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Flashcards in Examiner Test Flash Cards Deck (186):

Two condition that must be met before any loan is made to an insider per Reg O

1. Made on substantially similar terms as those to non-insiders

2. Doest not include more than normal risk of repayment


Can you amortize or accrete a premium or discount to the Call Report Date?

NO, from purchase date to actual Maturity only


Trouble or new institutions need prior approval to hire whom? Length of notice?

Senior Officers & Directors

30 day notice required


List factors to consider when assessing Sensitivity to Market Risk (3)

1. impact to earnings and capital during adverse rate changes

2. nature and complexity of risk

3. Management's ability to identify, measure, monitor and control risk given size, complexity and risk profile.


How to account for a loan moved to non accrual status.

Reverse all previously accrued but not collected interest on Balance Sheet and Income Statement

CR - Accrued Interest Rec ( to reverse uncollected interest)

Dr - Interest and fee income on loans ( if during current calendar yr)


Records for Reg O, Applying to all insiders

-- identify through annual survey, all insiders of the member bank

-- maintain record of extension of credit, amount and terms to insiders of member bank

-- maintain record of extension of credit to insiders of affiliates by using: survey method, borrower inquiry method.


Securities have appropriate credit quality and marketability characteristics to be purchased and held by banks if you can determine what 2 things about the issuer?

A. Issuer presents low risk of default

B. The security is currently trading above par value.

C. Management's documented assessment indicates issuer will make full and timely repayment of P/I.

D. Security is currently rated BBB or better.

A. Issuer presents low risk of default

C. Management's documented assessment indicates issuer will make full and timely repayment of P/I


What is considered a concentration in securities?


25 percent of Total Capital

US Government & treasury and any Fed Funds or loans secured by the same, including FHLB, FHLMC, FNMA


Change in the $ amount of NII from one period to the next is caused by variances of 3 distinct factors (MLR)

MIX - change in earning assets and funding liabilities shows the effect of the composition of the asset/ liability structure

Level - shows the effect ( cost/ return) of changes in the level of average assets

Rate - measures the effect of changes in asset yields & cost of funds


When capital is low enough, What guidelines should be used to assess concentrations?

Generally 2 percent of Total Assets


T or F: Dividend check issued and outstanding should be reported as Other Liabilities

False - Dividends declared but NOT YET PAID are reported as Other Liabilities

Issued = paid


Actions that constitute negligence on the part of the Board?

Attitude of general indifference towards bank affairs


Are Fed Funds Sold secured by FHLMC bond included in concentration amount?



Key-man life insurance held on a VP who is no longer employed - what two actions can be taken?

--surrender / dispose of policy

-- justify the benefit of keeping it


To add coverage to the blanket bond, the Bank may obtain a ________ .



Prior to acquiring a corporate debt security, management must determine ...

A. Future CF results in a DSCR of 2x or greater

B. The Interest Rt is comparable to a government bond.

C. The issuer has the ability to meet the financial commitment for the projected life of the investment.

D. A & C

C. The issuer has the ability to meet the financial commitment for the projected life of the investment.


Bank management determines they will purchase an investment based solely on Aa rating issued by Moody's. Is this permissible? Why or why not.?


Management can not rely solely on external credit ratings to determine whether or not a security is permissable or investment grade.


Are managing partners of LLC liable for the debt of the LLC?

Reg. O


Reg O -- Managing members have ownership so if >/= 25 percent of control is met then include w/ insider (related interest)

LLL -- do not include unless loan benefit the individual


4 Lists the Board of Directors must review & minimum amounts.

(RSMo 362.275)

In order - [NAPD]

First List: New loans - greater of $10M or 5% of the LLL

Second List: Aggregate Indebtedness - greater of $50M or 5xs the loan list amount

Third List: Past Due >/= 30 days

Fourth List: DOE Indebtedness


Legal Lending Limit

-- If a corporation is a general partner in a limited/ general partnership would a loan to the partnership be attributed to the corporation for legal lending limit?

YES (understand concepts)


Why should bank checks be pre-numbered?

To ensure all outstanding checks are considered for reconcilement & to control the supply of unused checks to prevent fraud.


Kiting occurs when ...

the aggregate amount of draws exceeds the sum of collected balances in all accounts.


A return item is considered late when?

After midnight of next business day. ( 2 business days )


Public Funds are reviewed due to ________ and
potential __________.

