Loan Review Services

Over the course of one annual, or periodic Bank visits, KS will conduct your Loan Review in a manner sufficient to achieve minimum loan portfolio penetration guidelines as set forth in the Bank’s policies or desires. Generally, we focus primarily on the larger loan relationships with loan sampling as follows:

• Larger loan relationships over $1,000,000, including commercial real estate loans, C&I, residential real estate loans, construction & land development loans, agribusiness loans, etc.;

• Watch List (Problem Loan) Credits and Non-Accrual loans over $250,000 (those loans classified as OAEM or Special Mention and Substandard/Non-Accrual);

• Watch List (Pass/Watch) Credits over $1,000,000;

• Past due loan relationships over $175,000 that are over 60 days past due;

• Random sample of smaller loan relationships under $1,000,000 (including at least one or two construction loans with one or two loans under $500,000);

• Random sample of consumer loans under $250,000 (approximately 10 consumer loans to be tested using a consumer loan review worksheet - the consumer loan sample will be counted as only one loan relationship overall).

The above scoping criteria example can differ from bank to bank depending on size and scoping desires of management.

The overall Loan Review assessment of the Bank’s loan policy and related loan portfolio management procedures will include a written report covering:

• An assessment of the quality of the loan portfolio and accuracy of the loan risk ratings based on the sample of loans reviewed;

• Early identification of potential problem loans or loan relationships;

• Assess the Bank’s post-funding commercial loan monitoring system;

• Assess the Bank’s pre-funding underwriting and credit approval process;

• An evaluation of the consistency in the application of existing lending policies;

• Assist the Bank, from a risk-based standpoint, in identifying the key areas for improvement that will help foster safe and sound lending practices, and thereby reduce the risk of regulatory scrutiny; and

• Provide a general review of the adequacy of the Bank’s ACL.

The final written report upon conclusion of the project will also include, on a management advisory basis, a detailed review of the adequacy of the Bank’s CECL - ACL Methodology addressing the following areas:

• Conceptual Soundness: Evaluation of the conceptual soundness of the Bank’s CECL Model;

• Monitoring: Evaluation of the Bank’s procedures to ensure the model is being used consistent with the parameters set forth in your ACL Policy and Procedures;

• Outcome Analysis:  Evaluation of the reasonableness of the CECL - ACL Model outputs; and

• Methodology Review: Ensuring the methodology used by Bank management to determine the adequacy of the Bank’s ACL is consistent with requirements set forth by regulatory guidelines.

The detailed review of the Bank’s CECL - ACL Methodology shall be conducted in accordance with the AICPA Statement on Standards for Consulting Services, whereby, we will exercise due professional care to obtain sufficient relevant data regarding the Bank’s CECL – ACL Methodology to afford a reasonable basis for findings, conclusions, or recommendations regarding same.

Note that the following areas are beyond the scope of this Loan Review and will not be included in the Loan Review report:

• An audit of the Bank’s overall CECL - ACL methodology, together with any software applications utilized in deriving the Bank’s overall CECL Methodology, as defined by Generally Accepted Auditing Standards;

• An assessment of lending regulatory compliance to include, but not limited to, Regulation X, Regulation Z, Flood Disaster Protection Act, Fair Lending, and CRA; and

• An audit, whereby, KS expresses any opinion or any form of assurance as defined by Generally Accepted Auditing Standards.

As part of each Bank visit for your Loan Review, KS will provide the Bank with a list of the technical financial and loan documentary exceptions that we find during our review.  The technical exception report shall be delivered to the Bank separately from the Loan Review report(s) that will reference only our overall loan portfolio assessment regarding the general level of technical exceptions noting that collection efforts are ongoing.