1. 1 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

2. 2 KEY RISK INDICATORS What are they? 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

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

4. 4 KEY RISK INDICATORS Identifying 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

5. 5 KEY RISK INDICATORS Build the framework 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

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

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

8. 8 KEY RISK INDICATORS 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

9. 9 KEY RISK INDICATORS Indicators cont. 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

10. 10 KEY RISK INDICATORS FIRMA Trust Company Example 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

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

12. 12 Fiduciary and Investment Key Risk Indicators 1st Quarter 2008 Fiduciary and Investment Risk Report Contents:  Overall RatingPage 1  1. Functional IndicatorsPage 2  2. Environmental IndicatorsPage 4 FIRMA TRUST COMPANY

13. 13 Overall Rating Page 1 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. Business Entity Risk Management Residual Risk Trend Key Risk Indicators Conclusions Internal & External Environmental Factors??? 1st Quarter 1st Quarter 2008 Overall 2008 Overall An assessment of the number and significance of the key risk indicators lead to a rating of Yellow 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. Overall, the inherent risk trend is Stable Fiduciary and Investment Risk Environmental Indicators Conclusions Functional Indicators Conclusions TrendResidualRisk Risk Management Assessment Enterprise- wide Examinations: Acquisition Issues: New Systems: 2nd Quarter 2008 Outlook :

14. 14 Functional Indicators Page 2Measures 4 th Quarter 2007 Threshold Risk Metrics Risk Metrics GREENYELLOWRED3/31/08 6/30/2007, 9/30/07, 12/31/07 Action Plans 1. Trend in the Number of Client Complaints (Leading) Not applicable. 2 nd Quarter: # complaints 3 rd Quarter: # complaints 4 th Quarter: # complaints Continue to track and understand trends in client 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 Continue to track and understand trends in account attrition. 3. Dollar Losses as a % of Plan (Lagging) 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) 4. Regulatory Capital Requirements (Lagging) 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% 5. Number of Significant Regulatory Issues Identified in Examinations and Investigations (Lagging) No or few Board matters 3-10 Board matters Substantial number of Board matters (>10 significant issues) 2 nd, 3 rd and 4 th Quarter: No significant issues 6. Number of Significant Audit Issues Identified for the Audit Committee (Concurrent) No or few audit 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) 7. Number of Significant Compliance Issues (Concurrent) No or few significant compliance issues 3-10 significant compliance issues 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 8. Number of Open Legal Cases with Claims Greater Than $250,000 (Lagging) No or few cases (0-15 cases) 16-30 cases Significant number of cases (>30 cases) 2 nd Quarter: 3 cases 3 rd Quarter: 3 cases 4 th Quarter: 2 cases

15. 15 Measures Q4 2007 Threshold Risk Metrics Risk Metrics GREENYELLOWRED3/31/0812/31/2007 Action Plans 9. Proprietary Investment Product Performance: Investment Styles t in Line with Peer Rankings 1 Year – EQUITY (Leading) 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 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 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. 10. Proprietary Investment Product Performance: Investment Styles in Line with Peer Rankings 3 Years – EQUITY (Leading) 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 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 11. Proprietary Investment Product Performance: Investment Styles in Line with Peer Rankings 1 Year – FIXED INCOME (Leading) 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 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 12. Proprietary Investment Product Performance: Investment Styles Not in Line with Peer Rankings 3 Years – FIXED INCOME (Leading) 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 22% of assets are in the top quartile. 78% of assets are in the 2 nd and 3 rd quartile. Total assets = $1.9 billion FUNCTIONAL INDICATORS CONCLUSIONS: (Summarizing Pages 2 and 3) 1. Functional Indicators (continued) Page 3 COLOR

16. 16 2. Environmental Indicators Page 4Measures Q4 2007 Threshold Risk Metrics Risk Metrics GREENYELLOWRED3/31/0812/31/1007 Action Plans 13. Trend in Economic Conditions and Competitive Pressures (Leading) In line with management projections Changes requiring short- term redirection Changes requiring significant strategic redirection 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. 14. Trend in Litigation Environment: Courts Scrutiny of Fiduciary Issues (Concurrent) (Concurrent)Stable Moderate Increase Significant Increase Based on informed opinions of in-house legal counsel Based on informed opinions of in-house legal counsel, this was coded “Green” as of 3 rd and 4 th Quarter 15. Regulatory Environment: Number of New, Significant and/or Changing Regulations (Leading) 0-5 new, significant and/or changing regulations 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 infrastructure 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 17. Volume and Complexity of New Products and/or Services Affecting Fiduciary Risk (Leading) Sufficient infrastructure to execute fully Moderate strain on infrastructure to execute fully 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 18. Volume and Complexity of New Business Processes and/or Technology Affecting Fiduciary Risk (Leading) Sufficient infrastructure to execute fully Moderate strain on infrastructure to execute fully Significant strain on infrastructure to execute fully 4 th Quarter: New Hilliard relationship; Mercantile and Sterling integrations; New processes to manage Building Investment Trust ENVIRONMENTAL INDICATORS CONCLUSIONS: COLOR