Flashcards in Examiners Test Deck 2 Deck (186):
What is the purpose of Part 365
Establish RE lending standards for state member banks, including LTV guidelines
List and describe types of bankruptcy
Chapter 7 - liquidation
Chapter 11 - Re organization
Chapter 12 - Agriculture
Chapter 13 - Wage Earner
What is the primary purpose of 23B
Same as 23A: and to ensure extensions between affiliates are made on terms that are substantially the same as those prevailing at the time for comparable transactions with non-affiliated companies
Definition of an Executive Officer per Reg O
Any person who has authority to participate in major policy making functions of the bank or company.
*To include chairman, president, every VP, cashier secretary, treaurer, unless excluded by BOD resolution or Bylaws
What titles are considered Executive officers, unless specifically excluded by BOD Resolution or bylaws?
Name 4 Instruments of Conveyance for ORE?
Which is preferred?
Quit Claim Deed
* Trustees, provides the most protection
Financed sales of ORE ASC 360.20 Deposit Method (FAS 66)
* No sale or loan recorded
No Profit or Int. Inc. recognized
Payments received are reported as a liability until another method may be used
Purchase money Security Interest
A security interest in collateral which takes precedence over previously filed liens of proceeds are used to purchase collateral and previous lienholders are notified.
The 5 C's
The 6 P's
Maximum number of directors added to BOD in one year
Not more than 2
What time period should goodwill be amortized over?
Goodwill is not amortized; rather it is tested for impairment annually
Where should a lender file a security interest (UCC) if:
A. All places of business in Jackson County MO
B. same as A but equipment is located in Bates County MO
C. same as A but farm equipment is located in Vernon County MO
D. same as C, but farmer lives in a different state.
A Secretary of State MO
D. Debtors residence - Secretary of State where they Live and in MO
3 Categories of securities
Available for Sale
Held to Maturity
3 methods of perfecting a security interest (define)
* perfecting a lien on personal property
Possession -- Collateral physically held by lender
Title - Lien noted directly on title document
Filing in Public Record - a financing statement (UCC) is filed with the appropriate agency
3 basic steps to secure personal property
1. Security Agreement
2. Security Interest
A bank may loan money to purchase it own stock if secured by collateral of at least ______ % of the loan.
Banks right to net a deposit against a loan is called?
Debt must be between ____ _______ ____ in right and _____.
Right of SET OFF
THE SAME PARTY in right and CAPACITY
What would a high level of charge-offs and nominal recoveries imply?
Management is not recognizing losses in a timely manner and or they are not collecting recoveries on the charge-offs.
define "Attachment "
When creditors legal rights in the debtors property come into existence.
Property is legally bound by creditors security interest.
A person is presumed to have control if: an executive officer or director and directly owns, controls has power to vote _____ voting stock. (Reg O)
or owns, controls, votes 10% and no one else owns a greater percentage.
Name 4 EDP Control's
Level of accessibility
Activity/ exception reports
List 5 Ways of becoming an affiliate according to 23A
1. Common Ownership
2. Common Directors
4. Wholly Owned
5. Presumptions of Control
Push down accounting affects what accounts?
- Max lending to individual insider per Reg O
- Max to all insiders
-- 15% of unimpaired capital NOT fully secured, an additional 10%if fully secured by readily marketable collateral
-- 100% of unimpaired capital for all insiders; Total deposits < $100M can be increased to 200% by BOD resolution (annual) if (Well Capitalized 1 or 2 rated)
Has potential weaknesses that deserve managements close attention. If left uncorrected, may result in deterioration of repayment prospects for the asset or in the institution's credit position at some future date. SM assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Name 8 Unsafe and Unsound banking practices that my result in a C&D
1. making loans w/out adequate security
2. operating w/ inadequate liquidity
3. maintaining an inadequate ALLL
4. maintaining inadequate capital
5. failing to C/O loans classified loss
6. paying dividends w/ no regard to earnings
7. not maintaining adequate FS/ Inc. Doc on borrowers
8. Failing to accurately reflect bank's condition in published statements.
List 4 exemptions from the usury Law (RSMo 408.030)
int. max amount allowed
They must agree in writing if in connection with:
1. corporation, partnership, LLC
2. Business loans of $5M or more
3. RE loans other than residential and loans of $5M or less secured by RE used for ag. activity
4. Loans of $5M or more secured by stock, bonds, CD's, warehouse receipts, or bills of lading, pledged as collateral
Current Assets - Inventory / Current Liabilities
An order in form of a time draft or bill of exchange drawn on and accepted by a banking institution for payment by that institution at some future date.
