Key Risk Indicators FIDUCIARY INVESTMENT RISK MANAGEMENT ASSOCIATION

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Key Risk Indicators FIDUCIARY INVESTMENT RISK MANAGEMENT ASSOCIATION NATIONAL CONFERENCE April 6 -10, 2008

Key Risk Indicators FIDUCIARY INVESTMENT RISK MANAGEMENT ASSOCIATION NATIONAL CONFERENCE April 6 -10, 2008 ORLANDO Presented by Sally Miller, Director, Center for Securities, Trust, and Investment AMERICAN BANKERS ASSOCIATION and Debbie Austin, VP Fiduciary Compliance Manager, PNC Bank 1

KEY RISK INDICATORS • What are they? – Tools that provide management a barometer

KEY RISK INDICATORS • What are they? – Tools that provide management a barometer of tolerable levels of risk – Early warning signals – Measures of change – Tool to measure risk causes 2

KEY RISK INDICATORS • Why are they important – Predict potential hotspots – Drive

KEY RISK INDICATORS • Why are they important – Predict potential hotspots – Drive behavior via limits/targets – Regulatory focus – Establishes risk appetite 3

KEY RISK INDICATORS • Identifying Key Risk Indicators – Include Business Units, expert staff,

KEY RISK INDICATORS • Identifying Key Risk Indicators – Include Business Units, expert staff, Senior Management, Technology, Compliance, Risk and Internal Audit – Focus on key areas – Support risk monitoring – Support decision making 4

KEY RISK INDICATORS • Build the framework – Not as easy as it sounds

KEY RISK INDICATORS • Build the framework – Not as easy as it sounds – KRI’s should be meaningful – Define category and factors – Clear definition/hypothesis: what is being measured? – Type of indicator: risk, performance, leading, lagging, control – Source/Detail – Meaningful thresholds 5

KEY RISK INDICATORS • Categories – People – Fiduciary – Audit/Exams – Legal –

KEY RISK INDICATORS • Categories – People – Fiduciary – Audit/Exams – Legal – Fraud – Service Providers – Pricing – Asset Management – Affiliates 6

KEY RISK INDICATORS • Categories – People – Fiduciary – Audit/Exams – Legal –

KEY RISK INDICATORS • Categories – People – Fiduciary – Audit/Exams – Legal – Fraud – Service Providers – Pricing – Asset Management – Affiliates - Technology - Compliance - New Initiatives - AML & BSA 7

KEY RISK INDICATORS • Indicators – #of open audit, regulatory and compliance issues –

KEY RISK INDICATORS • Indicators – #of open audit, regulatory and compliance issues – Client complaints – Revenue and Expense Streams – # of accounts closing (service, fee, performance issues) – Overdrafts – Trade errors – Other dollar losses 8

KEY RISK INDICATORS • Indicators cont. – Regulatory capital – Account reviews not completed

KEY RISK INDICATORS • Indicators cont. – Regulatory capital – Account reviews not completed – Portfolio guideline exceptions – Proprietary Product Performance – Pending and open litigation – Employee turnover – Unpriced assets – Reconciling items greater than 180 days 9

KEY RISK INDICATORS • FIRMA Trust Company Example – KRI’s monthly by quarter –

KEY RISK INDICATORS • FIRMA Trust Company Example – KRI’s monthly by quarter – Leading, Lagging and Concurrent – Established and agreed upon thresholds – Green, Yellow, Red indicator system – Information obtained from lob 10

KEY RISK INDICATORS • FIRMA Trust Company Example – Automated information gathering – Risk

KEY RISK INDICATORS • FIRMA Trust Company Example – Automated information gathering – Risk Metrics Tracking – Include Action Plans – Functional and Environmental KRI’s 11

FIRMA TRUST COMPANY Fiduciary and Investment Key Risk Indicators 1 st Quarter 2008 Fiduciary

FIRMA TRUST COMPANY Fiduciary and Investment Key Risk Indicators 1 st Quarter 2008 Fiduciary and Investment Risk Report Contents: § Overall Rating § 1. Functional Indicators Page 1 Page 2 § 2. Environmental Indicators Page 4 12