Size ( 2 percent or greater of Total Deposits)



3 reasons why a bank would want to borrow

Meet temporary/ seasonal loan or cash requirements

Meet large and unanticipated deposit withdrawals

Serve as an effective liability management tool


Define "Cash Exposure" as it relates to fidelity coverage

An excess of cash on hand over blanket bond coverage


Test applied to a floating rate CMO

Price sensitivity


Main difference between 23A and 23B

23A governs the knowable amount of transactions between affiliates (lending limits) and sets minimum collateral requirements; where as 23B requires that terms and condition of any transaction not be preferential.


Market Risk reflects, What? (name 3) SMR

Interest Rates

Commodity prices

foreign exchange rates



-- expected life of a fixed income security taking into account its coupon yield, interest payments, maturity, and call features.

-- attempts to measure ACTUAL maturity, as opposed to FINAL maturity by measuring avg. time required to collect payments

-- duration of a callable bond (effective duration) may be considerably shorter than its stated maturity in a period of rising rates. As rates + duration -


Maximum a bank may invest in any one CDC project?

Aggregate fro all projects?

No more than 2% of unimpaired capital

5% Aggregate


Maximum a bank may invest in fixed assets?

DOF permissions to remodel existing premises?

-- up to 50% of unimpaired capital, unless 1 or 2 rated, then 75%

-- no limits unless it will exceed the above threshold


Examples of Non-Interest Income

Service Charges, ORE Income, Check Sales,
Safe Deposit Box Rental, Teller Long, Notary Fees,
EDP Fees for others


Five Components of Earnings

(Earnings Trail) NNOPI

Net Int Inc.
Non Int. Inc.
Overhead Expense (Non Int. Exp)
Provision Exp
Income Taxes


Matured CDs not automatically renewable are reported as _________ on the Call Report.



Publication required for CALL Report?

published w/ in 30 days after submission to commissioner and copy must be available in main banking house


Short term non core funding dependency ratio

ST non core liabilities - ST Investments / Long Term Assets

ST Non core Liabilities --
Time Dep > $250M < 1yr
Other Borr < 1yr
Brokered & Foreighn Dep < 1yr
Demand notes issured by US Treas.

ST Investments--:
IBBB/ FFS/ Repos
Debt Sec w/ Mat 1 yr or less

LT Assets --

Loans & Loans Held for Sale
HTM & AFS Securities
Direct Debt Sec 1yr or less


What is the primary purpose of ASC 310 regarding the ALLL?

Primary purpose of ASC 310 is to test loans for impairment; based upon current info and events is it probable that the institution will be able to collect full P/I according to original terms of the loan.

If Yes: not impaired
If NO; impaired


UCC - 11 serves what purpose?

Search Records


Management must determine if a corporate debt security is eligible for investment prior to purchase. They must also identify & measure risk of their investment periodically?

True or False



List 8 examples of non-interest expense

Directors Fees
Accounting / Legal Fees
Postage Exp
Insurance Premiums


How old does a Missouri bank have to be for acquisition by a BHC from another State?

5 years or older


What is the "Loss Sustained" method of writing a blanket bond.

Bonding company is liable only to extent of coverage for losses sustained during the period the bond is in force. Based on date of loss not date of discovery.


Can a defaulted Industrial Revenue Bond issue another levy to collect funds to repay debt.

NO -- issued based on payment from project. Same project can't issue new bond if already defaulted.


"3" rated earnings indicates what?

Earnings may not fully support operations and provide for the accretion of capital and allowance levels in relation to the institutions overall condition, growth, and other factors affecting the quality, quantity and trend of earnings.


When are prepayment penalties allowed on RE loans?

Within 5 years of the origination date
Max of 2% of outstanding balance.


Reciprocal Account

Two depository institutions who maintain balances w/ each other. May report "net" when "right of set off" exists.


What type of risk is present in a due from account?

Credit Risk -- the extent that balances exceed deposit insurance coverage.


RE held for future expansion should be carried in what category per Call Report Instructions?

B. Loans
C. Premises & FA
D. A or C

C. Premises & Fixed Assets

Would be ORE when RE is no longer going to be used for future expansion.


If an adjusted ROAA is less than the ROAA, it means what?

more losses were realized than provisions made.


Define Ultra Vires Act?

Where would it be shown in the ROE?

