Credit Evaluation School Dec 2022

MATCH THE RED FLAGS TO THE EXAMPLES PROVIDED

• Several loans on the bank’s internal watchlist lacked annual reviews, even though updated financials were in the credit file. • Construction loans are made without any inspection requirement. • Bank has multiple pieces of OREO, and some properties have not been visited in over 12 months. • Several loans were approved with DSCR below bank’s loan policy, no exception approvals were noted. • Several loans were missing environmental due diligence required by bank’s loan policy. • Repayment analyses of individuals do not include a deduction for personal living expenses. • Non ‐ recurring capital gains were included in the global cash flow analysis. • Repayment analysis of a strip mall included no allocation for vacancy or reserves.

Non ‐ Compliance With Loan Policies and Procedures

Inadequate Credit Analysis

Failure to Detect Existing and Emerging Loan Problems

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MATCH THE RED FLAGS TO THE EXAMPLES PROVIDED

Collection Difficulties Reduces Quality Time in Servicing Remaining Loan Portfolio

• Substandard loan has been identified to have an impairment, but the impairment amount has not been charged off.

• Large problem loan client has been granted four short ‐ term renewals in order to provide a current rent roll and personal financial statement. • Annual review dated November 2019 provided an analysis of 2017 financial performance.

Failure of Early Recognition of Losses

Borrower Delays in Providing Financial Information

• Lenders spend most of their time with problem loan clients and there is little time to service other existing clients or solicit new business. • We do not have a collections or past due department. Lenders are responsible for their own collections.

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