Overall Rating Enterprise. Business wide. Entity Fiduciary and Investment Risk 1 st Quarter 2008

Overall Rating Enterprise. Business wide. Entity Fiduciary and Investment Risk 1 st Quarter 2008 Overall Page 1 Trend Overall, the inherent risk trend is Stable Functional Key Risk Indicators Conclusions An assessment of the number and significance of the key risk indicators lead to a rating of Yellow Risk Environmental Management Residual Internal & External Managemen Residual Risk Indicators Risk Assessment Environmental t Conclusions Factors? ? ? An assessment of the number and significance of the key risk indicators lead to a rating of Yellow. . Risk management and control practices continue to be Satisfactory. Overall, the Fiduciary and Investment Risk level is Yellow. Definitions: • GREEN Residual Risk: Risk exposure is effectively and efficiently managed to FIRMA’s established risk appetite. • YELLOW Residual Risk: Risk exposure is within the upper limits of FIRMA’s risk appetite. Management action may be warranted. • RED Residual Risk: Risk exposure exceeds FIRMA’s risk appetite and immediate response is warranted. • Inherent Risk Trend: Provides a current assessment of how the inherent risk is expected to move over the next quarter, but does not necessarily indicate a residual risk level change. • Risk Management Assessment: Indicates how well the current risk management infrastructure manages inherent risk. 2 nd Quarter 2008 Outlook: • Examinations: • Acquisition Issues: • New Systems: 13

Functional Indicators Page 2 4 th Quarter 2007 Threshold Measures GREEN YELLOW Risk Metrics

Functional Indicators Page 2 4 th Quarter 2007 Threshold Measures GREEN YELLOW Risk Metrics RED 3/31/08 6/30/2007, 9/30/07, 12/31/07 Action Plans Continue to track and understand trends in client complaints. Continue to track and understand trends in account attrition. 1. Trend in the Number of Client Complaints (Leading) Not applicable. 2 nd Quarter: # complaints 3 rd Quarter: # complaints 4 th Quarter: # complaints 2. Account Attrition: Trend in Number of Accounts Closing (Lagging) Not applicable. 2 nd Quarter: # accounts 3 rd Quarter: # accounts 4 th Quarter: # accounts 3. Dollar Losses as a % of Plan (Lagging) 4. Regulatory Capital Requirements (Lagging) 5. Number of Significant Regulatory Issues Identified in Examinations and Investigations (Lagging) 6. Number of Significant Audit Issues Identified for the Audit Committee (Concurrent) 7. Number of Significant Compliance Issues (Concurrent) In line with or better than plan Trending greater than plan by at least 10% Over plan by more than 10% 3 rd Quarter: $100, 000 plan = 91% of plan 4 th Quarter: $500, 000 plan = 324% of plan (2 significant WM losses $3 million and $500, 000) In line with or better than plan Trending less than plan and/or capital infusion was required in the quarter Significantly under plan (> than 50%) 2 nd Quarter: Better than plan but 1 capital infusion. 3 rd Quarter: 110% 4 th Quarter: 126% 3 -10 Board matters Substantial number of Board matters (>10 significant issues) 2 nd, 3 rd and 4 th Quarter: No significant issues 3 -10 significant audit issues Substantial number of audit issues (>10 significant issues) 2 nd & 3 rd Quarter: 2 significant issues (Client account overdrafts) 4 th Quarter: 1 significant issue (Web security breach) Significant increase in number of significant compliance issues (>10 significant issues) 2 nd Quarter: 0 significant issues 3 rd Quarter: 0 significant issues 4 th Quarter: 0 significant issues No or few Board matters No or few audit issues No or few significant compliance issues 3 -10 significant compliance issues 14

