Credit Review
The integrity of credit underwriting and administration processes is fundamental to a lending institution’s health.  Credit Reviews are a primary tool for assessing how well those processes are working and their impact on portfolio quality. A sampled loan file review has always been the core element of a Credit Review.  Sample size and composition needs to be planned carefully by the credit reviewer working with the institution’s credit administrators.  Appropriate sample selection is critical for being able to extract meaningful conclusions.  A loan sample should draw from:

• adversely-graded loans (to ensure adequate problem-loan monitoring)
• new loans (to ensure appropriate underwriting at inception)
• existing pass-graded loans (to ensure responsiveness in the risk grading system to any deteriorations in borrower creditworthiness).

AuditOne’s Enhanced Granularity
To provide even greater insight and protection, our credit reviews drill down deeper to also consider monitoring and reporting at the portfolio level.  Banks don’t fail because they miss a loan here or a loan there.  Rather, it’s correlated credit risk that constitutes the real danger.  Correlation can be by geography (especially for real estate-related loans), industry, loan type or other common factors.  It should recognize that when the economy slows, certain parts of the loan portfolio will be more vulnerable than others (think real estate, and particularly ADC). 

Concentration management should be a key element of Credit Review, including testing for compliance with the requirements of the 2006 Interagency Guidance on CRE Concentration Risk Management, where applicable.  It should also cover single-name risk (whether there are house limits in place, more stringent than the legal lending limits). On top of this, our enhanced Credit Review format now opines on portfolio quality (trends, peer comparisons), as well as on Board governance and reporting.

ALLL Validations
As a separate though related exercise, we perform regular ALLL Validations to verify that a bank’s Allowance for Loan and Lease Losses methodology aligns with the requirements of the 2006 Interagency Guidance on the ALLL.  The guidance statement specifies regular validation of the methodology.

For ALLL Validations as for Credit Review, AuditOne has highly knowledgeable and experienced staff to put at your disposal.  We have also put that expertise to work assisting a number of institutions and third parties with Due Diligence work in support of loan portfolio or whole-bank acquisitions.

We provide top-quality Credit Reviews customized to the client’s particular needs. And we conduct ourselves with high sensitivity to the confidentiality and timeliness demands that such work typically requires.  Contact us to discuss any aspect of how our Credit Review process will help your bank stay healthy and in compliance with increased regulatory scrutiny.