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Foundations > ALLL Applications Asset Quality > Flashcards

ALLL Applications Asset Quality Flashcards

1
Q

ALLL

A

Provides for estimated credit losses. Must maintain an appropriate ALLL and reasonable, documented methodology.

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2
Q

How often should the ALLL be evaluated?

A

At least quarterly

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3
Q

In evaluating adequacy of ALLL, assess

A
  1. classifications, 2. level of volume/trend 3. underwriting practices 4. reasonable of mgmts ALLL methodology
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4
Q

Provision for ALLL is listed on the _____ as an _____

A

income statement as an expense

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5
Q

ASC Topic 310 (FAS 114)

A

Accounting for individual impaired loans

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6
Q

Three measurement standards for impairment

A

1) PV of expected future CF, discounted at effective interest rate. 2) Loan’s observable market price. 3) FV of collateral, if loan is collateral dependent.

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7
Q

ASC Topic 450-20 (FAS 5)

A

Accounting for contingencies, quantitative and qualitative factors

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8
Q

All federally insured depository institutions must maintain an ALLL, except for federally insured branches and agencies of foreign banks.

A

TRUE

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9
Q

SR 11-7

A

Guidance on ALLL methodology

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10
Q

Under no circumstances can loan or lease losses be charged directly to ‘‘retained earnings’’ and capital.

A

TRUE

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11
Q

Increase ALLL

A

Debit Provision for Loan Losses (expense acct) Credit ALLL (contra-asset acct)

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12
Q

Charge-off loan loss

A

Debit ALLL Credit Loans (note that P&L is not impacted)

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13
Q

Future Recovery on a previously charged-off loan

A

Debit Cash Credit ALLL

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14
Q

Applications processed by the FRB

A
  1. membership 2. acquisition of a bank by a BHC 3. acquisition of a non-bank subsidiary 4. commencement of non-bank activities
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15
Q

When assessing new branch applications, the FRB considers the financial condition of…

A

financial condition and mgmt, capital adequacy, convenience and needs of community, and compliance with 24A (investment in bank premises)

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16
Q

A company holding at least 25% of a bank’s stock automatically classifies the company as

A

a BHC

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17
Q

Charters

A

State (FRB (state member bank) FDIC (state non-member)) National = OCC

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18
Q

Reg Y

A

BHC and change of control

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19
Q

Reg H

A

State member bank membership, investment limitations, governs branching

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20
Q

Section 3(a)(1) application

A

filed with FRB to acquire control of a bank or BHC. Directly or indirectly owning controlling, or having power to vote 25% or more of any class of voting security

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21
Q

Section 3(a)(3) application

A

Application filed to directly or indirectly aquire control more than 5% of any class of bank or BHC voting shares. Continue to file until it owns more than 50% of bank or BHC

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22
Q

Section 3(a)(5)

A

application filed when two or more BHC merge or consolidate.

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23
Q

Section 4c(8)

A

filed to engage in nonbanking activities

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24
Q

Non-banking activities

A

institutions must receive prior approval; unless, BHC is well capitalized, well managed, activites are closely related to banking. If so, BHC may submit written notification within 10 days of commencing activity.

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25
Q

To qualify as a FHC, all depository insititutions

A

well managed, well capitalized, receive a CRA rating of satisfactory or better, and must submit written declaration

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26
Q

BHC Stock Redemptions

A

Provide prior notice to repurchase shares if gross consideration for purchase plus the net consideration paid in during the preceeding 12 months equals 10% or more of consolidated net worth. EXEMPT if BHC is well capitalized before and after purchase, well managed and not subject to unresolved supervisory issues

27
Q

SLHC Applications

A

H-e1= creation of new SLHC through aquistion of 1 savings association H-e1-S = reorganization into a SLHC structure H-e2 = SLHC indirectly or directly controlling more than 1 savings assoc

28
Q

SLHC Dividend notice (not Mutual SLCH)

A

30 days prior to declaring

29
Q

Supervisory LTVs

A

Raw land = 65%
Land development, including improved land loans = 75%
Construction:
Commercial, multifamily, and other nonresidential = 80%
One- to four-family residential = 85%
Improved property = 85%
Owner-occupied one to four-family and home equity = None

30
Q

Asset Classification Categories

A

Pass, Special Mention Adversely Classified: Substandard, Doubtful, Loss

31
Q

5 P’s of lending C’s

A

People - Character (measures borrowers willingness to pay ex financial stmts, paymt history) Payment - Capacity (ex payment source, income/debt service ratio) Prospects - Condition (borrower’s circumstances within the industry) Protection-Collateral (what is pledged as collateral?) Purpose - Capital (how was the money used)

32
Q

Good measure of future charge-offs

A

Noncurrent LN&LS / Gross LN&LS ratio varies between 1-4% with 1-2% being normal.

