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Risk Management Manual of Examination Policies

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Section 17.1 - Bank of Anytown-Report of Examination

Fiduciary Activities Assessment
99999

Uniform Interagency Trust Rating System

 

Current Exam

Prior Exam

Prior Exam

Examination Start Date

08/01/2004

11/13/2003/S

10/21/2002

Composite Rating

2

2

2

Management

2 2

2

Operations, Internal Controls, and Audits

2 2

2

Earnings

0 0

0

Compliance

2 2

2

Asset Management 2 2 2

A Trust Department Rating of “2” is assigned. Trust departments so rated are fundamentally sound. Only moderate weaknesses are present and are well within management’s capabilities and willingness to correct. Fiduciary activities are conducted in substantial compliance with laws and regulations. Overall risk management practices are satisfactory relative to the institution’s size and complexity. There are no material supervisory concerns.

Management – 2
The Trust Department operates in general conformance with the Statement of Principles of Trust Department Management. The Board’s and management’s performance and risk management practices are satisfactory relative to the size of the department and the complexity of trust activities. Only moderate weaknesses are present and are within management’s capabilities and willingness to correct. The full Board acts as the Trust Committee and reviews department activity reports monthly. Trust Officer Elizabeth K. Hancock is the primary administrator and record keeper for personal trust accounts, while President Lincoln administers the farm management agency account.

The Board has adopted a general Trust Policy. The Directorate should consider adding policy criteria regarding environmental reviews of real estate that may be held in current or future trust accounts.

Trust Officer Hancock agreed to develop such guidance for the Board’s consideration.

Operations, Internal Controls, and Audits – 2
Operations, internal controls, and audit are satisfactory in relation to the volume and character of trust business. Moderate weaknesses exist, but in general are effectively identified and monitored. The bank’s audit program includes an annual review of trust department activity, including the verification of trust assets.

Trust department records are maintained manually, which limits internal control capability. Trust Officer Hancock is implementing a computerized trust record keeping system as time permits. The computerized system has the capacity to allow for the separation of record keeping and data entry functions from the account administration function. Limited staff restricts full segregation of duties. Despite this, check writing and account reconciliation procedures should be separated.

Trust Officer Hancock stated she would review potential changes to deposit account reconcilement procedures.

Earnings – 0
This small department is operating primarily as a service to current customers rather than as a profit center. Due to this aspect of the trust department’s operations, and the size of assets under management, the earnings component is not rated.

Compliance – 2
Account administration is generally in compliance with originating documents. Potential conflicts of interest exist from the trust department using own-bank deposits, as well as from holding stock of the parent holding company and an affiliate in one trust account. Trust Officer Hancock surveys local deposit rates to ensure competitive rates are being paid on deposits, but does not maintain documentation of her surveys.

Trust Officer Hancock stated she would maintain documentation of comparable rates in the future.

Regarding the trust account with holding company and affiliate stock, the party in interest of that account is informed of the trust officer’s proxy vote and attends annual stockholder meetings; however, these facts are not documented in the trust files.

Trust Officer Hancock indicated that since the party in interest to that account is a member of the Lincoln family, and stockholder meeting minutes of the holding company and the affiliate could be produced should the need arise, the risk is minimal.

Asset Management – 2
Asset management practices are generally satisfactory. All account transactions, including discretionary disbursements, are included in monthly Board reports, and the Board reviews all accounts annually. Management should document in the annual account reviews an assessment of the needs of each applicable account and/or beneficiary, and whether the account’s investment mix is meeting those needs. In addition, three trust accounts use fixed income and/or equity mutual funds. Qualified staff should annually review each mutual fund’s investment mix, performance relative to competing mutual funds, and any other related criteria. These mutual fund reviews should also consider the ongoing needs and objectives of the respective trust accounts.

Trust Officer Hancock committed to documenting annual needs assessments for each trust account, as well as annual mutual fund reviews.

Meeting with Management
A meeting was held on September 8, 2004, with President Lincoln and Trust Officer Hancock to discuss examination findings in detail. An overview of these findings was also presented to the bank’s Board of Directors at its meeting on September 18, 2004.



Last Updated 02/02/2005 supervision@fdic.gov