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Appeal of Memorandum of Understanding - (Third Quarter 2006)


The bank's board of directors appealed the supervisory office's decision not to remove the Memorandum of Understanding (MOU). The bank has been rated a 2 for the last three years and the board believes that the most recent examination indicates stronger results in all areas except for earnings.  The bank is in compliance with all articles except for the article related to earnings performance.

The board believes that they have met the intent of the MOU. While earnings are marginal, they are consistent with the strategic plan which includes expenses associated with the opening of a new branch.  The supervisory office believes that compliance with the article regarding the profit plan cannot be achieved until the bank demonstrates sustained earnings.

Discussion and Conclusions

The Ombudsman conducted a review of the information submitted by the bank and supporting documentation from the supervisory office.  The review included discussions with the bank's senior management as well as with members of the supervisory office.

The Ombudsman concluded that the existing MOU had served its intended purpose and should be terminated.  The bank's board of directors had demonstrated a commitment to institutionalize a culture of risk controls and processes that will serve the institution well.