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Flashcards in capital/ consumer affairs /DeNovo /earnings Deck (54):
1

Tier 2 Capital

Tier 2 = supplementary Capital + ALLL (subject to limitation of 1.25% of RWA) + perpetual preferred stock + unrealized gains on AFS equity securities + other tier 2 capital components

2

Tier 1 Capital

common stock + surplus + retained earnings + AOCI +Other equity capital (treasury stk and employee stock ownership plan shares) + minority interest in consolidated subsidiaries - Net unrealized gains/losses on AFS securities - Net unrealized loss on AFS EQUITY securities - Cumulative perpetual preferred stk + noncontrolling minority interest in consol subs - disallowed goodwill, servicing assets and deferred tax assets + disallowed credit enhancing interest only strips

3

Tier 1 Risk-Based Capital Ratio

Tier 1 Capital / Risk Weighted Assets Min Amount is 4%

4

Total Risk-Based Capital Ratio

Total Capital / Risk Weighted Assets Min Amount is 8%

5

Tier 1 Leverage Ratio

Tier 1 Capital / Average Total Assets Min Amount is 3%

6

Capital Restoration

if capital falls to undercapitalized level, bank must submit written capital restoration plans with the FRB within 45 days of the date the bank receives notice of being undercaptialized.

7

3 Primary consideration in evaluating the Capital rating

1. asset quality 2. earning 3. growth prospects

8

Risk based capital measures what kind of risk?

Credit Risk - off balance sheet

9

How can management increase capital levels?

Invest in assets that carry a lower risk weight

10

Capital purpose

1. absorb losses after earnings 2. promote public confidence 3. give mgmt ability to adjust to changing environment 4. provide measure of protection for the FDIC insurance fund

11

Leverage Ratio

Readily available to absorb losses. Does not take into account the risk profile

12

Risk-Based Capital

addresses the credit risk in different assets and takes into account off-balance sheet items

13

Section 5199 - Dividend Restrictions

Cannot declare until: surplus fund is equal to common captial, at least 10% of NI of preceding half year or year carried into surplus.

14

Section 208.5 of Reg H - Dividends and Other distributions

May not declare: if total of all dividends declared and proposed exceeds NI for the current calender year and retained NI of prior two years; if dividends exceed undivided profits, unless approved by BOG and 2/3 shareholders May not permit any portion of permenant capital to be withdrawn, unless approved by board and 2/3 of shareholders

15

Tier 3 Capital

Applies to only banks subject to market risk capital guidelines

16

What to look at in Asset Growth Rate?

Look @ change in risk weighted assets

17

Risk-weight Asset Categories

0%: Cash, Due From Federal Reserve, Gov't and Agency Securities, Fed Stock 20%: Cash in process of collection, Due from banks, General obligations, Gov't sponsored agency securities 50%: Loans secured by 1-4 Residential property, Revenue Bonds 100%: Industrial bonds, ORE, Fixed assets, All other loans, all stripped MBS, and corporate stock

18

Components of Compliance Risk Mgmt Rating

1. Board/Sr Mgmt Oversight 2. Consumer Compliance Program Structure 3. Policies and Procedures 4. Compliance Audits/Reviews 5. Internal Controls 6. Training RATING SCALE is 1 to 5

19

Components of Consumer Affairs Supervision

1. Risk-focused compliance exam (compliance risk profile / compliance risk mgmt rating/risk-focused exams . Monitoring . Outreach) 2. Fair Lending Exam (compliance ratings from 1 to 5) 3. CRA exam (rating outstanding to non-compliance)

20

Key characteristic used in evaluating products on a CA exam

product materiality

21

Only rating mandated by law

CRA (rating is not numerical, as are others)

22

5 criteria used to evaluate a small bank's CRA rating

1. loan/deposit ratio 2. loans in assessment area 3.borrower characteristics 4. geographic distribution 5. complaint resolution