Securities < 1 yr
High quality open market commercial paper
Other readily marketable investments w/ maturities of 1 yr or less
-- CRE Concentration Guidance Limits
Construction/ Land Dev/ Other land to Total RBC >= 100%
Total CRE to Total RBC >= 300% and portfolio has increased by 50% or more over the prior 36 months
CRE = Construction/ Land Dev/ other land/ multifam/ nonfarm - non res/ non owner occupied
Not automatically criticized/ guidance
- What percent of capital and reserves can a bank invest in fixed assets w/ out commissioners approval?
- When can a bank invest in RE w/ out DOF approval?
-- 50%, unless 1 or 2 rated then 75% on unimpaired capital
-- when it doesn't exceed their LLL (unless insider or affiliate purchase)
Define Dual Control
One person's work is verified by another person to ensure the transaction is authorized, properly recorded and settlement is made.
example: person purchases security, person posts tickets, person balances.
Loan Fee Accounting (ASC 310-20)
off-set loan fees against cost and amortize difference to interest income over term of loan.
Unless an annual analysis is performed to prove immateriality
2 reasons for segregation of duties
diminish the possibility of fraud
What type of stock transfers or voting changes must be reported to the DOF.
Whats the time frame to report within?
President or delegated officer must notify DOF on the next business day anytime transfere's total holdings amount to 25% or more of total holdings AFTER the transfer or anytime there is a change in voting control
Characteristics of a stand by LOC
Labeled as a standby LOC
Limited in amount
specific time period
indicate relevant info to be presented to bank before draws will be honored due to accountable party's failure to perform.
When must an extension or credit to an insider have prior approval? Reg O
An extension of credit to an insider, when aggregate with existing credits exceeds the greater of:
$25M or 5% of unimpaired capital and anything greater than $500M
Must have prior approval by BOD majority
Gross profit / Net Sales * 100
Average Collection period of Accounts Rec.
Accounts Rec / Net Sales * 365
Accounts Payable Days on Hand
Accounts Payable / Cost of Goods Sold * 365
Inventory Days on Hand
Inventory / Cost of Goods Sold * 365
Exam Date 3/31
$100M Provision made during exam; Other Provisions would be minimal, this one-time provision will impact earnings. You decide to address this in your analysis.
Assume: Tax Rate - 34%
Pretax NOI - $373M
Applicable Inc Tax - $122M
TE Adjust - $15M
Avg. Assets - $89,905M
ROAA - 1.05
The projected ROAA would fall to what?
A. 0.61 percent
B. 1.02 percent
c. 0.98 percent
C. 373 - 15 = 358 * 4 (annualized) = 1,332
1,332 * 0.34 = 453 tax
1,332 - 453 = 879 / 89,905 = 0.98 ROAA
What are 3 test required of a mortgage derivative security (CMO)
1. Avg Life - weighted life not to exceed 10 years
2. Avg Life Sensitivity - extended by 4 or shorted by 6 on 3%
3. Price sensitivity - 17% change on 3% adj
What percentage of the BOD is required to be Missouri residents?
Majority; however, any director which resides w/ in a 100 mile radius of the banking house is considered a resident
RSMO 362.245 dictates the minim and maximum number of directors.
What is the range?
5 - 35 Directors
Section 362.265 RSMo allows the directorate to DECREASE the number of dictators by 2/3 majority,
True or False?
False - only stockholders can DECREASE
At a regular or special meeting the directors,
by a 2/3 majority vote, can INCREASE the number temporarily until approved by the shareholders
What would you look for to determine trading activities in Securities? (GPE)
List 4 Short Term Liabilities
Time Deposits < 1 year
Federal Funds Purchased
FHLB Borrowings < 1 year
Other Borrowed Money < 1 year.
