Allowance for Loan and Lease Loss Validation Services

Determining the appropriate level for the allowance for loan and lease losses is imprecise and requires a high degree of judgment on the part of management. In addition, the allowance estimates should be based on a comprehensive, well documented, and consistently applied analysis of the loan portfolio. Finally, the allowance should take into consideration all available information existing as of the financial statement date, including industry, geographical, economic and political factors.

ProBank Austin’s work in reviewing the Bank’s ALLL is designed to independently assess the Bank’s Allowance Methodology currently employed for compliance with the Interagency Guidelines in effect as of December 13, 2006, and any subsequent issuances.

As part of the validation, we evaluate that both management and the Board have appropriately performed their expected functions as required by the regulatory guidance. Our findings are discussed with management and set forth in a written report to the Board or its appropriate committee.

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