Large Bank Supervision Forum 2023

A Focus on Fundamental and Structural Risks

Bank Risk Management Framework  Cultural alignment and strategy  Independent loan review

Loan and Borrower Risks  Restricted payments  Additional debt baskets  Incremental senior debt / freebie green shoe

 Independent credit analyses  Constant market vigilance

 Investment baskets  Asset sale proceeds  Excess cash flow sweeps  EBITDA add backs

 Secondary market knowledge and access  Capability and experience in asset class  Policy and adherence  Concentration management  Credit capability and executive and Board oversight  Servicing and accounting systems  Robust sensitivity analyses and Enterprise Valuations

 Bankers and regulators need to fully understand how management/Board can put money into a company and take money out of a company  Call Protection or Termination Fees

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

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Comprehensive Set of Tools Through Third Parties* An Approach to Building and Enhancing a Bank’s Senior Secured Loan Strategy Loan Process Internal Bank Function Third Party Support Loan Selection Loan selection defined by local opportunity

A third party researches all loans in primary and secondary markets for highest relative value assets that meet bank’s risk appetite and diversification targets A third party shares its risk management expertise in this asset class Third party research analysts provide quarterly financial reviews (tear sheets) and sector analysis for all loan exposures Third party provides optional access to third party loan review service for focused senior secured loan review Third party and bank professionals jointly develop appropriate loan loss reserve methodology. Third party provides monthly loan loss provisioning data Third party loan servicer provides and tracks all accounting entries, reconciliations and adjustments

Loan Underwriting

Thorough internal process

Loan Monitoring

Normal loan review process – frequency typically based on risk grade

Loan Review

Normal loan review process

ALLL Review

Normal ALLL provisioning process

Accounting and Loan Servicing

Normal internal process

* Per OCC Bulletin 2020 ‐ 10 Third Party Relationships FAQ

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

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