CMS Case Study

Citizens Bank and Trust Risk Assessment Summary 2020-2021

Audit Area

Residential Loans

Risk Factor

Score

Definition (score range)

High (21-30)

Moderate (11-20)

Low (0-10)

Rationale

Potential violations of high profile regulations with potential fines, legal liability or costly corrective action are possible. Material financial misstatement is possible due to incorrect handling of infrequent, complex transactions or estimates. Critical management decisions may be based on these financial areas. Complex manual or automated systems are new, critical to management

Significant regulatory requirements are evident; however, regulatory expectations are clear, seasoned, and considered routine. Violations if any will be technical in nature. Material financial effect is possible; however, activity is routine and noncomplex and errors would be readily evident in normal operations. Seasoned and complex manual or automated systems are important to management decision making or product delivery; however, collaborating or alternative back-up systems exist. There is no basis for control assessment, or they are thought to be weak. Minor changes since last audit are anticipated this year.

Regulatory requirements are limited to low-profile regulations and law issues that warrant action but have significantly lower levels of risk. Impact on accurate timely financial reporting is minimal. Likelihood of material financial reporting effect is negligible.

Residential mortgage loans are subject to a substantial level of regulations, violations of which, can result in significant penalties. In addition, there are numerous disclosure and timing requirements associated with compliance. However, there are mitigates to this risk which include a very experienced Compliance Officer (Karen Mitchell) who is actively involved with regulatory compliance in this area. The most recent FDIC Compliance Exam (November 2018) noted strong compliance management system. However, the most recent loan compliance audit (2019) resulted in several recommendations. Current economic conditions and interest rates impact the real estate market and create a high degree of risk in the nature of residential lending transactions. Residential lending is routine with relatively noncomplex nature of transactions. Management and the Bank's Lending Officers possess adequate levels of experience and judgment in their decision-making process with regard to residential lending. Personnel involved with the lending function have been appropriately trained on the Bank's processes, procedures, and systems. Lending limits are set based on job title and experience; lending limits are reviewed at least annually. The Bank has established LTV limits, a rate grid and a risk rating process. The Bank has a Credit Department that performs a credit analysis on relationships greater than $750,000. The credit analysis is to mitigate the risk of loss. However, lenders have the authority over the final loan decision depending on authority limits. This risk is monitored by both Loan Operations performing a quality assurance review on all closed loans and a third party loan review. Internal controls are in place and function adequately on an overall basis. The most recent FDIC Compliance Exam (November 2018) noted strong compliance management system. However, the most recent loan compliance audit (2019) resulted in several recommendations. The volume of residential loans has increased due to reduced interest rates. The Bank also began offering a new product in 2020, a 5/1 ARM. No major changes are anticipated in the next 12 months.

Compliance

21

Nature of Transactions

16

Noncomplex systems and operations are seasoned, with well established back up routines.

Nature of Operations

21

decision making, or important to product delivery.

Controls are nonexistent or known to be weak.

Controls are strong or adequate.

Internal Controls

14

Major changes since last audit are anticipated this year or not recently reviewed. Management lacks experience or places low priority on internal controls.

No changes since last audit are planned this year.

Changes to systems, processes, or procedures

12

Management has average experience.

Management is experienced and has high priority on controls.

Members of management have achieved their positions within the Bank because of their level of knowledge, demonstrated skills, and experience within the banking industry. A strong emphasis will be placed on maintaining a sound control environment with loan growth.

Management

10

94

Risk Score

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