Risk Management Manual of Examination Policies - FDIC

Examination Conclusions and Comments (Continued) 99999
Credit Administration and Lending Policies
Credit administration, although improving, requires further attention. As detailed on the Assets with Credit Data
or Collateral Documentation Exceptions page, loans possessing documentation exceptions remain high. In
particular, the following significant credit weaknesses should be promptly addressed:
• Credit Analysis on Participations Purchased – Pre-purchase credit analysis is not performed on participations
purchased. An institution purchasing a loan participation should perform the same degree of independent
credit analysis as if it were the originator.
• Inspections and Lien Waivers – Inspections are not performed and mechanic’s lien waivers are not obtained
prior to making advances on construction loans. It is essential that inspections be performed and lien waivers
obtained to protect the bank’s collateral and lien positions.
• Rent Rolls – Rent rolls and vacancy figures are not obtained on an ongoing basis for loans secured by
commercial real estate. Rent roll and vacancy information are essential to properly monitor these types of
loans.
• Perfection – The institution periodically allows perfected interests in collateral to lapse due to its failure to file
timely Uniform Commercial Code continuation statements. (Refer to the Assets with Credit Data or
Collateral Documentation Exceptions page for examples.) An effective “tickler” system to assist in keeping
filings current is necessary to prevent a loss in collateral protection.
The bank’s loan policy is generally adequate with only minor enhancements recommended. (See the Risk
Management Assessment page for additional detail.)
President Lincoln stated loan officers would immediately begin performing pre-purchase analyses on
participations purchased. He also stated that the volume of documentation deficiencies is primarily due to
understaffing, and indicated that management is in the process of hiring an additional loan clerk to assist in
this area.
Other Real Estate (ORE)
The dollar volume of adversely classified ORE increased $535M, or 78 percent, since the previous examination.
The ORE portfolio consists of commercial real estate previously written down to fair value. Further deterioration
in carrying values is likely given the present condition and outlook for the local economy.
Concentrations
Several asset concentrations, including a fishing industry concentration, are listed on the Concentrations page of
this Report. While these concentrations are not criticized in and of themselves, management does not currently
have procedures in place to identify and monitor such concentrations. Given the potential for increased risk
posed by asset concentrations, the Board of Directors should establish appropriate policies and procedures to
ensure these risks are properly identified and monitored.
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