It is essential that financial institutions are aware of the quality of their portfolio and identify potentially troubled loan relationships as early as possible. Regular and recurring evaluations of asset quality, internal controls, and administrative procedures are fundamental to effective risk management.
SRM is fully qualified to meet the needs of both small and large banks for independent loan review. Our firm possesses the resources to build upon controls in place, or assist in the implementation of new and more intensified loan administration procedures within your institution.
Our approach serves our clients in portfolio evaluation and identifying reserve needs, while also assisting in the preparation for future regulatory or external audit reviews.
We have tailored the process of asset quality review to meet the demands of our client base. Our capability is compatible to assist in reviewing loan portfolios which range in size from $50,000,000 to the multi-billion dollar level. Our typical process targets the analysis of assets most susceptible to risk: the commercial, commercial real estate, investment real estate, and construction loan portfolios.
Depending upon the requirements of your institution, the loan review scope can be expanded to include the assessment of consumer, indirect, and residential mortgage loans as well.
The evaluation of commercial/commercial real estate loans incorporates the review of all pertinent credit file information, financial data, financial forecasts, and collateral documentation. When pertinent and time permits, an important part of this process is the discussion of the credit relationship with the account officer.
Intangible elements of the relationships under review are sometimes only discovered in conversation with the account manager or senior lending officer. At times, when credits are exhibiting very early signs of distress, interaction with the account officer may become an essential step in the loan review process.
Our conclusions are typically compiled in a comprehensive report addressed to a senior officer of the bank and/or the Board of Directors. The report is presented in a management letter format and supported by a comprehensive discussion of portfolio quality, systems, policies, procedures and personnel. Individual commentaries may be developed for identified problem assets, particularly when the recommended rating differs from the client’s rating. These summaries focus upon relationship history, financial condition, repayment capacity, collateral, and existing plans for resolution. Our typical report also contains exception lists addressing financial statements and legal documentation if a pattern of concern is found. Every report will include compliance with salient elements of the loan policy and credit agreements is evaluated.
Testing is conducted to ensure sampled loans are closed in accordance with their approval. The distribution of the targeted loan portfolio is analyzed to assess concentrations by borrower, industry or account officer responsibility. The composite report provides your management with a comprehensive overview of the portfolio, its administration and the adequacy of risk management practices.
As the loan review process is completed through subsequent periodic reviews, the conclusions presented in each report may be compared and contrasted. This allows senior management and bank staff a means to gauge the extent of their response to issues requiring administrative attention and/or changes in asset quality levels over time.
The final segment of our engagement can include the analysis of loan loss reserve adequacy. This is a natural by-product of the loan review process. As a result of measuring credit risk and the potential for loss, a target for the loan loss reserve can be developed and compared to the client’s actual reserve position. Recognizing that there may be no single method for analyzing the reserve that is correct 100% of the time, we can often perform our assessment using several approaches.