• The adequacy of underwriting standards, credit administration, and risk identification practices
• The level, distribution, severity, and trend of problem assets
• The adequacy of the Allowance for Loan and Lease Losses
• The credit risk arising from off-balance sheet transactions such as unfunded commitments and commercial or standby letters of credit
• The existence of asset concentrations
• The adequacy of loan and investment policies, procedures, and practices
• The ability of management to properly administer its assets, including the timely identification and collection of problem assets
• The adequacy of internal controls and management information systems
• The volume and nature of credit documentation exceptions

Ratings

1. A rating of "1" indicates strong asset quality and credit administration practices. Identified weaknesses are minor in nature and risk exposure is modest in relation to capital protection and management's abilities. Asset quality in such institutions is of minimal supervisory concern.



2. A rating of "2" indicates satisfactory asset quality and credit administration practices. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention. Risk exposure is commensurate with capital protection and management's abilities.



3. A rating of "3" is assigned when asset quality or credit administration practices are less than satisfactory. Trends may be stable or indicate deterioration in asset quality or an increase in risk exposure. The level and severity of classified assets, other weaknesses, and risks require an elevated level of supervisory concern. There is generally a need to improve credit administration and risk management practices.



4. A rating of "4" is assigned to financial institutions with deficient asset quality or credit administration practices. The levels of risk and problem assets are significant, inadequately controlled, and subject the financial institution to potential losses that, if left unchecked, may threaten its viability.



5. A rating of "5" represents critically deficient asset quality or credit administration practices that present an imminent threat to the institution's viability.

1. Strong
2. Satisfactory
3. Less than satisfactory
4. Unsatisfactory
5. Critically deficient

• Answer

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