Actions beyond the powers of a corporation charter or bylaws ( any act prohibited by charter or bylaws or excessive use of powers granted leaving business open to lawsuit)
Shown on Violations Page


Define "insider" as it is in the ROE "Extension of Credit to Insiders" page

An executive officer, director, or principal shareholder, and includes any related interest of such person
-- Reg O


Is the ASC 320 Adjustment included when calculating --
--Reg O
-- 23A, Thresholds



Two things a Form UCC - 3 can be used for

Continuation, Termination, Release, Assignment


Brand new bank has not filed a Call Report:
Capital stock $1,500M
Surplus $1,500M
UP $0
What is the bank LLL prior to first Call Report if located in a town with a population of 10M people

20 percent of day one equity capital
$3,000M x 0.20 = $600M LLL


Certificate of Compliance

statement signed by an authorized officer that states the bank is looking to borrower for payment when paper is purchased with recourse


Factors for determining the adequacy of the ALLL

(know 5)
-- volume and mix of existing loan portfolio
-- extent to which extensions and renewals are used
-- trends for loan growth
-- local economic conditions
-- previous loan history
-- relationship and trend of receivables as a percentage of prior year charge offs
-- available outside info; including peer group


Name 4 short term Assets

Loans < 1 yr
Securities < 1 year
IBBB < 1 yr


Examples of other Assets

-- prepaid expenses
-- repossessions
-- computer software
-- income earned, not collected
-- original artwork
-- net deferred income taxes
-- CSV life insurance
-- Equity securities w/ out readily determinable MV


Examples of Other Liabilities

-- Accrued expenses
-- Net deferred tax liability
-- dividends declared, not paid
-- accounts payable → accrued interest payable
-- deferred gains
-- deferred compensation


Maximum exception allowed on LTV Limits
[All & "other than 1-4 Family"]
[Part 365]

All = 100 percent of Total Capital
Other than 1-4 Family = 30 percent Total Capital


DOF Capital Guidelines
- Non Problem Bank
-Problem Bank w/ inadequate level
-New Bank (DeNovo)

- 6% w/ fully funded reserve (ALLL)
- 8% w/ Fully funded reserve
- greater of 8% of TA for first 3 years or $2,000M and 6% after first year of operations ($3.000 metro & $5,000M St Louis)


Define "Affiliate" per 23A

(A) any company that controls the member bank and any other company that is controlled by the company that controls the member bank
(B) a bank subsidiary of the member bank:
(C)(i) any company that is controlled directly or indirectly by a trust otherwise, by or for the benefit of shareholders who beneficially or otherwise control, directly or indirectly by trust or otherwise, the member bank or any company that controls the member bank (ii)in which a majority of its directors or trustees constitute a majority of the persons holding any such office with the member bank or any company that controls the member bank.
(D)(i) any company including a RE investment trust that is sponsored and advised on a contractual basis by the member bank or any subsidiary or affiliate of the member bank or (ii) any investment company with respect to which a member bank or affiliate thereof is an investment adviser as defined in sec. 2(a)(20) of the investment company act of 1940 and
(E) any company that the Board determines by regulation or order to have a relationship with the member bank or any subsidiary or affiliate of the member bank, such that covered transactions by the member bank or its subsidiary with the company may be affected by the relationship to the detriment of the member bank or its sub


Not An Affiliate 23A

(Kade included)

(A) any company, other than a bank, that is a subsidiary of a member bank, unless a determination is made under paragraph (1)(E) not to exclude such subsidiary company from the definition of affiliate;
(B) any company engaged solely in holding the premises of the member bank;
(C) any company engaged solely in conducting a safe deposit business;
(D) any company engaged solely in holding obligations of the United States or its agencies or obligations fully guaranteed by the United States or its agencies as to principal and interest; and
(E) any company where control results from the exercise of rights arising out of a bona fide debt previously contracted, but only for the period of time specifically authorized under applicable State or Federal law or regulation or, in the absence of such law or regulation, for a period of two years from the date of the exercise of such rights or the effective date of this Act, whichever date is later, subject, upon application, to authorization by the Board for good cause shown of extensions of time for not more than one year at a time, but such extensions in the aggregate shall not exceed three years;


Per Reg U - If bank stock is held as collateral, it must have a margin of ______%?

Does the margin have to be maintained if the stock value declines?




Indicated the collateral requirements on extensions of credit to affiliates.

