Select a sample of loans to be reviewed. Sample should be adequate to assess compliance with policies, procedures, and regulations; verify the accuracy of internal risk ratings; and determine the quantity of credit risk. Refer to the Comptroller’s Handbook for guidance on sampling techniques.

Prepare line sheets for sampled credits. Line sheets should contain sufficient information to determine the credit rating and support any criticisms of underwriting or credit administration practices. Refer to the Comptroller’s Handbook for National Bank Examiners for guidance on completing line sheets.

To the extent established by the examination scope, pull loan files and perform the following testing steps:

• Compare collateral held with the description on the collateral register.

• Determine that the proper assignments, stock powers, hypothecation agreements, statements of purpose, etc., are on file.

• Test the pricing of the negotiable collateral.

• Determine that each file contains documentation supporting guarantees and subordination agreements, where appropriate.

• List all collateral discrepancies and investigate.

Determine whether any previously charged-off agricultural loans have been re-booked. If so, determine whether the re-booked loans:

• Comply with the bank’s policy and terms for granting new loans.

• Comply with OCC policy on re-booked charge-offs.

• Should be classified.

Using a list of non-accruing loans, test loan accrual records to determine that interest income is not being recorded.

Assign proper classification to individual credits. See the “Loan Classification” discussion in the Introduction section of this booklet for key criteria to guide classification treatment.

Review any changes to the agricultural loan policy and determine their effect on the quantity of risk.

Review the current underwriting guidelines. Assess how changes since the previous examination may affect the quantity of risk.

Analyze the level, composition, and trend of policy and underwriting exceptions and determine the impact on the quantity of risk. (Note: A bank’s lack of an internal tracking system indicates a need to test for adherence to policy.)

Analyze the composition and changes to the agricultural portfolio, including off-balance-sheet exposure, since the previous examination. Determine the implications for the quantity of risk of the following:

• Any significant growth.

• Material changes in the portfolio to include:

  • Changes and trends in problem, classified, past-due, nonaccrual, and non-performing assets; charge-off volumes; and risk- rating distribution.

  • Level of carry over debt.

• Any significant concentrations, including geographic and product concentrations.

• Agricultural loan portfolios acquired from other institutions.

Review and analyze management-prepared agricultural loan portfolio risk assessments. Determine whether management’s risk assessments are supported by the examiners’ analysis of the loan sample.

Review the business and/or strategic plan for the agricultural loan portfolio. Evaluate how implementation of the plan will affect the quantity of credit risk. Consider:

• Growth goals and potential sources of new loans.

• Growth outside the current market area.

• New products and business lines.

• Concentrations of credit.

• Management’s expertise, history, and experience with the plan’s products and loans.

Review the local, regional, and national economic trends and assess their impact on agricultural portfolio risk levels. Consider whether management has reasonably factored this data into projections of loan growth and quality.

Compare agricultural portfolio performance with planned performance and ascertain the risk implications.

If the bank employs concentration management tools (e.g., portfolio limits, loan sales, derivatives) to control credit exposures, analyze the impact on the quantity of risk. Consider:

• The objectives of these programs.

• Management’s experience and expertise with these tools.

Review recent loan reviews of agricultural credits and any related audit reports. If there are any adverse trends in quantitative measures of risk or control weaknesses reported, comment on whether and how much they may increase credit risk.

Analyze the level, composition, and trend of agricultural loan documentation exceptions and determine the potential risk implications.

Review inspection reports on agricultural loans to determine if on-site inspections are performed in accordance with bank policy.

Evaluate the adequacy of the allowance for loan and lease losses for the agricultural portfolio.

Evaluate the level of compliance with the laws, rules, and regulations contained in the “References” section of this booklet. Relate the level of compliance to the quantity of credit risk. Test for compliance as necessary.

Determine whether the consumer compliance examination uncovered any violations of law or regulation in the agricultural department.

If violations were noted, determine whether management took adequate corrective action.