EFFECTIVE DECISION MAKING

1. EFFECTIVE DECISION MAKING

2. Making decisions about the disposition of non-performing assets is very difficult: • Inadequate information on which to base decision • Fear of trouble • Fear of criticism • Fear of retribution—loss of job or position or being reprimanded • Fear of giving something away

3. Effective decision making requires three basic elements: • Clear and precise delegations of authority • Written, detailed policy and procedures • Documented approval process

4. t Effective Decision Making • Authority to make asset related decisions should be delegated to descending levels of management within the organization, depending on the size and magnitude of the asset and related proposed action. • Routine decisions should be made routinely and by the use of individual authority • Credit Review committees should be encouraged as opposed to individual decision making on large and complicated matters

5. Delegations of Authority Relating to Closed Bank Management • Authority is delegated and re-delegated in smaller amounts to descending levels of management and responsibility • Ultimate authority with board of directors • Board delegates a certain level of authority to LPS Director • LPS Director re-delegates his authority to a committee made up of senior LPS managers • LPS separately re-delegates some of his authority to Liquidation Team Manager

6. Types of Delegations of Authority specific to asset disposition decisions: • Compromise and settlement authority • Abandon any asset • Compromise any asset • Release guarantors on any asset • Abandon collateral to any asset • Dispose or sell any asset • Approve settlement or any claim or litigation concerning any asset (in concurrence with Legal Counsel)

7. Types of Delegations of Authority specific to asset disposition decisions: • Compromise and settlement authority (cont’d) • Take all other appropriate action related to assets in closed banks • Book Value Limitation: • This authority extends only to those assets that have a book value of __________or less • However: • Regardless of the limitation above, to take any action where the amount of loss to be realized does not exceed 15% of the total of principal and accrued interest

8. Types of Delegations of Authority specific to asset disposition decisions: • Sale of Real Estate or Other Property • On an all-cash basis or on terms if the appraised value is __________or less • Regardless of the above limitation, to sell real or personal property on an all-cash basis for a minimum of 100% of appraised value • All sales shall be conducted according to the policy for sale of real and personal property

9. Types of Delegations of Authority specific to asset disposition decisions: • Disbursement of Funds • For the protection of any asset not to exceed ________per calendar year • In accordance with contractual obligations arising from loan commitments, partially funded loans, letters of credit • To remove prior liens at or prior to a senior creditor’s foreclosure sale whenever the total amount of prior liens is 60% or less of the property’s appraised value • To pay sales commissions and closing costs, provided that the total amount paid does not exceed 10% of the sales price

10. Types of Delegations of Authority specific to asset disposition decisions: • Release Collateral Security • For 80% or more of appraised value whenever such release does not compromise a claim against a borrower • Initiate Foreclosure on Collateral • Restructure Debt • Sell Loans

11. Written, Detailed Policy and Procedures: • These are the rules by which assets are managed, such as: • Financial statements required • Real estate appraisals • Listing price • Foreclosure bid amount • Broad marketing effort • Etc.

12. Documented Approval Process • I recommend a system based on the FDIC “case” memorandum system. A case is a written memorandum to the appropriate level of authority seeking approval for an action, formatted as follows: • Proposal • Description of asset and situation • Why the proposed action is the best alternative • Review of lesser alternatives • Substantiation of proposal • Citation of policy and procedure as applicable • Citation of relevant delegations of authority

13. Written case system provides: • Clear paper trail of: • Work done on asset • Financial analysis • Collateral value • Alternatives • Compliance with policy and procedure • Applicable delegation of authority for decision being made • A certain discipline in the work process