33
Q

Past Due Loans and Non-Current Loans

A

Pastdue: 30-89 days delinquent (*INUBPR: past dues are 30 days past due + nonaccruals). Noncurrent: 90 days + past due or non-accrual status. Nonaccrual is a seriously delinquent loans 90 days past due and not in the process of collection.

34
Q

Substandard Asset

A

Inadequately protected by the current sound worth and paying capacity of the obligor; must have a well defined weakness; bank will sustain some loss if deficiencies are not corrected

35
Q

Doubtful Assets

A

has all weaknesses inherent in a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable

36
Q

Loss

A

Assets classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

37
Q

Special Mention

A

Asset has potential weaknesses that deserve mgmts close attention.

38
Q

Total Classified Asset Ratio

A

Total Classified Assets / Tier 1 Capital + ALLL

39
Q

Weighted Classified Asset Ratio

A

(Substandard 20% + Doubtful 50% + loss 100%) / Tier 1 Capital + ALLL

40
Q

Assignment of AQ rating using Weighted Classified Asset Ratio

A

0 - 5% = 1; 5 - 15% = 2; 15 - 30% = 3; 30 - 50% = 4; 50%+ = 5

41
Q

Changes in asset quality will most directly affect which components?

A

Capital and Earnings.

42
Q

This is responsible for mitigating the operational risk associated with loan related transactions?

A

Loan Administration.

43
Q

Commercial LoC

A

bank guaranteeing pymt to 3rd party on behalf of customer once conditions are met. Used primarily in international trade. Can be revocable or irrevocable.

44
Q

Standby LoC

A

guarantees bank will make pymt to beneficary of customer does not meet contractual obligations. Financial standby LoC = pay if customer defaults Performance standby LoC = pay of customer fails to perform contractual obligation

45
Q

UBPR pg 7a

A

Loan portfolio composition

46
Q

UBPR pg 8

A

$ amt of delinquent loans by type

47
Q

TDR

A

loan restructuring due to customer’s financial difficulties. Loan remains TDR until paid off, sold, or charged-off. Report on Call Rpt quarterly, unless loan in compliance w/modified terms and yields an interest rate comparable to loans of similar risk (dnt report after the year in which restructuring took place)

48
Q

Uniform Retail Credit Classification and Account Management Policy (Consumer Debt)

A

Closed-end: Pass_0-89 days; Substandard_90 - 119 days; Loss_120 days Open-end: Pass_0-89 days; Substandard_90 - 179 days; Loss_180 days

49
Q

The Primary factor when evaluating credit application is

A

cash flow

50
Q

Loan concentration occurs when loans =

A

25% or more of Tier 1 Capital + ALLL

51
Q

An unused line of credit is an example of

A

an off balance sheet item = contingent liability

52
Q

A concentration of assets classified as substandard would result in a weighted classified asset ratio that is______

A

Lower

53
Q

Sequence of perfecting a security interest (perfecting means securing a 1st lien)

A
  1. search 2. attach 3. perfect 4. search
54
Q

Continuation of a UCC-1 (financing statement)

A

File w/in 6 months prior to expiration date, starting with expiration of 1st 5 year period

55
Q

Termination of UCC-1 (financing statement)

A

Must be filed by secured party within 30 days after obligation has been extinguished or within 10 days following written demand by debtor

56
Q

Three methods for perfecting security interest?

A

Possession, Purchase money security interest in consumer goods, public filing

57
Q

A full loan write-up is required

A

If mgmt disagrees with the disposition or the institution will be rated composite 3 or worse

58
Q

Transactions excluded from Supervisory LTV Limits

A

Loans guaranteed or insured by the U.S. gov’t or its agencies; Loans backed by the full faith and credit of a state gov’t; Loans guaranteed or insured by a state, municipal, or local gov’t or agency; Loans sold promptly (within 90 days) after origination; Renewed, refinanced, or restructured w/out advancement of new monies; In which a lien on real property is taken through an abundance of caution

59
Q

FAS 140 ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

A

If a securitization transaction meets FAS 140 sale or servicing criteria, the seller must recognize any gain or loss on the sale of the pool immediately and carry any retained interests in the assets sold (including servicing rights or obligations and interest-only strips) at fair value

60
Q

SR 99-24

A

General guidelines for loan write-ups

61
Q

Non-conforming Loans

A

Loans in excess to supervisory LTV limits

62
Q

Components of Sound Lending Policy

A

ALLL; Collections & Charge-offs; Concentrations of Credit; Consumer Credit Compliance; Credit File Maintainence; Financing ORE; Lending diversification; Geographic limits; Exceptions to Loan Policy; Lending Authority; Loan Pricing; LTV

63
Q

Loan to Value Limits

A

65% for raw land, 75% for land development or finished lots, 80% for commercial construction, and 85% for 1 to 4 fam residential construction and improved property. None for Owner occupied 1 to 4 fam.

Foundations (29 decks)

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