1. Functional Indicators (continued) Page 3 Q 4 2007 Threshold Measures 9. Proprietary Investment

1. Functional Indicators (continued) Page 3 Q 4 2007 Threshold Measures 9. Proprietary Investment Product Performance: Investment Styles t in Line with Peer Rankings 1 Year – EQUITY (Leading) 10. Proprietary Investment Product Performance: Investment Styles in Line with Peer Rankings 3 Years – EQUITY (Leading) 11. Proprietary Investment Product Performance: Investment Styles in Line with Peer Rankings 1 Year – FIXED INCOME (Leading) 12. Proprietary Investment Product Performance: Investment Styles Not in Line with Peer Rankings 3 Years – FIXED INCOME Risk Metrics GREEN YELLOW RED AUM in top quartile of peer rankings AUM in 2 nd and 3 rd quartile of peer rankings AUM in bottom quartile of peer rankings AUM in top quartile of peer rankings 2 nd AUM in and 3 rd quartile of peer rankings AUM in bottom quartile of peer rankings AUM in top quartile of peer rankings AUM in 2 nd and 3 rd quartile of peer rankings AUM in bottom quartile of peer rankings AUM in top quartile of peer rankings 2 nd AUM in and 3 rd quartile of peer AUM in bottom quartile of peer 3/31/08 12/31/2007 30% of proprietary assets are in top quartile. 57. 0% of assets are in the 2 nd and 3 rd quartiles. 13% of assets are in bottom quartile. Total assets = $1. 9 billion 30% of assets are in the top quartile. 20 % of assets are in the 2 nd and 3 rd quartiles. 50% of assets are in the bottom quartile. Total assets = $1. 9 billion 48% of assets are in the top quartile. 52% of assets are in the 2 nd and 3 rd quartile. Total assets = $1. 9 billion 22% of assets COLOR are in the top quartile. 78% of assets are in the 2 nd and 3 rd Action Plans The business is obtaining an opinion from an independent third party that discusses management’s discipline in meeting their stated investment style and management’s overall investment strategy in that style. A business plan is being crafted to manage this risk. 15

2. Environmental Indicators Page 4 Q 4 2007 Threshold Measures Risk Metrics GREEN YELLOW

2. Environmental Indicators Page 4 Q 4 2007 Threshold Measures Risk Metrics GREEN YELLOW RED In line with managem ent projections Changes requiring short-term redirection Changes requiring significant strategic redirection Stable Moderate Increase Significant Increase 3/31/08 12/31/1007 Action Plans To be determined. Based on informed opinions of business management, this was coded “Yellow” as of 3 rd and 4 th Quarter To be discussed at FIRC on April 28, 2008. 13. Trend in Economic Conditions and Competitive Pressures (Leading) 14. Trend in Litigation Environment: Courts Scrutiny of Fiduciary Issues (Concurrent) 15. Regulatory Environment: Number of New, Significant and/or Changing Regulations (Leading) 0 -5 new, significant and/or changing regulation s 6 -10 new, significant and/or changing regulations >10 new, significant, and/or changing regulations 3 rd Quarter: Reg R (1) 4 th Quarter Reg R; Form 5500 Schedule C (2) 16. Volume and Complexity of New Acquisitions and/or Divestitures Affecting Fiduciary Risk (Leading) Sufficient infrastruct ure to execute fully Moderate strain on infrastructure to execute fully Significant strain on infrastructure to execute fully 4 th Quarter: Hilliard divestiture; Mercantile and Sterling integrations Significant strain on infrastructure to execute fully 4 th Quarter: New Hilliard relationship; PNC funds; Building Investment Trust; Dual Broker/WM product; PNCI expansion into advisory products Significant strain on infrastructure to execute fully 4 th Quarter: New Hilliard relationship; Mercantile and Sterling integrations; COLOR New processes to manage Building Investment Trust 17. 18. Volume and Complexity of New Products and/or Services Affecting Fiduciary Risk (Leading) Sufficient infrastruct ure to execute fully Moderate strain on infrastructure to execute fully Volume and Complexity of New Business Processes and/or Technology Affecting Fiduciary Risk (Leading) Sufficient infrastruct ure to execute fully Moderate strain on infrastructure to execute fully Based on informed opinions of in-house legal counsel, this was coded “Green” as of 3 rd and 4 th Quarter ENVIRONMENTAL INDICATORS CONCLUSIONS: 16