A. 100%

B 110%

C. 120%

D. 130%

A. 100% collateral margin secured by US Gov. or Agency Securities or segregated deposits

B. 110% collateral margin if obligation of a state or political subdivision of a state

C. 120% collateral margin if other types of debt instruments (such as A/R)

D. 130% Margin if stocks, leases, or Real/ Personal Property


Can legal costs incurred AFTER foreclosure on ORE be capitalized?

NO, must be expensed.

*Can only capitalized expenses that occur before/ on the day of foreclosure.


Do you include the unfunded portion of a loan for concentrations?

List exemptions of Concentrations (3)


-US Treasury, US Agency & Corp, and Obligations secured by the same
-Loans secured by bank CD's
- Out of Territory if < 100% of Tier 1


T or F
It is standard procedure for insurance companies to write blanket bonds on a discovery basis.



Vessels registers w/ Coast Guard are issued what document by a local office?

Certificate of Documentation, (... recorded lien on...)


A financing statement (UCC) must contain 6 formal requisites. What are they?

1. Name & mailing address of secured party
2. description of collateral
3. If crops growing/ or be grown, description of RE
4. Timber or minerals, description of RE plus name of recorded owner & state it must be filed in RE mtg. records
5. Contain notice that products of collateral are covered
6. signed by debtor.


2 Basic methods to make A/R advances?

1. Blanket assignment - payments made to borrower, remitted to bank
2. Ledgering the account - payments made to bank


CSR 140-2.065
-Total investment and extensions of credit in all RE development corps cannot exceed ____ ?
- Max equity investment in any one RE project?

5% Total Assets

20% unimpaired capital

Same applies to investment in lease financing limited partnership.


Can RE taxes, maintenance, and insurance be capitalized at time of foreclosure on ORE?


Expense any cost incurred after foreclosure


-- 23A permits covered transactions w/ affiliates so long as the transactions do not exceed ______.

-- What are 5 covered transactions?

10% of bank Tier 1 + Tier 2 + ALLL for a single transaction / 20% to all affiliates.

1. Loans or extension of credit to affiliate
2. Purchase of or investment in securities issued by affiliate
3.Purchase of assets, including assets subject to repurchase
4. Acceptance of securities issued by affiliate as collateral
5. Issuance of a guaranty, acceptance, letter of credit, on behalf of an affiliate.


4 Basic types of construction lending


Unsecured Front Money
Land Development
Commercial Construction
Residential Construction


4 Major types of Audit reports



"3" Rated Management indicates what.

Risk mgt practices are less than satisfactory given the nature of activities. Problems & significant risks may be inadequately identified, measured, monitored or controlled.


Purpose of an Audit


1. detect and prevent fraud
2. verify accuracy of bank records
3. compliance w/ laws and regs


What are Federal Limits on control of deposits?

No Holding Company may control over 30% of deposits in a state.


T/ F

Rental Income on ORE is netted against ORE Balance



4 quantitative considerations in determining Capital adequacy

Dividend as a percent of NI

Capital adequacy in relation to BHC

Equity Capital to TA

Equity Growth to Asset Growth


A former bank branch is now used a storage facility and is listed for sale. Examiner X has requested management move the parcel out of FA and into ORE.

Is Examiner X correct? Why or Why Not

Yes, despite managements continued use of the property as a FA, the fact that it is listed for sale clearly indicates the parcel s/b in ORE and subject to laws and regs that govern treatment of ORE


Loan secured by a CD equals 28% of Total capital should this be shown as a concentration.

NO, if the CD is held at the same bank as the loan

Yes, if the CD is held at a different bank


Difference between Collateral Value and Loan Value?

(Collateral Value - Loan Value = ? )

Collateral Margin


4 ways to increase Capital

Capital Injection

Sale of Stock

Earnings Retention

Sale of Assets for a Gain



Amount in excess of par value received from sale of stock


Primary danger in "shrinking" assets to improve Tier 1 Capital Ratio.

Strained Liquidity


3 things to consider when reviewing the ALLL?

1. Bank's system & controls for identifying, monitoring, and addressing AQ problem.

2. Analysis used t determine collectability and exposure

3. Whether or not provisions are made timely


Assessment of Management should include:

1. Whether or not insider abuse is evident.

2. Existing management's past record on performance in guiding bank

3. Whether loan losses & other weaknesses are recognized in a timely manner

4. Past compliance w/ supervisory agreements, commitments, orders

5. Capability of management to development & improvement a plan for problem resolution.


Lien on aircraft filed with?

