Credit Evaluation School - May 2023

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

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.