Name areas within a loan write-up (5)
Previous Classification & Amount
Terms & Status of obligor
Purpose & Source of repayment
Classification and reasons
Officer & Examiner identification
5 criteria of a Letter of Credit
Labeled as a LOC
Limited in Amount
Payable upon presentaion of a draft
issued only subject to an agreement between the bank and another party
Inventory Ratio ( Inventory Turnover)
COGS / Average Inventory
1 Working Capital
2. Current Assets
3 Current Liabilities
1. Current Assets - Current Liabilities = Working Capital
2. Cash, marketable securities, A/R, Inventory < 1 yr
3. NP, Current Portion of LTD, AP, Accrued Exp, Tax Payable
One Section = ______ AL
One Mile = _________ ft, rods, chains
_______ square feet in one square mile
One Section is 640 acres ( square mile)
One mile = 5,280 ft; 80 chains, 320 rods
27,878,400 sq ft in one square mile
Asset Turnover Ratio
Sales / Avg Total Assets
AR Turnover Ratio
Sales/ Avg. Accounts Rec.
Net Sales - COGS = Gross Profit
Debt Service Coverage Ratio (DSCR)
(Annualized) Net Inc + Depr. + Amortization + Int. Exp
/ Annual Principle and Interest Payments
- How's it Calculated
- Desired %
- Ability of unencumbered liquid assets to cover withdrawals of unsecured funding liabilities
- Net Cash + ST Marketable Securities /
Net Deposits + ST Liabilities (FFP, FHLB, Other Borr, Time Dep < 1 yr)
- less than 25%
Tangible Net Worth
Total Assets - Total Liabilities - Intangible Assets = Tangible Net Worth
Two reasons for issuance of a C and D
Being operated in an unsafe and unsound manner
- What is the difference between an Agreement and a MOU?
- Are they legally enforceable?
- Is a C & D legally enforceable?
- An Agreement is issued by the Division, An MOU is FDIC or State issued (informal)
- NO - informal agreements are not legally enforceable
- C and D is legally enforceable and is issued by Division, FDIC, or Fed - Only public if issued by FDIC or FED
What are the methods used to account for the sale of ORE? (ASC 360.20)
Full Accrual Method
Cost Recovery Method
Reduced Profit Method
ASC 362.20 Applies to all transactions in which seller (bank) provides financing to the buyer of RE for a Gain
Full Accrual Method ORE
- Sale has been consummated
-recognized gain immediately as normal sale
- must have adequate down payment (5-25%, vary by property type)
- contractual payments must be enough to pay with in loan terms
-not subject to future subordination and borrower assumes risk and reward
Installment method ORE
- used when down payment is not adequate to use full accrual method, but recovery of the cost of the property is reasonably assured in the event of buyer default
- recognizes sale and corresponding loan
-profits are recognized as payments are recieved
-interest income is recognized on accrual basis when appropriate
Cost Recover Method ORE
- used when sale doesn't qualify for full accrual or installment methods (downpmt and pmts/ terms of loan)
-sale and loan are recognized
-no profit or interest income is recognized until either: aggregate pmts exceed amount of loan, or a change to another accounting method is appropriate
-loan is maintained on Non Accrual status while this method is used
**payments: decrease loan balance; Int: increase deferred gain
Reduced Profit Method ORE
- used when bank receives an adequate down payment but the loan amortization sche. does not meet requirements of the installment meth.
- profit is recognized as pmts are rec'd; however, profit recognition is based on present value of the lowest level of periodic pmts required
(seldom used if down pmt is ok, terms typically are structured appropriately)
Deposit Method ORE
- Does not recognize a sale or a loan
- asset is still reported as ORE
-No profit or interst income is recognized
-pmts rec'd are reported as a liability until sufficient pmts or other events have occurred which allow the use of one of the other methods.
- How many and what type of members are on the state banking Board?
- Who are they appointed by?
-Length of Term?
- 5 total (2 bankers, 2 non-bankers, 1 attorney)
- Governor w/ Senate concurrence
- 6 year term
True or False --
MMDA Accounts are Transaction Accounts
Reg F Stipulations (purpose and Limits)
-Banks to establish and maintain written policies and procedures to prevent excessive exposure to any individual correspondent
-Overnight credit exposure limited to 25% of Capital, unless well capitalized
Is there a limitation on the type of mutual funds a bank can invest in?
Yes the fund must contain only assets which the bank is legally allowed to purchase directly
-Property is presumed abandoned when ...
-How often should it be reported to the state treasurer
5 years stale for Official Checks and Safe deposit,
7 years money orders, 15 years Travelers checks
- Reported annually based on stale date from June 30, required to be escheated by Nov 1 of same year.
State law states Examiners are responsible for what three things?
