Credit Evaluation School Dec 2022

Internal Use Only

Why is AQ important? • Core earnings are reliant on the quality and earning ability of assets (i.e. accrual vs. nonaccrual; classifications’ impact on the loan loss provisions; impairment of securities). • Strong capital levels are excellent; however, quality assets are needed to ensure retained earnings are augmenting capital and that capital is being used as intended. • Poor asset quality continues to be a primary contributor in bank failures.

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Internal Use Only

Analyze AQ Questions to keep in mind when analyzing the overall AQ: • What are the loan reviewers' findings? • Was credit risk identification practices appropriate (examiner downgrades of credits)? • Were credit underwriting and administration weaknesses noted? • Amount and severity of technical exceptions. • Are the issues isolated or do they indicate a systemic issue? • What are the reasons for the issues? • Weak policies/procedures • Inadequate loan officer or credit administration staff training • Weak underwriting

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