Loan Review

DLS Consulting, PLLC offers independent reviews of asset quality, loan underwriting and credit administration. The objective of the review is to determine the credit quality of the portfolio, determine acceptability of underwriting standards and policies, determine that policies are being followed, ensure that approvals are based on accurate information, and ensure that key documentation is adequate.


  • To provide senior management, the audit committee and/or the board of directors with an impartial and timely assessment of the overall quality of the loan portfolio.
  • To provide comparative data from similarly situated financial institutions.
  • To determine acceptability of underwriting standards and policies.
  • To determine that policies are being followed.
  • To ensure that key documentation is adequate.
  • To promptly identify loans with potential credit weaknesses.
  • To identify relevant trends that affect the collectability of the portfolio and isolate segments of the portfolio that are potential problem areas.
  • To assess the adequacy of and adherence to internal credit policies and loan administration procedures and to monitor compliance with relevant laws and regulations.
  • To evaluate the activities of lending personnel including their compliance with lending policies and the quality of their loan approval, monitoring, and risk assessment.
  • To ensure that approvals are based on accurate information.
  • To improve loan officer knowledge and awareness.
  • To appropriately grade or adversely classify loans, especially those with well-defined credit weaknesses that jeopardize repayment, so that timely action can be taken, and credit losses can be minimized.

Scope (Typical Sample)

  • 60% – 70% coverage of new commercial loans
  • 40% – 60% coverage of the total commercial and CRE loan portfolios
  • Commercial loans more than 20 days past due as of the review date
  • Loans with multiple extensions and/or past delinquencies
  • Testing of criticized loans for grading accuracy including loss recognition/nonaccrual status/ TDR treatment
  • Testing of whether lending staff is properly identifying impaired loans and analyzing them for impairment
  • Testing the adequacy of the financial institution’s system for tracking loan policy exceptions
  • Random sample of small commercial loans
  • Identification of new or renewed loans that have weaknesses in underwriting/analysis/administration


  • Review existing policies and policy changes
  • Provide lists of exceptions and risk rating recommendations to management
  • Review selected lending relationships focusing on:
    • Completeness of documentation
    • Accuracy of credit presentations/authorizations
    • Quality of underwriting and analysis
    • Compliance with loan policy
  • Conduct an exit meeting to discuss findings
  • Lenders / management respond to recommendations and clear exceptions if possible
  • Issue a draft report which reflects cleared exceptions and agreements on risk ratings
  • Management reviews report and points out any inaccuracies or mistakes
  • Final report presented to director or audit committee


Reported to the Board of Directors (or audit committee / directors’ loan committee) and financial institution management:

  • Analysis of asset quality, trends and concentrations (includes criticized asset ratios and comparison to benchmarks or peer averages)
  • Listing of criticized credits, problem loans
  • List of credits reviewed with loan ratings and credit comments
  • Assessment of loan grading, early problem loan identification
  • Discussion of credit administration, recommendation for process enhancements (includes summary of documentation, regulatory and policy exceptions)
  • Reported to management within one week of on site visit: Listing of documentation, regulatory and policy exceptions

The scope typically includes reviewing all large lending relationships focusing on commercial and commercial real estate loans, reviewing past due and non-performing loans, reviewing existing policies and policy changes, discussing cash flow analysis, loan ratings and credit exceptions with loan officers and conducting an exit review with senior management.  The audit will include reviewing loan files for current and complete financial information, insurance, note and collateral documentation and assessing the level of repayment risk within the credit. Results of the loan review will be reported to the Board of Directors or Audit Committee in a report addressing asset quality, problem loan reporting, and credit administration.

Stress Testing Loan Portfolios

DLS consulting provides stress testing of loans portfolios, typically in conjunction with a loan review.  Stress testing provides management with an estimate of loss exposure under stressed market conditions including a significant decline in revenue, cash flow and collateral values.  The stress testing is designed to provide additional information to management in their efforts to establish and support reasonable risk appetite and tolerances, set concentration limits, adjust strategies, and appropriately plan for and maintain adequate capital levels.  The results of stress testing can also assist management in mitigating identified risks and vulnerabilities through such actions as increased portfolio monitoring, adjusted underwriting standards, and establishing appropriate action plans that address risks when the results are inconsistent with risk tolerance levels and the financial institution’s overall strategic and capital plans.

Our stress testing includes bottom-up transaction testing of commercial, and commercial real estate portfolios.  Individual loans are stress tested for risk of default and potential loss exposure.  The results are accumulated and extrapolated to the entire portfolio to provide the institution with an estimate of loss exposure under stressed conditions and its impact on earning and capital.  Stress testing also provides management with a list of how individual loans faired under stressed conditions as well as an overall percentage of potential default and loss with a comparison to peer averages, giving you a snapshot of how your portfolio stacks up against your peers.

Review of Internal Controls

A review of internal controls is designed to assess the effectiveness of internal control over financial reporting and bank operations. The objective of the review is to evaluate the accuracy of financial information, assess the adequacy of internal control and evaluate operational efficiency.  The review includes obtaining an understanding of the internal control, testing and evaluating the design and operating effectiveness of the internal control, verifying balances on the general ledger and subsidiary records, testing transactions and reviewing loan files for current and complete financial information, insurance, note and collateral documentation.

Compliance Audit and Monitoring

Our staff has extensive and current training and experience in regulatory compliance.  A compliance audit or review assesses the effectiveness of the institution’s internal polices, procedures and audit functions and can be tailored to your specific needs.  We offer a full range of compliance audit and support.  The specific regulatory compliance areas tested can be determined by our staff or your management based on an assessment of risks and needs to focus audit resources toward higher risk areas.

Some of the more popular compliance reviews include:

  • Bank Secrecy Act and USA Patriot Act including large currency transaction reporting, record keeping, anti-money laundering, suspicious activity reporting and customer identification.
  • GLBA and a review of information security program effectiveness.
  • Regulation Z – Truth-In-Lending
  • RESPA – Real Estate Settlement Procedures Act
  • SAFE Act
  • Appraisals and Evaluation
  • Fair Credit Reporting Act
  • FACT Act and Address Change Procedures
  • Regulation CC – Funds Availability Act
  • Regulation DD – Truth in Savings
  • Regulation D – Excess Debits
  • Regulation E – Electronic Funds Transfer

Due Diligence Services

Our staff has been involved with due diligence services for mergers and acquisitions for more than 20 years. Over the years, we have worked with clients of all sizes and established an excellent track record in asset valuation, loss exposure prediction and management assessment. Our due diligence services are timely, discreet and cost effective in providing clients with a conservative and realistic assessment of target institutions and loan portfolios. Contact us for a confidential discussion and advice regarding due diligence services.

ACH Audits

An audit assesses an institution’s compliance with rules and regulations governing the ACH network.  The audit procedures will cover the NACHA audit requirements and include a review of the bank’s policies and procedures, sample testing of these procedures, a review of schedules, forms and reports, and testing transactions for accuracy and compliance.  Areas Covered in the Review of ACH Rule Compliance Audit include:

  • Audit Schedule and Management Awareness
  • Record Retention and Reproduction
  • Prenotifications
  • Availability of Credit and Posting of Debits
  • Account Statements
  • Returned Entries
  • Compliance with UCC Article 4A
  • Notification of Change
  • Customer Requested ACH Notification
  • Stop Payments
  • ACH Risk Assessment
  • Origination Agreements and Exposure Limits