Professional Examinations of Community Banks
| | Our mission is to provide your bank with a credit examination that lets you and your board of directors know the quality of your loan portfolio. . . Using a custom built computer database developed over the last 12-15 years, we analyze your loan portfolio content, stratification by loan type, collateral, location and/or lender. We review a scope of specific borrowers for underwriting, credit quality, proper documentation, adherence to major regulations, and risk ratings. |
A bank's major asset is its loan portfolio.
This asset generates most of the bank's revenue and represents much of the risk. A large part of banking is assessing this risk plus the ongoing monitoring of this risk.
Loan Review Services, Inc. measures how well the bank manages this risk by performing the following:
- A comprehensive review of a large sample of the loan portfolio to assess the bank's underwriting of new credits
- An analysis of how well the bank manages the risk in the the portfolio
- Placing an overall rating on the bank loan portfolio based on these factors:
- Loan portfolio risk
- Loan servicing and documentation
- Credit culture
- Portfolio management
Click here to see the actual worksheet and grading scale used by the examiners: /Documents/Credit Quality Checklist May 2007.pdf
What is an examination "Scope"?
| | The scope of the examination is an outline of what the examiners will accomplish during the examination. It is based on several criteria that are established at the start of the process. These criteria differ from bank to bank, and depend on the frequency of the exams and if the bank has been reviewed by LRS before. Examples of scope criteria: - All borrowing relationships over a certain dollar amount outstanding.
- All new or renewed relationships in the last 12 months over a certain dollar amount
- All criticized loans or loans internally risk rated as 5 or higher (depending on the bank's risk rating scale)
- All spec construction loans over a dollar amount
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How is the scope established?
| | For a new bank client LRS will establish a scope based on an analysis of the most recent call report data, or in conjuction with the wishes of the bank's audit committee and management. The target will be a general overview of the bank, plus some time to go into more depth of areas that might be troublesome. |
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How do the Examiners review the loans?
Examiners use a "linesheet" which is generated from the Examination Database created at the outset of the process. This database is built from a direct download of the bank's loan portfolio trial balance. The linesheet includes a list of the borrower's individual notes, dates, maturities, balances, collateral, risk rating, etc. It also includes a place for the examiner to do a financial analysis of the borrower and guarantor(s) and a checklist of the collateral documents and valuations. This is the examiner's main worksheet for his conclusion about the risk rating. See a linesheet sample here
Please contact Fred Singer for more information about the examination process. If you are interested you and your audit committee will be provided with a scope and firm cost for the examination. Loan Review Services, Inc. - Fred Singer, President
425 483-4152 email: fsinger@spro.net
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