Credit Evaluation School Instructor eBook - Oct 2023

MATCH THE RED FLAGS TO THE EXAMPLES PROVIDED

• Smalltown Bank has a large portfolio of unsecured evergreen letters of credit related to its ADC portfolio. The economy and local development has been slowing. Smalltown Bank’s liquidity rating changed from a 2 to 3 at the most recent examination. • Smalltown Bank approved funding the construction of a high ‐ end hotel. The hotel will be located across the street from a local amusement park. Projections based upon surrounding hotel performance is reassuring. However, the company which owns the amusement park was sued late last year. One local reporter claims the amusement park is going to close. • Smalltown Bank increased its loan portfolio by 100 percent due to an 18 ‐ month lucrative incentive program which rewarded its lenders to produce.

High Loan Growth

Excess Off ‐ Balance Sheet Items, i.e. Loan Commitments and Letters of Credit

Trends in Local and Regional Economies

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MATCH THE RED FLAGS TO THE EXAMPLES PROVIDED

• Smalltown Bank has a large portfolio of unsecured evergreen letters of credit related to its ADC portfolio. The economy and local development has been slowing. Smalltown Bank’s liquidity rating changed from a 2 to 3 at the most recent examination. • Smalltown Bank approved funding the construction of a high ‐ end hotel. The hotel will be located across the street from a local amusement park. Projections based upon surrounding hotel performance is reassuring. However, the company which owns the amusement park was sued late last year. One local reporter claims the amusement park is going to close. • Smalltown Bank increased its loan portfolio by 100 percent due to an 18 ‐ month lucrative incentive program which rewarded its lenders to produce.

High Loan Growth

Excess Off ‐ Balance Sheet Items, i.e. Loan Commitments and Letters of Credit

Trends in Local and Regional Economies

13