Credit Evaluation School, Sacramento, CA

• While all loans have inherent risk, certain loan types and/or structures have more risk than others and pricing should reflect such. • If an institution does not price loans based on risk it raises questions on the adequacy of the loan administration function of the institution and how well asset quality is managed

Loan Pricing May Not Reflect Risk

Incomplete Loan Documentation

• Not necessarily a problem if the loan pays as agreed. • If the borrower runs into problems and the bank wants to pursue legal action there could be problems in the courts if the documentation is not complete.

Numerous Instances of Lien Imperfections

• Not if a problem if loan pays as agreed, but if the bank needs to take legal action to get repaid the courts may not grant them the collateral if liens are not perfected.

Loan Officer Unfamiliar With Lending Policies and Procedures

• Typically we see this when there is an acquisition. • The loan officers from the acquired institution are not yet familiar with the lending policies and procedures of there new employer. • Always a good idea to pull a loan sample of the new loan officers to review their structure/underwriting practices.

• Typically seen when there has been some loan officer turnover and loan portfolios have been redistributed. • The new loan officer does not understand the relationship, an event occurs, and the institution is not prepared to deal with it properly. • To correct this, loan officer memos or other notes be kept available with the loan files so a new loan officer manager can be quickly informed on the relationship.

Lending Staff Do Not Understand Loan

Inadequate Loan Review Process

• Without an adequate independent loan review there are many loan related problems that can be ignored or missed by the lenders that could cause the institution losses.