1. (a) Objectives.

   1. (1) Initially to provide a current appraisal of the quality of the loan portfolio by identifying problems of each individual loan.
   2. (2) Early detection of potential problems by analyzing each individual loan on a regular schedule.
   3. (3) Keeping the Loan Review Committee updated on loans that have been identified as potential problems and action being taken to minimize the Arkansas Development Finance Authority’s potential loss or liability.

2. (b) Beginning procedures.

   1. (1) Update each loan file:

      1. (A) Verify that current financial statements are in file, put them on a spreadsheet, and analyze;
      2. (B) Based upon this analysis, assign a credit rating according to the Arkansas Development Finance Authority Credit Rating;
      3. (C) Prepare a memorandum for the file discussing this analysis and credit rating; and
      4. (D)

3. (i) Prepare an Arkansas Development Finance Authority Problem Loan Update.

   1. (ii) On all loans rated 3.50 or higher, have a recommendation for future action ready for the Loan Review Committee.

   2. (2) Site inspection:

      1. (A) Each staff person in the Development Finance Section shall set aside at least one (1) day per month for site inspections until all sites in present portfolio have been inspected; and

      2. (B) After the site visit the inspector shall prepare an Arkansas Development Finance Authority Site Inspection Report for the file.

         1. (c) Normal procedures.

   3. (1) Financial statement annual review:

      1. (A) Upon receipt of each company’s year-end financial statement, add the report to the existing spreadsheet;
      2. (B) Analyze the spreadsheet, looking for positive or negative trends in the company itself and in comparison to the latest RMA industry averages;
      3. (C) Based upon the analysis, assign a credit rating according to the Arkansas Development Finance Authority Credit Rating;

      4. (D)

         1. (i) Prepare an Arkansas Development Finance Authority Loan Status Report.
         2. (ii) For loans rated 3.50 or higher, have a recommendation ready for the Loan Review Committee; and

      5. (E)

         1. (i) Report to the Loan Review Committee annually on each loan to include:
4. (a) (a) An updated spreadsheet;

5. (b) (b) An Arkansas Development Finance Authority Credit Rating;

   1. (c) (c) An Arkansas Development Finance Authority Loan Status Report; and

      1. (d) (d) A memorandum discussing analysis and credit rating.

         1. (ii) Loans rated below 3.50 that are current and are scheduled to pay off in the next twelve (12) months are exempted from a complete annual review.
         2. (iii) Staff will report a brief status on the loan and cite the reporting exemption.

   2. (2) Interim loan review:

      1. (A) All loans rated 3.50 or higher (Section A-4-a) shall be reviewed monthly with the Loan Review Committee to:

         1. (i) Inform members of any improvements or declines in the quality of the loan;
         2. (ii) Inform the members of steps being taken to rectify the situation; and
         3. (iii) Receive guidance from the members on other possible solutions or actions that could or should be taken; and

      2. (B)

         1. (i) All other loans shall have their credit rating assessed on a semi-annual basis.
         2. (ii) Interim statements shall be collected from the company, and staff should:
6. (a) (a) Load the statements into the existing spreadsheet;

7. (b) (b) Look for any major negative trends; and

   1. (c) (c) Adjust the credit rating if it is deemed necessary.

      1. (iii) This procedure shall be conducted on a semi-annual basis.

   2. (3) Site inspection:

      1. (A)

         1. (i) Each site should be visited annually by the staff.
         2. (ii) The inspection should be scheduled as close to one hundred eighty (180) days after receipt of the annual financial statement as possible.
         3. (iii) After the visit the inspector shall prepare an Arkansas Development Finance Authority Site Inspection Report for the file; and

      2. (B)

         1. (i) Each project should be visited at least once during the construction phase, and the inspector shall prepare an Arkansas Development Finance Authority Construction Inspection Report.
         2. (ii) Loans rated below 3.50 that are current and are scheduled to pay off in the next twelve (12) months are exempted from an annual site visit.

Codification Notes: "RMA" means Risk Management Association.