers

◦ Objective assessments of creditworthiness

◦ Efficiency in annual reviews

◦ Documentation of credit analysis and loan reviews for

examiners and board

◦ Better insight into borrower’s industry

Solutions can specifically assist with:

◦ Spreading financial statements and tax returns

◦ Calculating key ratios

◦ Consistent global cash flow analysis

◦ Accessing personal and business credit scores

◦ Comparing the business to industry peers

◦ Structuring workflow

Customer service

Better able to justify risk-based pricing

Open up dialogue with businesses that don’t

currently meet financial institution’s credit risk

criteria

Improved efficiency in the lending process

Ability to address credit deterioration earlier

Relationships with regulators

Jay Borkowski Vice President, Sageworks

(919) 851-7474 ext. 502

jay.borkowski@sageworks.com

www.sageworksanalyst.com

Joe Waites President, CECO Management Consultants

(678) 318-1755 ext. 101

sjwaites@cecoconsultants.com

www.cecoconsultants.com