The Board agreed to make the recommended provision. President Bush began a review of the loan grading system during the examination and promised to implement the recommended changes. The bank experienced net operating losses for the years ending 1995 and 1996, and a net operating loss for 1997 is expected. This condition is a direct result of persistent poor asset quality, including a high level of other real estate. Poor asset quality has resulted in reduced net interest income and high provision and overhead expenses.
Future profitability is primarily dependent on improved asset quality.
Management has instituted several tactics to lower the institution's overhead expense. However, management should review the budget and institute additional measures to improve earnings. Specific items for consideration are discussed in the earnings analysis on page 12. The institution's Board has not provided a clear framework of objectives and policies within which executive officers are required to operate and administer the bank's affairs. The bank's written policies are lacking in important areas.