-Safety & Soundness
- operation & compliance w/ laws and regs
- protection of depositors
Each bank must have a _____ and he/she must serve on the ______.
CEO, Board of Directors
An executive committee should have at least how many directors?
2 or more
Why is it best that bank policies be in written form?
- to provide clear objectives for the banks daily management
- Policies have been reviewed & approved by the BOD making management accountable for working within policy guidelines.
Directors can be held financially liable for ____ _____
Primary Liquidity Reserves
Cash and Due Froms
Concentrations of Total Capital
-- 25% (4 - ISSI)
-- 100% (5 - IPOTP)
25% - Individual Borrower, Small Interrelated Group, Singe repmt source w/ normal credit risk, Individual Project
100% - Industry, Product Line, Type of Collateral, Participation purchased from single institution/ ST obligations, Out of Territory
Requires Appraisals on RE:
1 Non business loans greater than $250M
2. All Business Loans greater than $1,000M
3. Business Loans > $250M but < $1,000M and repayment is dependent on sale or rent of RE
4. Renew/ Refi and Merterial Change in Mkt or physical condition that jeopardizes collateral protection or no new $ advanced
--principal residence > $250M include Ag in
-- Standby Letter of Credit
-- 2 primary areas of risk involved
-- An irrevocable commitment on the part of the issuring bank to make payment to a designated beneficiary (3rd party), if the banks customer defaults on an obligation
-- credit risk/ funding risk
Definition of insider per Reg O
Executive officer, director, principal shareholder and the related interest of each
Related interest of a person means:
A company that is controlled by that person, Control back to 25% of voting power
When can bank pay an overdraft on an EO w/ out using an overdraft protection plan? (3)
- When OD is <= $1M, account is not overdrawn more than 5 days, standard customer fee is charged
- pre-authorization transfer form is in place
-EO has a cash reserve account
Reg O Guidelines apply to who?
Definition of Control for Reg O.
- Executive officers/ directors/ principal shareholders and related interest of each
- Control = poer to vote or owns/ controls directly or indirectly 25% of voting stock
[Presumed Control 10%]
How many vacancies can the majority of the BOD fill until the next shareholders meeting? (RSMo 362.260)
1/3 of the whole number of the BOD
5 Major areas an investment policy should address -- in order
(Q, M, D, M, I)
Must a bank have trust powers to accept deposits as fiduciary?
No, must only be approved as originating trustee
-- Bank's total investment in RE development corps cannot exceed
-- max equity investment in one RE prop.
-- 5% of Total assets
-- 20% of unimpaired capital
Internal Controls focuses on flow of transactions.
Name the internal controls (4 - CARR)
When does a Security Agreement Attach (3)
--Debtor and Creditor Agree
--Value is given
--Debtor has rights in collateral
Are wholly owned non-bank subsidiaries affiliates under 23A?
Affiliates= Holding Co. and its subsidiary, Bank Subsidiary of the Bank, Interlocking Companies, Sponsored & Advised Affiliates
Primary purpose of 23A/ Reg W
To Prevent abuses that could arise as a result of transactions between banks and Their affiliates.
(Designed to prevent a bank from risking too much/ large amounts in affiliated enterprises and to assure that extensions of credit to affiliates are properly collateralize
365 LTV Guidelines
- Raw Land = 65
- Land development = 75
- Non residential Const. = 80
- Improved Property = 85
- 1-4 Family const = 85
- 1-4 Family Owner Occupied = one
**1-4 Family Owner Occupied > 90 at origination should require Credit enhancement (Mortg. ins or Mortg. Collateral)
--Any company which 25% or more of any class of voting stock is owned, controlled, or voted by the Bank OR
--Any Company which the bank controls the election of a majority of directors or trustees
6 Precautions Directors can take to protect themselves from liability
- Attend Meetings
- Record no Votes
- Obey Laws and Regs
- Remove incompetent officers
- Refrain from insider abuse
- Review 4 required lists
- Resign if disagreements persist.
Formula classifications for Consumer Loans
(Does not apply to business debts)
> 90 days PD - Sub
>= 120 days PD - Loss
>90 days Pd - Sub
>= 180 days PD - Loss
Amortization = periodic reduction of a premium (amortize a premium)
Accretion = periodic write-up of a discount (accrete a discount)
What is "unearned discount"?
