CREDIT RISK RATING. (1) Within sixty (60) days of this Agreement, the Board shall develop a program to ensure that the risk associated with the Bank’s loans and other assets is properly reflected and accounted for on the Bank’s books and records, to include, at a minimum, provisions to:
(a) develop a risk rating system that accurately identifies and stratifies risk. Refer to the “Rating Credit Risk” booklet of the Comptroller’s Handbook for guidance;
(b) ensure that the Bank’s loans and other assets are appropriately and timely risk rated and charged off by management using a safe and sound loan grading system that is based upon current facts, and existing repayment terms. Refer to the “Rating Credit Risk” booklet of the Comptroller’s Handbook for guidance;
(c) provide for credit risk ratings to be reviewed and updated whenever relevant new information is received, but no less than annually, and include procedures for timely risk rating downgrades when conditions warrant without compromise or delays based on unfounded reliance on guarantors, payment history, borrower character or potential future events;
(d) adopt annual training by a qualified party for loan officers on risk rating definitions and the importance of accurate and timely risk ratings;
(e) ensure accountability of loan officers and management for failing to appropriately and timely risk rate and/or place loans on nonaccrual;
(f) require that appropriate analysis and documentation is maintained in the credit files to support the current and previous risk rating and accrual determination for each credit relationship; and
(g) incorporate management information systems that periodically provide feedback to the Board about the effectiveness of the program from senior management and individual lending officers.
(2) The Board shall ensure that all credit relationships equaling two hundred fifty thousand ($250,000) or above are reviewed and accurately risk rated. Refer to the “Rating Credit Risk” booklet of the Comptroller’s Handbook for guidance. Such review shall be completed on a timely basis.
(3) Upon completion, a copy of the written program developed pursuant to this Article shall be promptly forwarded to the Assistant Deputy Comptroller for a written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall immediately adopt, implement, and ensure adherence to the written program.
CREDIT RISK RATING. (1) On or before March 31, 2016, the Board shall develop, and submit to the Assistant Deputy Comptroller for a prior written determination of no supervisory objection, a program to ensure that: 1) the risk associated with the Bank’s loans and other assets is properly reflected and accounted for on the Bank’s books and records, and 2) the Bank does not improperly recognize income. The program shall include, at a minimum, provisions requiring that:
(a) the Board adopts a loan grading system that is consistent with the guidelines set forth in the “Rating Credit Risk” booklet of the Comptroller’s Handbook and is based upon definitive objective and subjective criteria;
(b) the Bank’s loans and other assets are graded based upon current facts and existing/reasonable (considering the loan purpose) repayment terms with a focus upon whether the primary repayment source is threatened by a well- defined weakness and whether the credit relies heavily upon secondary repayment sources, especially illiquid collateral or an unsubstantiated guarantor;
(c) lending officers conduct periodic, formal reviews for determining the appropriate risk rating and accrual determination;
(d) appropriate analysis and documentation are maintained in the credit files to support the current and previous risk rating or accrual determination for all credit relationships totaling one hundred thousand dollars ($100,000) or more;
(e) the President, Senior Loan Officer, and all lending officers receive immediate training with respect to the application of Subparagraphs (a) through (d) of this Paragraph;
(f) the lending officers and senior management are assigned responsibility and held accountable (to include, at a minimum, consideration in periodic performance reviews and compensation) for ensuring that the Bank’s loans and other assets are appropriately and timely risk rated, charged off and/or placed on nonaccrual;
(g) the risk rating process is independently validated, including the Board and management’s timely review of loan review reports; and
(h) management information systems periodically provide feedback about the effectiveness of the program from senior management and individual lending officers.
(2) Upon receiving a written determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall immediately implement and thereafter ensure adherence to the program adopted pursuant to this Article.
CREDIT RISK RATING. (1) Within thirty (30) days of the date of this Agreement, the Bank shall submit to the Assistant Deputy Comptroller for review and prior written determination of no supervisory objection an acceptable written credit risk rating program (“Credit Risk Rating Program”) designed to ensure that the risk associated with the Bank’s loans and other assets is properly reflected and accounted for on the Bank’s books and records. Refer to the “Rating Credit Risk” booklet of the Comptroller's Handbook for related safe and sound principles.
