Risk Management Manual of Examination Policies - FDIC

Risk Management Assessment 99999
1. Are risk management processes adequate in relation to economic conditions and asset
concentrations?
No. The Board’s strategic plan is outdated and unrealistic. In addition, management makes no effort to
monitor asset concentrations. A concentration of credit in the fishing industry, which is projected to
remain depressed for the foreseeable future, is listed on the Concentrations page of this Report.
Additional details regarding these deficiencies can be found on the ECC page.
2. Are risk management policies and practices for the credit function adequate?
No. Internal credit review and grading are weak, and various credit administration practices are deficient.
Refer to the comments under Asset Quality on the ECC page. In addition, although the bank’s loan policy
is generally adequate, it fails to address the following matters:
• Participation Loans - The bank regularly purchases loans or portions of loans from other institutions.
These specialized lending activities are not specifically covered in the policy.
• Construction Loans - The bank finances the construction of 1- to 4-family residences. The policy
lacks specific guidelines pertaining to construction lending. President Lincoln was provided with a
detailed list of issues that should be considered.
• Environmental Risk - An Environmental Risk Policy is nonexistent. Management was provided with
FDIC guidelines with respect to an acceptable environmental risk program.
President Lincoln stated that guidelines concerning purchased loans and construction lending would
be developed and the bank’s loan policy revised by December 31, 2004. He further stated that an
environmental risk policy is currently under development.
3. Are risk management policies and practices for asset/liability management and the investment
function adequate?
Generally, yes. Management’s liquidity management practices are generally adequate; however, the bank
has no written funds management policy. This deficiency is discussed more fully on the ECC page in the
Liquidity comment.
Investment policy guidelines are adequate; however, management’s adherence to its written investment
policy is inconsistent. On at least three occasions since the previous examination, President Lincoln
executed the purchase of securities over $250M without prior Board approval as required by the policy.
President Lincoln stated that he was presented with the opportunity to purchase these securities at a
good price and could not await Board approval.
9