CUSO Talk: A Thoughtful Look at Third Party Loan Reviews
by Phil Love, Pactola President/CEO
CAP Senior Member

Over the past three decades, credit union and banking regulators have suggested, or even demanded, that institutions have an independent validation of their credit risk. This third-party loan review has become a necessary expense to stay in the good graces of the examiners. Many times, the accounting firm or loan review company completes the work at a significant expense, often one of the largest third-party expenses to the lending department. Then there is the additional time expense as you are paying for your staff to accommodate their requests, answer questions, and provide file access. But is the only purpose of this expense of credit risk review (CRR) to satisfy the examiners? 

If the only purpose of the CRR is to check the box for the examiners or satisfy the requirements of the audit committee, bonding insurer, or ratings agency, you are probably not receiving the value you need from this expense. If you receive the same redundant report year after year which is filed away and only pulled out at when a regulator steps in the building, you may not be receiving the value you need. If your reports do not identify root strengths and weaknesses and give you direction on improvements which could be made, you are not receiving the value you need. Also, if you have the same company performing the CRR year after year, with no oversight to the reviewing company itself, you may not be receiving the value you need. If the entire CRR is poorly managed and provides low value, it is one of the easiest costs to control and receive more bang for your buck! 

Here at Pactola, as we have worked with various institutions, we have seen the need for a good CRR process. A good process is like a coach who can provide a different perspective on the risk landscape that is before you. A coach can help you see flaws in your technique to fix, or strengths in your game that you should capitalize upon in order to succeed. If you cannot view your current CRR provider as a coach to help you improve, you need to take another look at your review process. 

To meet this need, we are opening up Pactola Credit Risk Advisory Services. We can serve you with the actual external CRR process or provide services as an outside evaluator for your current internal and external auditing functions, to make sure you are receiving good value.   

If you want us to provide the service, we will create an agreement that outlines the scope of services and cost. Our goal is to provide you with an overview and a deep dive into the various aspects of credit management, risk identification, staffing, technology usage, and portfolio performance. We will provide you with actionable items and a roadmap that you can use to improve your shop.

If you want us to review the work your present CRR vendor completes, we will work to validate their conclusions on asset quality, compliance of the credit process, effectiveness of ongoing supervision of credits by loan officers, portfolio performance, management and board supervision, and adequacy and accuracy of management information systems. 

We have partnered with seasoned individuals who will provide much of the oversight and field work for Pactola Credit Risk Advisory Services. The gentlemen who will head this for us has four decades of industry experience with over thirty years with the Office of Comptroller of the Currency as an examiner. We have other ex-lenders, ex-field and supervisory examiners, and ex-ag lenders who we are working with to provide these services. We can also look beyond the commercial and agricultural credits, with expertise in other areas like indirect lending. 

Contact us for an evaluation as you make your plans for 2020 and beyond for your credit risk review needs. Whether you use us for the actual CRR process or to provide an analysis of your existing internal and external loan review process, our goal is to make your institution even more successful!


Pactola is a CUAD CAP Senior Member and a subsidiary of Midwest Business Solutions. We are a Credit Union Service Organization that is dedicated to commercial and agricultural lending and serving multiple credit unions and banks throughout the United States with our services. We help our partners increase their earning assets and profitability. By doing so, we help them become a relevant financial force in their community increasing social good through helping businesses and farmers. Visit our website to learn more. You can contact Phil Love, Pactola CEO at or 605.223.5154.



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