Each depositor insured to at least $250,000 per insured bank

a. Asset Quality Component
According to the CAMELS guidelines, an asset quality rating of “3” is assigned “when asset quality or credit administration practices are less than satisfactory. Trends may be stable or indicate deterioration in asset quality or an increase in risk exposure. The level and severity of classified assets, other weaknesses, and risks require and elevated level of supervisory concern. There is generally a need to improve credit administration and risk management practices.”

The examination report reflects weak underwriting standards, with loans made largely predicated on the perceived collateral support and character of the borrower. Technical exceptions were noted in 78 percent of loans reviewed (with just 28 percent of the portfolio included in the loan sample). Classifications have increased substantially since the prior examination and are a matter of elevated supervisory concern at 77 percent of capital and reserves. If the disputed adverse classifications were omitted, the level would be 54 percent of capital and reserves. Although improved, the level would remain a matter of supervisory concern. Loan policy deficiencies cited in past examination reports remain uncorrected.

Based upon the foregoing, a “3” rating for asset quality is considered appropriate.

Factors to be considered by the examiner include: adequacy of, and conformance with, appropriate internal policies and controls addressing the operations and risks of significant activities; compliance with laws and regulations; responsiveness to recommendations from auditors and supervisory authorities; depth and succession of management; the extent that the board of directors and management is affected by, or susceptible to, dominant influence or concentration of authority; and, adequacy of audits and internal controls to promote effective operations and reliable financial and regulatory reporting, safeguard assets, and ensure compliance with laws, regulations and internal policies.

Given loan quality problems and inadequate loan administration, the failure of the bank to initiate corrective measures for previously identified weakness in the lending function, and the failure to comply with a variety of policy statements, a “3” rating is deemed appropriate.

c. Uniform Financial Institution Composite Rating
A “3: composite rating, according to the CAMELS guidelines, is defined to include institutions that exhibit supervisory concern in one or more of the component areas. In addition, it has management that “may lack the ability or willingness to effectively address weaknesses within appropriate time frames.” Such institutions “require more than normal supervision [although]…failure appears unlikely, given he overall strength and financial capacity of these institutions.” These comments are compared to those used in describing a “2” composite, which comments include the following: “moderate weaknesses are present and are well within the board of directors and management’s capabilities and willingness to correct…there are no material supervisory concerns.” Peer comparisons of financial ratios are not included in the rating system in order to avoid over reliance on statistical data; rather, examiners consider all relevant factors when assigning a composite rating. Examiners give the management component special consideration when assigning the composite rating.