Internal Control Questionnaires and Verification Procedures

Policies

1. Has a policy been adopted which specifically addresses concentrations of credits?

2. Does the policy include deposits and other financial transactions with financial institutions?

3. Have controls been instituted to monitor the following types of concentrations:

   1. Loans and other obligations of one borrower?

   2. Loans predicated on the collateral support afforded by a debt or equity issue of a corporation?

   3. Loans to a company dominant in the local economy, its employees, and major suppliers?

   4. Loans dependent upon one crop or herd?

   5. Loans dependent upon one industry group?

   6. Loans considered out of normal territory?

4. Are periodic reports of concentrations required to be submitted to the board or its committee for review (if so, state frequency ) ?

5. Does someone check the periodic reports for accuracy other than the preparer before being submitted to the board or its committee?

6. When concentrations exist predicated upon a particular crop or herd of livestock, does the bank attempt to diversify the inherent potential risk by means of:

   1. Participations?

   2. Arrangements with governmental agencies, such as:

      • Guarantees?

      • Lending arrangements?

7. When concentrations exist predicated upon a particular industry, does the bank make a periodic review of industry trends?

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