FAA - Federal Aviation Administration, Oklahoma City, OK


What types of boat require filing w/ US Coast Guard to perfect a Lien?

Non-pleasure boats over 5 net tons or 26 ft in length


- T/ F - Trust Company may invest in all kinds of stock

- Types of stocks a bank my invest in?

- Bank as trust -- limitations on insurance activities?

- True

- Bankers Bank, FHLB, FRB, Safe Deposit Company, Ag Credit Corp


What are 4 criteria to Rate Asset Quality

a. level and trend of adverse classifications.
b. level and trend of NA and PD assets
c. Adequacy of the ALLL
d. Management demonstrates ability to administer and collect problem credits


Under 23A, When a bank is ____% owned by a HC, transactions w/ other banks that are also _____ % by same HC's are largely unrestricted. What is the exception?

- 80% & 80%
-purchase of low quality assets


Max. overdraft charges allowed by RsMo 406.653

Same as national banks "as parties agree"

July 1, 2010 customers must opt in for Overdraft protection.


Under 23A, A trust set up solely as an estate planning device considered an affiliate.

NO, not a "company" per definition if the trust doesn't operate as a company


Director added to BOD w/ pre-existing loans that exceed Reg O limits.

Is this a Violation?

NO, but once up for renewal the extension must comply w/ limits

renewal = extension , per Reg O


Which are not permissible investments by the DOF?

A. CMO residual
B. PRN only striped MBS
C. Int only striped MBS
D. All
E. A & C

E. CMO Residual and Int Only Striped MBS


Credit Life Limits on payment of borrowers

Not to exceed 5% of employees salary in one year or 5% of average salary for all officers participating. Payments cannot be more often than quarterly and must be approved by the Board.


Purchase money security interest n farm equp requires no UCC filing if it is less than, what?



What constitutes a correspondent bank concentration and why is it important

Aggregate time & demand balances due from and unsecured FFS (as principal) to one Financial Institution = 25% or more of Total Capital.

Lack of diversification may pose a risk to capital - hence, Reg F


Why compute NIM on Tax Equivalent basis

because before tax yield on tax exempt assets does not accurately reflect its economic value


Three risks associated w/ liability management

- high cost of funds may lower quality standards on loans & securities to obtain higher yields
- purchased funds may not always be available.
-over-reliance may result in a concentration of Short term Liabilities supporting Long Term assets (Net Noncore Funding)


What are the 5 covered transactions?

1. loans/ extensions of credit to affiliate
2. purchase of, or investment in securities issued by an affiliate
3. purchase of assets, including assets subject to repurchase.
4. acceptance of securities issued by affiliate as collateral
5. issuance of a guaranty, acceptance, letter of credit, on behalf of the affiliate.


Under 23A, are companies that are engaged in holding bank premises, conducting safe deposit business, or holding US Treasury/ Agency securities considered affiliates?


Other Non-bank affiliates: non-bank subsidiary, debts previously contracted.


LLL is a % of unimpaired Capital based upon size of the City where the bank is.
-- What are the thresholds?
-- Exceptions?

0-7M -- 25% Unimpaired Capital
7,001 - 99,999 -- 20%
> 100M -- 15%
--Unless 1 or 2 rated, than default to 25%
-- 35% if amount > LLL is secured by AG products, warehouse receipts, insured, stored in public facility at 15% above the amount of the loan.


Part 365:
-- Limits (total)
-- Reporting
-- Exceptions *

-- All Loans > limits should not exceed 100% of Total Capital
-- Commercial, AG, Multifamily residential > limits should not exceed 30% of Total Capital
-- Report to BOD quarterly
Exceptions (1) GTY by Fed, state, local gov, (2) Held for immediate sale (3) refi/ renew w/o new $ (4) Financed ORE (5) TDR (6) Abundance of Caution


What businesses are excluded from being an affiliate 23A?

1. Non bank subsidiaries of a bank
2. A company engaged solely in conducting safe deposit business
3. A company engaged solely in holding oblisgation of the US Treasury, its agencies or other securities gty'd by same as to Prin. & Int.
4. A company where control results from debt previously contracted action.
5. a company engaged solely in holding bank premises.


