Regulators Continue to Emphasize Independent Loan Review

No other bank risk process receives more scrutiny from regulators than the institution’s loan portfolio. While bank examiners have traditionally encouraged independent loan reviews, regulators in recent years seem to have started putting more emphasis on obtaining independent reviews. With each exam, Walter Johnson, president/CEO of First State Bank of Healy, says the regulators progressed from encouraging an external review to insisting on one. Walter Johnson did his due diligence and called BBOK Financial Services.

“They were quick to respond to my call, initially verifying the examiner’s assessments,” says Walter Johnson. “They have since completed a full review and we are now on a yearly review cycle.”

BBOK Financial Services serves as an independent set of eyes for a bank’s management and board to understand if credit policies and processes are functioning effectively, and whether risks are within established tolerances. Todd Schoenhofer’s expertise, processes and comprehensive reporting help banks proactively develop best practices and risk management strategies.

As a former loan auditor, Tonya Barta, president of The Farmers State Bank in Holton, says it is comforting to have an outside source validate their internal processes. “Todd puts value on the same things I did when I audited,” says Barta. “I really trust his opinions. He’s been reviewing loans for a long time and knows what to look for. The value our bank gets for the price we are charged is worth it. Having an independent loan review really contributes to the strength of our portfolio.”

Barta also sees value come examination time. The examiners ask to see the independent loan review and the bank’s follow up on critical exceptions. Barta can quickly point to her bank’s action plan so the examiners can see improvements made.

Walter Johnson agrees, adding that the reports provided by BBOK Financial Services are easy to follow and filled with valuable information. The bank’s management team and board first reviewed the reports for technical items to eliminate. Once that step was complete, First State Bank of Healy implemented Todd’s recommendations for non-accruals. When exam time rolled around this year, Walter Johnson was thankful that an independent, knowledgeable party had been looking out for the bank’s interests.

Ron Johnson, president/CEO at Community National Bank in Seneca and long-time customer of BBOK Financial Services values the reporting received from BBOK. “Our internal credit analyst reviews Todd’s individual analysis of each loan to make sure information is being evaluated in the same way. From the board perspective, the trend reporting is highly beneficial, and something we did not receive from the accounting firm or large bank who reviewed our portfolio prior to BBOK Financial Services. We can review numerous internal trends, and compare our performance against other Kansas banks. It gives the board and management a good assessment for what is strategically happening in the loan portfolio.”

BBOK Financial Services can tailor its activities to meet the specific needs of your institution. While a regular review schedule (on an annual, semi-annual or quarterly basis) is the norm, BBOK Financial Services has the flexibility to adapt our services to your risk exposure and time constraints to maximize the benefits of the engagement. If you’d like to learn more about how your bank can benefit from an independent loan review, call Todd Schoenhofer at 800.999.5725.


The Kansas Correspondent - First Quarter 2017