Interest collected, not earned added to the book value of a loan; netted against loans in the Call Report
Primary purpose of Regulatory Capital
Return on Assets Ratio
Net Income / Total Assets = Return on Assets
(ROAA = Net Income / Avg Assets)
Agreement whereby the owner of a property grants a security interest in collateral to the bank to secure the indebtedness of a 3rd party
List LLL percentages (and be able to apply to word problems)
1. Population between 1-7000 = 25%
2. Population 7,000 - 99,999 = 20%
3. Population over 100,000 = 15%
of unimpaired Capital (and reserves & U/R Gain/Loss on Securitys
* All 1 & 2 rated banks default to 25%
Loans classified loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.
T/ F: Advances against accrued salary are extensions of credit.
T/F: Executive officers are limited to $100M extensions to purchase a home
False - unearned income is >30 days
Fals - home is excluded
Is an unfunded loan commitment an extension f credit for 23A
Yes if the agreement is formal and legally binding
Per 23A - a low quality asset is defined as " any asset that is..."
Adversely classified or Special Mention at the previous exam.
In NA status
PD > 30 days
Renegotiated or extended credits due to deteriorating condition of obligor (TDR)
Current Assets/ Current Liabilities
Negotiable promissory noes with maturity < 270 days and collateralized
Bank makes loan to an affiliate.
Bank Holding Company Stock secures the Loan.
Violation of 23A?
Yes, Cannon use stock of an affiliate to secure loans to an affiliate.
Debt to Equity Ratio
Total Liabilities / Total Stockholders Equity
S1/2 of N1/4 of NW 1/4 of SW 1/4 is how many AL?
640/4= 160 /4= 40 /4= 10 /2=5 AL
Annualized Net Int Inc. (Tax Effect) / Average Earning Assets
Bank facilities located in cities of what size may operate an insurance agency
population of 5M or less
Blanket Bond Insurance premiums of $7,620 paid
Cr. Cash - 7,620
Dr. Prepaid Insurance - 7,620
Cr. Prepaid Ins - 635
Dr. Ins Exp - 635
Non Transaction Accounts
Transaction - Demand, Now, super now, ATS, pre-authorized transfers and telephone transfer accounts
Non Transactio - MMDA, Savings, Time
Three major types of insurance involving risk exposure
- Maximum value of key man life insurance can be shown on the books?
- can the CSV exceed the LLL?
-- Book balance cannot exceed the Cash Surrender Value
Push down accounting MUST be used when there is a ___ percent change in control/ voting stock
can be used when >= 80% change bu < 95% change
Composite 3 exhibits What type of Characteristics?
-Some degree of supervisory concern in one or more of the component areas
-Combination of weakness that range from moderate to severe. Mgt may lack ability to willingness to effectively address weakness.
-May be less capable of withstanding business fluctuations
Why do examiners transcribe the ALLL (3)
- to ensure accuracy ( to CALL)
- to post charge offs to linecards
- to check for items classified loss at the LX were charge off
What constitutes a fully funded loan loss reserve
A balance adequate to absorb anticipated loan losses
What is included in Overhead Exp
Other Operating Exp
-Inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged if any.
Loans so classified must have well defined weakness or weaknesses that jeopardize the liquidation of debt.
They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
Loans classified doubtful have all the same weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Adjusted NOI should be used because it allows for what 2 things? (when calc. ROAA)
Provision Expense and Losses
(NOI after taxes + securities G/L + Provision - Losses) / Average Assets
--Entries toBook a $200M Bond at 102:08 on 1/1/92 due 7/1/93
--Entries to amortize premium
102:08 (8/332) = 102.25% *200M= $204,500M
Dr Securities $200M
Dr Sec Unam Pre $4500
Cr Cash 204,500
4500 / 18 months = 250
Dr. Amor Exp 250
Cr. Unam Pre 250
-- Criminal referrals (SARs) are filed w/ who?
-- What are the stipulations?
-- (A). $1000 + suspect can be identified
(B) $5000 + suspect cannot be identified
**must be filed w/ in 30 days of discovery
What is a Consent to Service Form?
- A form required when a director is a non-resident of the state (includes directors that live w/ in 100 mile radius, but still out of state)
Define Tier 1 Capital
Total Bank Equity Capital
Perpetual preferred stock retained earnings
related surplus AOCI
common stock Other Equity Capital
Less: net unrealized G/L on AFS Securities disallowed goodwill & other intangibles
Other Adj: OA Loss from ROE and Provision Exp
When must you include Loan Write Ups in the ROE (know 4)
- Special mention
- classified insider (reg o)
- management disagrees w/ classification
- participation loans - at lead bank
- participation loans - at downstream bank if lead is pass
-off-balance sheet itmes
- loans newly extended at problem banks
When do you file a UCC in RE records?