Asset Categories:
- Rated IRB's
- Non-rated IRB's



Name 3 levels of Computer Access

Inquiry only
memo post
online post


-- Max percent of deposits a BHC may acquire in MO?--
-- What deposits are excluded when calculating the percentage?

-- does not include CD's > $100M, foreign deposits, deposits if banks not controlled by HC


What items have to be reported on an accrual basis?


Installment Loan Income
Amortization of Security Premium
Income Taxes
Depreciation of Fixed Assets


T or F: Gtys count for extensions of credit for Reg O not for LLL



Max amount a salaried officer may borrow upon Board approved?

No more than 10% of unimpaired capital

aggregate to all salaried officers cannot exceed 25%


Define Cash items in Process

checks or other items in process of collection which are immediately payable in cash upon presentation


4 types of Mortgage derivative products

Stripped MBs
CMO & Remic Residual

RSMo. 362.170 - Private issue CMO, Other states, corp. debt & other secuities are subject to the LLL


Why should DDA unposted items be reviewed daily

all checks should either be paid or returned

if in suspense account, examiner should investigate why not paid/ returned.


Two reasons for Deferred Tax

Timing Differences


- When do you do a scramble Sheet

- What does it tell you?

- when assets are rated 3 or worse, significant increase in classifications, or EIC discretion

- what has happened to previous classifications and where new classification are coming from


When does a bank need DOF permission regarding premises?

To purchase, lease, hold, or convey real property


Where should G/L from sale or ORE be reported after the initial foreclosure entries.

Net G/L on sale of ORE


How is ORE acquired?

- Debts previously contracted
- Property originally acquired for future expansion
- Purchase of a transferring employee residence
-ORE sold under contract and accounted for under the deposit method of accounting
-trade of property w/ another bank


Name 4 rating areas for EDP (Electronic Data Processing)


Acquisition & Development
Support and Delivery


Unearned Discount

Interest collected, not earned added to BV of loan; netted against loans in Call Report


Why is timing important when perfecting a security interest?

BC two creditors could have a security interest on the same collateral, whoever, perfected their interest first has first claim of the collateral


You are reviewing the small loan list and there is a loan to XYZ, Inc. 150 days PD. Should you classify the loan using the Formula Classification Method?

No, the formula classification method is to be used on retail credits consisting of loans to individuals for household, family, and personal expenditures. Retail credits also include loans for personal residence. Retail Formula method is not for business loans.


Accounting for ORE
--booking it
-- capitalized expenses

-ORE s/b recorded at the lesser of FMV (less cost to sell) or BV + allowable exp. (of BV > FV-C to S [90 days after G/L on ORE])
-Allowable expenses can be capitalized up to 6 months after transfer as long as BV doesn't exceed MV
(Exp. that enhance the value of the property - ok)
(utilities, taxes, insurance - not acceptable *after foreclosure)


4 Lines of defense against losses

- Earnings
- Reserves
- Sale of Assets
- Borrowings


Items a Personnel Policy should have to prevent fraud?

Selection and Training
Segregation of Duties
Rotation of Duties
Compulsory Vacations


-Length of time director of finance has to approve/disapprove application by BHC to acquire bank or another BHC?
- If BHC is from adjoin state?

- 30 days

- 60 days


Three items that can carry a negative balance on the CALL Report


Undivided Profits
Net Unrealized G/L on AFS Securities
Investment in unconsolidated Subsidiaries


When is a security considered investment grade?

*if structured security, determination of a full & timely payments of P&I is expected may be influenced by quality of underlying collateral, CF rules & structure
1. The issuer of the security has adequate capacity to meet the financial commitments for the life of the asset.
2. Adequate capacity is demonstrated by (a) the risk of default by obligor is low, (b) the full & timely repayment of P&I is expected.


Define Contingent Liabilities

Potential claims on bank assets for which any direct liability is contingent upon some future event.
--letter of credit, unfunded loan commitments, pending litigation, trust activities


- How many Directors must sign Call Report?

- Penalty for failure to do so?

- Penalty for willful, false reports?

-- 3 Directors

-- $100 per day

--$100 - $500 per day and or 1-12 months in prison


Pass Through Reserve Account

Non-member bank has chosen to maintain its required reserves indirectly with the Federal Reserve Bank. Reserves are maintained in a correspondent and the correspondent is required to pass the reserves through to the Fed.


