$VRI0D\WKLVJXLGDQFHDSSOLHVWRIHGHUDOVDYLQJVDVVRFLDWLRQVLQDGGLWLRQWRQDWLRQDOEDQNV EP-CBS O Comptroller of the Currency Administrator of National Banks Community Bank Supervision Comptroller’s Handbook January 2010 *References in this guidance to national banks or banks generally should be read Updated September 2012 for BSA/AML Updated May 2013 for Risk Definitions to include federal savings associations (FSA). If statutes, regulations, Updated October 2014 for MRA and Third-Party Relationships or other OCC guidance is referenced herein, please consult those sources Updated December 2015 for RAS to determine applicability to FSAs. If you have questions about how to apply Updated November 2016 for Asset dsadadasda this guidance, please contact your OCC supervisory office. Quality Core Procedures EP Bank Supervision and Examination Process Contents Introduction .................................................................................................................................................. 1 Background ...................................................................................................................................... 1 Supervision by Risk.......................................................................................................................... 3 Banking Risks ............................................................................................................................ 4 Risk Management ...................................................................................................................... 5 Risk Assessment System ........................................................................................................... 6 Relationship Between the RAS and the CAMELS Rating System ........................................... 8 Supervisory Process ......................................................................................................................... 9 On-Site Examination Frequency................................................................................................ 9 Planning ................................................................................................................................... 10 Examining................................................................................................................................ 11 Completing the Core Assessment ............................................................................................ 12 Audit and Internal Controls ..................................................................................................... 15 Information Technology .......................................................................................................... 17 Asset Management .................................................................................................................. 18 Bank Secrecy Act/Anti-Money Laundering ............................................................................ 19 Consumer Compliance ............................................................................................................ 20 Communicating (Updated 10/23/2014) ................................................................................... 20 Core Assessment ......................................................................................................................................... 22 Examination Planning.............................................................................................................. 23 Audit and Internal Controls ..................................................................................................... 26 Capital Adequacy .................................................................................................................... 36 Asset Quality ........................................................................................................................... 40 Overall Credit—Underwriting Assessment ............................................................................. 55 Management ............................................................................................................................ 56 Earnings ................................................................................................................................... 61 Liquidity .................................................................................................................................. 66 Investment Portfolio and Bank-Owned Life Insurance ........................................................... 76 Sensitivity to Market Risk ....................................................................................................... 83 Information Technology .......................................................................................................... 92 Asset Management ................................................................................................................ 103 Bank Secrecy Act/Anti-Money Laundering .......................................................................... 119 Consumer Compliance .......................................................................................................... 122 Examination Conclusions and Closing .................................................................................. 130 Community Bank Periodic Monitoring ................................................................................. 135 Appendixes................................................................................................................................................ 138 Appendix A: Community Bank Risk Assessment System .................................................... 138 Appendix B: Other Risks ....................................................................................................... 175 Appendix C: Standard Request Letter ................................................................................... 199 Appendix D: Community Bank Report of Examination ....................................................... 205 Appendix E: Community Bank Audit Assessment Guidance ............................................... 208 Appendix F: Community Bank Internal Control Assessment Guidance ............................... 213 Appendix G: Uniform Retail Credit Classification and Account Management Policy Checklist (RCCP Checklist) ................................................................................ 215 Appendix H: Abbreviations ................................................................................................... 218 References ................................................................................................................................................. 221 Comptroller’s Handbook i Community Bank Supervision Introduction > Background Introduction Background This booklet explains the philosophy and methods of the Office of the Comptroller of the Currency (OCC) for supervising community banks. Community banks are generally defined as banks with less than $1 billion in total assets and may include limited-purpose chartered institutions, such as trust banks and community development banks. As banks grow in size and complexity, the supervisory process transitions to that outlined in the “Large Bank Supervision” booklet of the Comptroller’s Handbook. The “Community Bank Supervision” booklet serves as the primary guide to the OCC’s overall supervision of community banks and should be used in conjunction with other booklets of the Comptroller’s Handbook, as well as the FFIEC Information Technology Examination Handbook and the FFIEC Bank Secrecy Act/Anti-Money Laundering Examination Manual.1 This booklet is prepared for use by OCC examiners in connection with their examination and supervision activities. Each bank is different and may present specific issues. Accordingly, examiners should apply the guidance in this booklet consistent with each bank’s individual circumstances. (Updated 12/03/2015) The OCC’s community bank supervision process is designed to: • Determine the condition of the bank, as well as the levels and trends of the risks associated with current and planned activities. • Evaluate the overall integrity and effectiveness of risk management systems by conducting periodic validation.2 • Determine compliance with banking laws and regulations. • Communicate findings, recommendations, and requirements to bank management and directors in a clear and timely manner, and obtain commitments to correct supervisory concerns. • Verify the effectiveness of corrective actions or, if actions have not been undertaken or accomplished, pursue timely resolution through supervisory or enforcement actions. The community bank supervision process also gives examiners flexibility when developing supervisory strategies and conducting supervisory activities. The process integrates all functional areas of the bank under one supervisory plan, which helps ensure consistency in the assessment of risks and the degree of supervisory attention warranted. The OCC’s supervisory framework for community banks consists of three components — core knowledge, core assessment, and expanded procedures: 1 FFIEC is the Federal Financial Institutions Examination Council. 2 Validation is accomplished by a combination of observation, inquiry, and testing. Comptroller’s Handbook 1 Community Bank Supervision Introduction > Background • Core Knowledge — The OCC’s database that contains core