Collateral consisting of timber, oil, or mineral rights
If a bank leases premises to an insider for the purpose to operate an insurance agency, what conditions apply?
-Lease cannon be longer than 1 year
- at least 20% of commissions generated must go to the bank
In determining if a security meets the "investment grade" criteria, what factors s/b considered?
-Spread to the US Treas. Sec. is consistent w/ bonds of similar quality
- Risk of default is low and consistent to similar bonds
-Assess Op. and Fin performance levels/ trends through credit analysis
- munis; capacity to pay, debt profile, DSCR, budget assumptions, revenue sources, taxing authority, reserve levels, legal cov., etc
- Structured Sec; understand class/ tranche, CF position, loss allocation, specific def. of default, underwriting of collateral, support of credit enhancements, etc.
Who can call a special shareholders meeting?
Directors, or upon written notice of the owners of a majority of the stock
5 safeguards a loan policy should have for floor plan lending?
1. Collateral values at inception
2. Frequent review of dealer financials
3. Frequent inspections
4. Title Agreement (hold or Copy)
5. Curtailment requirments
How is a participation sold with recourse shown on the Call Report.
Seller - as a borrowing from the purchaser
purchaser - as a loan to the seller
Most important CAMELS rating?
- Explain possessory interest
- What documentation, if any, is needed.
-There is a private, beneficial use of publicly owned, non-taxable real property. Private companies or Corps. lease, rent or use a federal, state or local government owned facility and/ or land for their own benefit
*boat dock built on a public lake
* mini storage built under freeway
*private walkway above city street
*rental car agency at airport
-Possessory interest annual usage report
Income from Life Insurance benefits are posted where? (Call Report)
Other non-interest income
Part 363 Requirements (audit)
Banks> $500MM must have an annual audit and an audit committee w/ majority of outside directors
Yields on securities or loans that exceed market or peer rates can be indicative of ___ ?
Less: Other Op Expt
= Operating Profit
True or False
1. Organizational Cost should be expensed as incurred.
2. Organizational costs can be amortized.
3. Pre-opening expenses such as salaries, depreciation, and Training can be capitalized?
Name Categories of Premises & Fixed Assets (8 total)
Land, Buildings, Autos, Planes, FF and E, Leasehold improvements, Construction in Process, Capital Leases
- When is a U-1 Form necessary?
- Is form exempt if secured by margin stock?
- Need U-1 form for all loans >$100M secured directly or indirectly by stocks, bonds convertible into stocks, or stock mutual funds
Term Fed Funds are reported as ____ on the Call Report. ( Purchased vs Sold"
Borrowing or Loan
Can dividends be paid out of surplus?
NO- must be paid out of U/P and U/P can not be negative
- Funds can be transferred from surplus to U/P with approval of commissioner
What are some possible adjustment to capital?
-Accrued timing adjustments
-Sound Banking Values not on books
ASC 320 adjustments
Primary objective of an investment account
produce maximum yield consistent with safety of principal.
Why do we check security invoices (3 reasons)
- verify amount paid/ received
- verify full description
-ensure proper amount of premium amortization or accretion of discount
Bank purchased $765M in paper purchased WITH recourse from a car dealer. The LLL is $743M.
How would the bank avoid a Legal Loan Limit violation?
With a Certificate of Compliance
- appointment of the BOD or an officer to certify that the bank is relying primarily upon the maker of the note. Certification in written form must be in the banks file.
When can a director participate in BOD meetings via telephone?
Composite 1 or 2
No regulators present at meeting
Director has signed an affidavit to the following: received BOD Packet, was alone, notice of meeting recorded.
What are the requirements to be a director?
-Must be a US Citizen
-majority of BOD must reside in the state (out of state but w/ in 100 mile radius = in state)
-All non-resident members must file consent to service with president of the bank
-no one can serve as director if the bank holds a judgement against them
agreed upon minimum principal reduction of a floor plan line
Sharon Jones has loans totaling $1,200M at the bank. Her daughter request a loan of $200M and the bank requires Sharon's gty. The bank's LLL is $1,300M. Can the bank legally make the loan to the daughter with the mothers gty?