Correspondent Bank Balances maintained for what reason?

-Enable funds transfers form collection of cash items and cash letters
-settlement of securities transactions
-purchase/ sell FF
-Transfer of participations loans


Three methods of computing Depreciation on Fixed Assets?

- Straight Line
-Double Declining
-Sum of the years digits
-Accelerated cost recovery System


Max on "other purpose" loans to EO's per Reg O

Not ot exceed the grater of 2.5% of unimpaired capital or $25M, but in no case > $100M


List 10 items that lead to development of Loan Problems

1 Poor selection of risk
2. over lending
3. Failure to est. liquidation agreements
4. Lack of supervision
5. Incomplete credit info
6. overemphasis on income
7. self dealing
8. Technical incompetence
9. lack of attention to changing economy
10. competition.


How long to file amended UCC due to borrower name change or a move of debtor and or collateral?

4 months


What is a loan covenant?
-2 qualitative/ measurable examples

-Special conditions included in a loan agreement that the borrower is required to fulfill for the loan agreement
- Net worth test; current ratio/ quick ratio test; debt service coverage; capital limitations; borrowing base limitations; CF volatility test


5 indicators of loan problems

1. overlending
2. frequent rewrites/ extensions
3. incomplete credit information
4. no formal repayment plan
5 .sloppy loan files



-the ability to fund assets and meet obligations as they come due
-Liquidity risk is the risk of not being able to obtain funds at a reasonable price within a reasonable time frame to meet obligations as they come due


5 ways a bank can meet liquidity needs
(2↑, 3↓)

-dispose of liquid assets
-increase short term borrowings
-increase long term liabilities
- decrease long term assets
-increase capital funds


The existence of BHC can affect an earnings analysis in what ways? (4)

- level of mgt fees
- dividend payments
-income tax payments up streamed
-type of earning assets employed


4 characteristics of capital notes

- require approval of DOF to issue
- maturity: min 7 yrs / max 20 yrs
- subordinated to all other debts and obligors of bank
- not FDIC insured


Why is the ROAA the best indicator of Earnings

Before extraordinary items;
shows true return on assets


Sources and Uses of Funds

+ = use of funds
- = source of funds
Liabilities & Equity
+ = source of funds
- = use of funds


10 powers, duties, & responsibilities of directors
(pick what isn't a duty)

- regulate the manner in which all business is conducted
-corporate planning
-hiring and firing of officers
-personnel administration
-honesty & diligently administer bank affairs
- observance of law
-avoid self serving practices
- pay dividends
- est. appropriate internal control and audit
- management information systems


Total RBC Ratio

Total Capital ÷ Total Risk Weighted Assets


Tier 1 RBC Ratio

Total Tier 1 Capital ÷ Total Risk Weighted Assets


FFS & FFP on same day w/ same entity is shown how on Call Report?



-Reciprocal Demand Deposits as shown _____ on Call ?
-Reciprocal Time Deposits are Shown _____ on Call Report?

-- Net

-- Gross


Why do Examiners review cash items, rejects, overdrafts etc.?

- For insider abuse
- to see if CF of a borrower is impaired
- to determine if any exceed 90 days and need to be C/O (OD's s/b C/O after 60 days)


When do you not report an overdraft as a loan?

When a bona fide cash management arrangement is established


What should you look for when reviewing a stock book?

-cancelled certificates are properly endorsed
- voided & re attached stubs
- if lost, proper affidavit of loss & hold harmless agreement
- pre-numbered & unissued certificates are accounted for.


Effect of high loans to assets on liquidity

Loans are not easily convertible to cash - leaving less liquid assets on the BS.


Reg O loans that can be in any amount? (4)

1. perfected by security interest in obligation of US Gov or Gty'd by the same
2. secured by deposits at lending bank
3. finance education of children
4 finance, refi, purchase, maintenance or improvement to residence - secured by 1st lien owned by EO
*refi only in amount to repay original w/ closing cost + amount to improve


Public funds must be secured by what percentage?

100% less FDIC insurance ($250M)


Explain Brokered deposits.
-Can they cause trouble?
- can they be beneficial?

-Deposits placed by a 3rd party acting as a broker
-bank is funding operations w/ out of territory deposit and may be paying premium - could indicate issues
-can help bank meet temporary liquidity needs


If Banks GL reports a matured US Treasury note, where should it be reported on the Call Report?

