Risk Management Questionnaire

1. Characterize your institution's tolerance for risk.

Low Moderate High

10 9 8 7 6 5 4 3 2 1

Low - Banks who follow a conservative lending philosophy which

emphasizes borrower selection and conservative
collateralization. Tends to avoid or limit exposure to high risk
borrowers and types of lending. Willing to sacrifice some amount
of profitability to ensure consistent and superior credit
performance.

Moderate - Prudent banks who accept some exposure to riskier

borrowers or types of lending, but ensures that such loans are
well secured. Monitors riskier exposure closely to ensure that
risk levels are acceptable. Cautious but not conservative lenders
whose objective is credit performance comparable to peers and
profit growth that meets or exceeds peers.

High - Aggressive banks who typically accept higher levels of

borrower and type of lending risk and are prone to enter and
grow riskier types of lending. May also accept larger exposures
to individual borrowers. Growth and market share are the "true
priorities" as evidenced by the incentives placed on loan
production. Sometimes willing to stretch lending standards to
take advantage of growth opportunities.

2. Please rank in order of importance to management of your

organization the
following items:
___ Asset Quality/Liquidity
___ Immediate Earnings (Profit Plan)
___ Growth in Loans/Assets
___ Do Not Know

3. Check all of the following categories that your bank tracks to

predict portfolio volatility?
___ Past Dues/Losses
___ Level of Criticized/Classified Loans
___ Distribution of the Pass categories in the bank's asset
quality ratings
___ Portfolio concentrations
___ Risk in major types of lending making up the portfolio
including
1 Revised last: 2-27-06
 subsets, e.g., industries, property types, types of ag.
4. At the bottom of the business cycle, what is the maximum level
of non-performing assets (as a percent of loans outstanding) that
your bank considers acceptable ?
___ < 2%
___ 2-4%
___ 4-6%
___ > 6%
___ Do not know or have not thought about it

5. Does your bank offer incentives to lenders tied to:

(Check all that apply)
___ Bank profitability
___ Lender's portfolio profitability
___ Lender's personal loan production
___ Lender's portfolio credit quality
___ Lender's timely and accurate assignment of asset quality
(risk) ratings
___ Do not offer incentives

6. Please indicate the number of pass categories in your bank's

asset quality (risk)
rating framework
___ One
___ Two
___ Three
___ Four
___ Five or more

7. Has your bank defined maximum acceptable levels for the

following categories?
(Check all that apply.)
___ Watch/Prune Assets
___ Delinquencies
___ Non-performing Assets
___ Criticized/classified Assets
___ Losses

8. Has your bank established portfolio limits/maximum exposure

guidelines for
(Check all that apply)
___ Individual Borrowers
___ 10/20 Largest Borrowers
___ Largest Line of Business/Type of Lending
___ Largest Industries, Property Types, Types of Ag
___ Collateral Types

2 Revised last: 2-27-06

 9. Does your bank employ a structured process to track and
analyze trends in the
following (check all that apply)?
___ Distribution of portfolio asset quality ratings
___ Risk in industries, property types and types of agriculture
making up
the portfolio
___ Risk in major types of lending making up the portfolio
___ Concentrations, e.g., largest types of lending, borrowers,
industries,
property types, types of ag, collateral, geographic
___ None of the above

3 Revised last: 2-27-06

 10. Which of the following tools does your bank utilize to manage
portfolio
risk (check all that apply)?
___ Business plan which is consistent with the institution's
defined tolerance
for risk
___ Unified and clearly communicated lending philosophy or
credit culture
___ Comprehensive loan policy with specialized policies
___ Track and report exceptions to the loan policy
___ Standard loan underwriting package or presentation
___ Independent credit administration function
___ Independent loan review function
___ Structured approach to pricing, assessing risk/return for
loans and
portfolios to assure adequate compensation
___ Credit oversight committee that reviews portfolio risk and
performance
and recommends credit policies and strategies
___ Comprehensive reporting to the Board of Directors

4 Revised last: 2-27-06

 SCORING OF ANSWERS
POINTS

1. Low - 10 High - 1 (See scale)

2. Score 10 8 6 4 2 1 1
AQ AQ IE IE Growth Growth Do Not
IE Growth AQ Growth AQ IE Know
Growth IE Growth AQ IE AQ

3. Item Checked Points

Past Dues/Losses 1
Level of Criticized/Classified 1
Distribution of Pass Categories4
Portfolio Concentrations 2
Risk in Major Types of Lending2

4. Choice Score
< 2% 10
2-4% 8
4-6% 6
< 6% 4
< Do Not Know 2

5. Item Checked Points

Lender's Portfolio Profitability 1
Lenders Personal Loan Production 1
Bank Profitability 1
Lender's Portfolio Credit Quality 4
Lender's Timely and Accurate 3
Assignment of Asset Quality (Risk) Ratings
Do Not Offer Incentives 2

6. Categories Points
One 2
Two 4
Three 6
Four 8
Five or more 10

5 Revised last: 2-27-06

7. No. Checked Points
One 2
Two 4
Three 6
Four 8
Five 10

8. No. Checked Points

One 2
Two 4
Three 6
Four 8
Five 10

9. No. Checked Points

None of the above 2
One 4
Two 6
Three 8
Four 10

10. Items Checked Points

One 1
Two 2
Three 3
Four 4
Five 5
Six 6
Seven 7
Eight 8
Nine 9
Ten 10

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Tolerance for Risk

Score
Low (L) > 37
Moderate (M) 28 - 37
High (H) < 28

Quality of Risk Management Practices

Score
Needs Improvement (1) < 28
Acceptable/Standard (2) 28 - 37
Advanced/State of the Art (3) > 37

Potential for Portfolio Volatility in Credit Quality

Combination
Low L3, L2, M3
Moderate L1, M2, H3
High M1, H2, H1

7 Revised last: 2-27-06