(2) The Credit Risk Rating Program shall address, at a minimum:
(a) policies and procedures designed to ensure the Bank’s loans and other assets are appropriately and timely risk rated and charged off by management using a safe and sound loan grading system that is based upon current facts, existing repayment terms, considers the loan purpose, and focuses on the primary source of repayment; and
(b) policies and procedures designed to ensure credit risk ratings are reviewed and updated whenever relevant new information is received, but no less than annually, and include procedures for timely risk rating downgrades when conditions warrant without compromise or delay based on unfounded reliance on guarantors, payment history, borrower character or potential future events.
(3) Within thirty (30) days following receipt of the Assistant Deputy Comptroller’s written determination of no supervisory objection to the Credit Risk Rating Program or to any subsequent amendment to the Credit Risk Rating Program, the Board shall adopt and Bank management, subject to Board review and ongoing monitoring, shall immediately implement and thereafter ensure adherence to the Credit Risk Rating Program. The Board shall review the effectiveness of the Credit Risk Rating Program at least annually, and more frequently if necessary or if required by the OCC in writing, and amend the Credit Risk Rating Program as needed or directed by the OCC. Any amendment to the Credit Risk Rating Program must be submitted to the Assistant Deputy Comptroller for review and prior written determination of no supervisory objection.
CREDIT RISK RATING. (1) Within ninety (90) days of the date of this Agreement, the Board shall develop and approve an effective problem loan identification program that provides for early identification of emerging and potential problem credits, along with a formal plan to proactively manage these assets. This includes, but is not limited to:
(a) ensuring early problem loan identification and risk rating by loan officers and establishing loan officer accountability for accurately risk rating loans and recognizing nonaccrual loans under their respective supervision in a timely manner;
(b) completing an independent, third party review of all commercial/commercial real estate loans greater than $250,000 that were not reviewed by the OCC or during the Bank's external loan reviews conducted during 2009 and 2010 to identify any additional problem loans;
(c) assessing the current level of staffing expertise to effect timely collection of problem loans and filling vacancies if gaps in expertise are identified;
(d) providing training to employees involved in risk rating processes on regulatory risk rating definitions and characteristics, including loan officers and Board members;
(e) adopting and implementing the guidelines outlined in OCC Bulletin 2000- 20.
(f) ensuring the loan policy clearly documents how problem assets will be administered;
(g) ensuring internal loan review provides quarterly reports to the Board, or committee thereof, that shall include, at a minimum, conclusions regarding:
(i) the overall quality of the loan portfolio;
(ii) the identification, type, rating, and amount of problem loans;
(iii) the identification and amount of delinquent loans;
(iv) credit and collateral documentation exceptions;
(v) the identification and status of credit-related violations of law, rule or regulation;
(vi) the identity of the loan officer who originated each loan reported in accordance with subparagraphs (ii) through (v) of this Article;
(vii) concentrations of credit;
(viii) loans and leases to executive officers, directors, principal shareholders (and their related interests) of the Bank; and
(ix) adequacy of the allowance for loan and lease losses methodology.
(2) Upon adoption, a copy of the program shall be forwarded to the Assistant Deputy Comptroller for review and prior written determination of no supervisory objection. Upon receiving a determination of no supervisory objection from the Assistant Deputy Comptroller, the Bank shall implement and adhere to the program.
CREDIT RISK RATING. (1) Within sixty (60) days, and on an ongoing basis thereafter, the Board must ensure that the Bank’s internal risk ratings of commercial credit relationships in excess of $250,000 (covered relationship) are timely, accurate, and consistent with the regulatory credit classification criteria set forth in the Rating Credit Risk Booklet, A-RCR, of the Comptroller’s Handbook. At a minimum, the Board must ensure, on an ongoing basis, that with respect to the assessment of credit risk of any covered relationship:
(a) the primary consideration is the strength of the borrower’s primary source of repayment (i.e., the probability of default rather than the risk of loss);
(b) if the primary source of repayment is cash flow from the borrower’s operations, the strength of the borrower’s cash flow is determined through analysis of the borrower’s historical and projected financial statements, past performance, and future prospects in light of conditions that have occurred;
(c) collateral, non-government guarantees, and other similar credit risk mitigants that affect potential loss in the event of default (rather than the probability of default) are taken into consideration only if the primary source of repayment has weakened and the probability of default has increased;
(d) collateral values should reflect a current assessment of value based on actual market conditions and project status;
(e) credit risk ratings are reviewed and updated whenever relevant new information is received, but no less frequently than annually; and
(f) the credit risk rating analysis is documented and available for review by the Board and the OCC upon request.