Non Interest Bearing Cash & Due From


What is considered "significant" for requesting amendments to the Call Report?

RI - 1% of operating income (but must be more than $5M)
RC- 1% of Total Assets (But must be more than $50M)


"Other Adjustments" that might be made to Capital besides Loss, ASC 320

Accrual Timing difference
Differences in accounts


What Call Report category should reflect "Purchased Interest on Securities"

Other Assets


Overdrawn Due From Report as_____ on Call Report?

Other Borrowed Money


Tier 1 Leverage Capital Ratio

Tier 1 Captial ÷ Adj. Avg. Total Assets


Common Equity Tier 1 RBC Ratio

Common Equity Tier 1 ÷ Total Risk Weighted Assets


What type of accounts opinion provides the most confidence in the accuracy and validity of the financial statements?
A unqualified opinion
B. Qualified Opinion
C. Compilation
D. All

A. Unqualified Opinion


4 Items that should be included when a bank prepares a Budget?

- Local economic conditions
- asset mix
-funding strategy
-anticipated level & volatility of int rates
- maturity mismatches -- GAP


Difference between unimpaired Capital calculation for Reg O/ 23A and LLL?

LLL includes goodwill & intangibles

others exclude goodwill & disallowed intagibles


- What are the limits established in Section 362.170(5) RSMo for loans to salaried officers?

- Are there any other requirements for loans to salaried officers?

- Aggregate of loans to any 1 salaried officer is limited to 10% of unimpaired capital; 25% to all salaried officers
-Prior approval by BOD or Executive committee & must be in proper form - documented in minutes


4 things to consider when assigning CAMELS rating for Capital?

-Growth; history / plans
-Overall financial condition - trend
-Trends in ; Problem assets/ ALLL/ Concentrations, etc
- Management; strength
-Earnings - ability, quality, HC relationship


Reporting Requirements for any extension to executive officers shall be:

1. Report to the Board
2. Comply w/ terms and credit worthiness conditions
3. Preceded by a current F/S and subject to demand clause


What are 4 criteria to rate Earnings?

-Ability of earnings to cover losses and augment capital.
-Earnings levels and trends
-Quality and composition of income
-Comparison w/ Peer


What are 5 Criteria to rate Liquidity?

-Volatility of deposits
Reliance on interest sensitive funds & frequency and level of borrowings
- Technical competence relative to liability structure
availability of assets readily convertible to cash
Access to money markets and other cash reserves
-Sources compared to present and future needs and ability to meet needs w/ out adverse impact
Capability of Management to Identify, Measure, Monitor, and control


What factors are considered in rating management?

Technical competence
Leadership & Administrative Ability
Compliance w/ Laws & regs
Ability to plan & respond to change
Adequacy of and compliance w/ policies
Depth & Succession
Willingness to serve community


$55M in outstanding drafts on Due Froms
We DR/ CR or They DR/ CR

We Credit
-Not in their account so back it out of ours to balance

- understand concepts


Due Froms s/b reconciled at least ____, put in ___ ____, and reviewed by a ______.


Permanent Record



Investment Risk:
Define Operating Risk

The possibility that inadequate internal controls or procedures, human error, system failure, or fraud can cause loss
-loss due to inadequate controls or procedures


Investment Risk:
Define Credit Risk

The Possibility of loss due to the counter-party or issuers default, or inability to meet contractual payment terms.
-loss due to counter party or issuer default


Investment Risk:
Define Legal Risk

The possibility that legal action will preclude a counterparty's contractual performance.


Investment Risk:
Define Interconnection Rick

The possibility of loss due to changes in interest rates, indices, or other instrument values that may or may not be held by the investor.
-loss due to changes in interest rates or indices


Investment Risk
Define Liquidity Risk

The possibility that an instrument cannot be obtained, closed out, or sold at its economic value
- risk that instrument can't be sold at its economic value


Investment Risk:
Define Settlement Risk

The possibility of loss from a counterparty that does not perform after the investor has delivered funds or assets
-loss because the counterparty doesn't perform after funds have been delivered


Investment Risk:
Define Market Risk

The possibility that an instrument will lose value due to a change in the value of an index of financial instruments, changes in various interest rates, or other factors
- loss due to change in price or value of index.
- market risk encompasses Price Risk, IRR, Yield Curve Risk, & Basis Risk