Risk Management Manual of Examination Policies - FDIC

Examination Conclusions and Comments (Continued) 99999
asset quality. Although initial signs of more prudent loan underwriting and improved credit administration are
evident, asset quality remains weak and significant aspects of the credit function remain deficient as discussed in
greater detail under Asset Quality.
Board Supervision
Board minutes indicate that Chairman of the Board Ratzlaff and President Lincoln dominate policy discussions
and decisions. It appears that other Board members need to become more actively involved in the bank's affairs.
For example, Director Michael D. Jones attended only 5 of the 12 Board meetings held since the previous
examination. Regular attendance at Board and committee meetings is a prerequisite to fulfilling the duties of a
director; directors who are unable to meet this obligation should consider resignation. The absence of formal
objectives and the inadequacy of written policies have compounded the difficulties of the bank's directors,
particularly the outside directors, in fully discharging their supervisory responsibilities.
Director Jones stated that he frequently travels out of town on business; however, he committed to attending
Board meetings on a more regular basis.
Apparent Violations
Listed on the Violations of Laws and Regulations page are apparent violations of the Treasury Department’s
Financial Recordkeeping regulations and the Federal Reserve Board’s Regulation O. The Financial
Recordkeeping citation, regarding the late filing of Currency Transaction Reports, was also cited at the last FDIC
examination. Although the number of late filings has declined, repeat infractions do not reflect favorably on the
Board and management. The Board of Directors should implement improved controls and procedures to ensure
late filings do not continue.
Chairman of the Board Ratzlaff committed to improved BSA and Financial Recordkeeping controls, and
promised future compliance.
Strategic Planning
The bank’s 2000 strategic plan has not been maintained and is inconsistent with the present condition of the
institution, the regional economy, and the local competitive environment. Specifically, the plan's assumptions do
not consider the continuing decline of the local fishing industry, the potential impact of a new commercial bank in
town, or the recent merger of two local savings and loan associations. Based on these factors, many of the goals
and strategies in the plan are outdated and unrealistic. The Board should revise the current plan to include these
factors and current conditions.
Chairman of the Board Ratzlaff stated that the strategic plan would be reviewed and updated before the end of
2004.
Audit and Internal Control
The audit and internal control function lacks independence. While the scope and frequency of the internal audit
program are acceptable, Internal Auditor Jasmine Jackson reports directly to President Lincoln. Since President
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