23

Large Bank Exam procedures - 3 Tests

1. lending test 2. investment test 3. service test

24

CRA Laws and Regs

Reg B = ECOA and Fair Housing Act; Reg C = HMDA; Reg Z = truth in lending; Reg H = flood disaster; Reg X = RESPA; Reg DD = Truth in Savings; Reg CC = Expedited Funds Availability; Reg E = Electronic Funds Transfer

25

2 primary laws that deal with Fair lending

Reg B ; Fair housing act

26

Fair Housing

prohibits discrimination on familial status (kids, etc) and handicap

27

ECOA

prohibits discrimination on age, marital status, receipiant of gov assistance

28

Reg Z

Truth in Lending - open-end/closed-end loans for personal, family, household purposes; $50,000 and under if not secured by RE. Disclosure: APR, finance charges, variable rate terms, prepymt restrictions. Other Provisions: right of rescission (3 days), credit advertisements, credit card liability limitation ($50)

29

Right of Recission

Doesn’t apply for loans used to purchase primary residence. Applicable only to subsequent refinance or home equity loan

30

Reg C

Home Mortgage Disclosure Act - certain banks (located in MSA and TA >=$41MM of previous yr) must collect and report data on home mortgage purchase, refi, improvement loans

31

Forms of discrimination

Overt (blatant); Disparate Treatment (subtle applying of policies in a discriminatory manner - i.e. higher rates to women); Disparate Impact - non-discriminatory policy w/discriminatory impact (i.e. "we will not make loans under $___)

32

CRA Product Risk Characteristic

1. product mgmt 2. prod materiality 3. prod stability 4. bank size or mkt share

33

CRA Ratings

Outstanding, High Satifactory, Low Satisfactory, Needs Improvement, Substantical noncompliance

34

CRA Component Test Ratings

Outstanding, Satifactory, Needs Improvement, Substantical noncompliance

35

A bank calculates an understated finance charge, under Reg Z

regulator could order restitution to the borrowers.

36

What rule assures that a married woman applying for an individual loan does NOT have to have her husband's signature?

Reg B = ECOA

37

Loan officers putting excessively restrictive covenants on loans increases what risk?

Legal

38

DeNovo Bank

a bank that has been in operation for five years or less.

39

SR-91-17 Application and Supervision Standards for De Novo State Member Banks.

1. a limited scope examination after the bank’s 1st qtr of operation; 2. a full-scope examination six months after the end of the 1st qtr of operation; 3. a full-scope examination for each six-month interval thereafter until the bank receives two consecutive CAMELS composite ratings ‘‘1’’ or ‘‘2’’

40

Earning help and institution do what?

cover expenses, provide for loan and other losses, support growth, augment capital, pay dividends, attract/retain competent mgmt.

41

Net Interest Margin

Net Interest Income/Average Earning Assets

42

Annualization

factor that varies depending on the quarter being reviewed. i.e. June 30 data, the annualization factor would be 2 (12 divided by 6)

43

Return on Average Assets *Primary Ratio used when analyzing the strength of a bank's net income

Annualized Net Income/Average Assets

44

How is Net Interest Income Derived

Interest Income - Interest Expense

45

Primary ratios used to evaluate earnings

NIM & ROAA

46

ROAA Benchmarks

5 categories - Over .10%, down .20%

47

Earnings can be manipulated through this?

Provision Expense

48

Efficiency Ratio

Overhead / (NII + Non interest Income)

49

Non-interest Expense is made up of?

Overhead, Personnel, Occupancy, and Other non-interest expense

50

How is Net Interest Income Derived

Interest Income - Interest Expense

51

Primary ratios used to evaluate earnings

NIM & ROAA

52

ROAA Benchmarks

5 categories - Over .10%, down .20%

53

Earnings can be manipulated through this?

Provision Expense

54

Non-interest Expense is made up of?

Overhead, Personnel, Occupancy, and Other non-interest expense