Tuesday, September 1, 2009

Portfolio Reviews

Annual portfolio reviews should be conducted by an independent firm, one that has experience with commercial lending and is also familiar with all aspects of Part 723. Hill Creek Consulting can perform an annual review of your member business loan portfolio, identifying portfolio concentrations, testing the validity of current risk ratings and recommending modifications to your underwriting procedures.

Outlined below are the project outcomes for our typical Portfolio Review:

Portfolio Review: An overall review of the Member Business Loan Portfolio following the guidelines described in Chapter 10 of NCUA Examiners Guide, including an evaluation of compliance with NCUA Regulations, Part 723, and the Credit Union's established lending standards and controls. Assess the overall performance of the MBL portfolio, including delinquencies and charge-offs, the effectiveness of the loan grading system the adequacy of available resources, and the experience of lending personnel.

Sample Methodology: Develop a sample methodology that will identify at least 30% of the Portfolio for review, based on the number of loans in the portfolio, their size and Risk Grade distribution. Review summary portfolio reports to assess current levels and trends for criticized or classified assets, delinquent and non-accrual loans, and gross and net loan losses. Identify any credit concentrations or large loans to be included in the Portfolio sample for review.

Individual Loan Review: Review each Member Business Loan file to verify:
  • A completed loan application with documented approval
  • Documented analysis of the creditworthiness of the borrower
  • Evidence of collateral value
  • Loan officer worksheets and notes
  • Completed note, security agreement and other documentation
  • Perfected lien and adequate insurance
  • Accuracy and validity of the analysis of leverage
  • Accuracy of the assigned risk rating
  • Adjustments to the assigned risk rating
  • Documentation deficiencies
  • Loan policy exceptions or violations
Summary Report and Finding Memorandum: Provide a summary report on each loan, containing the pertinent descriptive information, along with specific comments on the adequacy of collateral and the financial condition of the borrower. Prepare an overall findings report assessing the condition of the portfolio, general adherence to policy and adequacy of the underwriting and approval process, as observed.