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Appeal of Inconsistencies in the Report of Examination and other Administrative Concerns (Second Quarter 2012)


A community bank appealed conclusionary statements in the most recent Report of Examination (ROE). The appeal alleged the overall conclusion in the Examination Conclusions and Comment section of the ROE was inconsistent with statements in other sections of the ROE. The appeal also asserted the language was inconsistent with verbal comments made during the exit meeting. The appeal did not suggest changing the ratings, simply changing the language so that it was consistent throughout the ROE.


The following statement from the ROE represents the primary point of contention in the appeal:

The overall condition of the bank remains less than satisfactory and deteriorating due to continued weak credit administration, as well as past liberal underwriting practices and ineffective problem loan identification.

The appeal alleged this statement failed to recognize management’s progress in addressing credit administration weaknesses and underwriting practices. Furthermore, the statement was inconsistent with conclusions reached in the Asset Quality Section of the ROE. The appeal sought to have the same level of detail, regarding improvements, in the Examination Conclusions and Comment section as there was in the Asset Quality section.

The appeal also noted “shifting expectations” with regard to management’s strategy to reduce the level of criticized assets. Bank management met with the supervisory office (SO) regarding its strategy and both parties agreed the strategy was appropriate. However, the SO later notified bank management the strategy was unacceptable.

Lastly, the appeal expressed dissatisfaction with the lack of feedback from the supervisory office when submitting documents for review as required by the enforcement action. The appeal specifically cited the lack of response from the SO regarding the capital plan and the earnings plan.


The ombudsman determined there are no specific standards to address the level of detail in each section of the ROE or to address perceived inconsistencies in written communications. The ombudsman based his decision on guidance provided in the Comptroller’s Handbook for Credit Risk as the standard for determining if the language used was consistent with the overall rating.


The ombudsman’s review confirmed that past weaknesses in credit administration, underwriting, and problem loan identification were the root cause of the bank’s less than satisfactory condition. While changes in underwriting and administration were effective to strengthen operations and future extensions of credit, past deficiencies continued to plague the loan portfolio causing an increase in classified assets and nonperforming credits. These weaknesses caused current earnings to decline. As a result, the overall condition of the bank was less than satisfactory. However, the ombudsman determined the following language more accurately reflected the cause of the bank’s current condition:

The overall condition remains less than satisfactory due to the high level of criticized assets, caused in part by past liberal underwriting practices coupled with previously identified ineffective problem loan identification.

Concerning “shifting expectations,” the ombudsman determined the SO acted consistent with OCC supervisory practices. The SO acknowledged prior acceptance of the bank’s strategy to reduce problem loans and Other Real Estate Owned (OREO). However, after further consideration of the bank’s condition and external economic factors, the SO determined a more aggressive approach was required. The bank was appropriately notified of the change in expectations as soon as feasible.

Concerning management’s dissatisfaction with the lack of feedback from the SO when submitting documents for review, management submitted the documents by email to the SO but they were unable to locate the email. The SO could not confirm receipt of the email. Both parties acknowledged review of the documents occurred during the subsequent on-site visit.

The ombudsman directed the SO to provide the bank with documentation of the change in the language in the ROE.