Yes- guarantors are not included in the LLL calculation if the gty does not receive any proceeds
The banks LLL is $1,500M. John Doe has loans totaling $1,375M. His wholly owned corporation has a loan of $200M.
Do you cite a violatinj of RSMO 362.170 (LLL)? Why or Why Not?
NO, unless the aggregation rule applies.
i.e. the source of repayment has to be the same.
$100M security at Par plus accrued interest of $4,250 receives $5000 month later
-record entries at coupon date
Dr. Cash $5,000
Cr. Accr Int Pur $4.250
Cr. Int Inc Sec $750
Short term, working capital loan/ season loans are repaid how?
by converting inventory and accounts rec. into cash
What are 5 examples of perfection taken by possession?
Cash, Gold, Guns, Jewelry, Fine Art
- When does a bank need a current appraisal on ORE?
- What is considered current?
- When ORE is >$250M at the time it is booked.
- w/ in 6 months of acquisition or in file w/ in 90 days, w/ engagement letter obtained w/ in 30 days of foreclosure
What are 4 function of Capital?
1. Provides protection to depositors and the FDIC insurance fund
2. Absorbs losses
3. Promotes public confidence
4. Restricts excessive growth
List 5 Components of a Funds Mangement Policy?
- Est objectives for Liquidity/ IRR/ Earnings
- Periodic review of asset/ liability structure
- method to measure and monitor liquidity
-Contingency liquidity plans
- Control and review of off-balance sheet items
-control exposure w/ correspondents
-set lines of authority
-establish an ALCO
3 reasons it is important to analyze earnings before securities gains or losses
1. Controllable by Management
2. one time event, not indicative of future performance
3. numerous gains/ losses indicate speculative investment portfolio
Name 5 qualitative considerations in determining capital adequacy.
1. Asset quality
2. earnings retention
4. parent company relationship
5. quality of management
6. local environment
Most Common form of blanket bond
Financial institution crime bond
* primary purpose of insurance program is to protect against catastrophic losses
maximum amount of loan valuation reserves included in Risk Based Capital
up to 1.25% of Risk weighted assets
True or False
Federal Funds should be reported 'gross"
VP smith owes bank $250M Total
$200M in loans
$50M in Leases
Unimpaired Capital is $2,300M
Is this a violation of 362.170, loans to salaried officers?
No - Leases are not aggregated w/ loans for RSMo 362.170
Joint Custody - example
2 or more people equally accountable for the physical protection of certain items or records
i.e. securities in vault - 2 people sign; 2 keys required for entry
Document gives one creditor interest in collateral a lower priority than another creditor
When do you place a loan on Nonaccrual? (3)
-When a loan is > 90 days PD on Prin or Int., Unless it is well secured and in process of collection
-when full pmt of Prin. or Int. is not expected
- when loan is maintained on cash basis due to deterioration of borrowers financial condition
**Exception: Well secured and in process of collection, consumer loan / 1-4 family
When can loans be taken off non-accrual?
1. No P/I is due/ outstanding an unpaid and the bank expects repayment in full
2. it becomes well secured and in the process of collection.
Which method should be used to account for ORE when an acceptable down payment is not Made. [ ASC 360.20]
Function of state Banking Board
1. hear appeals about refusals from DOF fo charters or to permit changes in articles of agreement for relocation of banks to another community.
2 approve rules and regs (90 day to reorder decisions)
Is a contract of deed a legitimate method of conveying ORE.
Lenders claim to assets pledged as collateral
Bank of Smith and First National Bank are wholly owned by Smith Bancshares. Are the banks affiliates per Section 23B.
NO 23B excludes banks as affiliates
What are 5 risks associated with Interest Rate Risk?
risk resulting from timing differences between coupon changes or cash flow from assets, liabilities, or Off-B/S instruments
*Funding costs could change more quickly on than yield on securities if LT fixed securities are funded by ST Deposits
Risk resulting when financial instruments cash flow, timing and amount can change when market rates change
i.e. call option on a callable bond
* may adversely affect earnings by reducing asset yield or increasing cost of funds
Define Yield Curve
change in the rate relationship between different maturities for the same index
risk resulting from weak correlation between coupon rate changes for assets/ liabilities/ off BS items
*Libor based deposits may change 50 bp, Prime based loans may change 25 bp during the same period