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Review p 10 of UBPR. Know which ratios pertain to liquidity

net noncore funding dependence
core deposits/total deposits
brokered deposits/total deposits
pledged securities/total securities
appreciation/depreciation of investment securities


UBPR p. 10 pledged securities to tot sec

Liquidity- if security is pledged, then not available to provide liquidity. you do not want all your securities to be pledged


UBPR p. 10 net non core fund dep

non core liab less short term investments/ long term assets

the lower or even negative, the better

you want the numerator to be low, because this means that the non-core liabilities such as hot money, or volatile funds are low.

ideally you want the long term assets to be matched with stable long term liabilities such as deposits.


UBPR p..1 Earnings look at ROAA, page 1

ROAA net income/ average assets

Margin analysis - NIM nit income to Avg earning Assets



interest income
- interest expense= net interest income
+non interest expense
-non interest expense
-provision=pre tax operating income
+gains/losses on sale of securities = net income


in BHCPR know that page 1-19 is consolidated information

page 20 forward is parent only information


parent company capital BHCPR page 21 = consolidated capital BHCPR page 6

largest asset in BHC balance sheet is investment in subsidiaries


parent net income = consolidated net income

parent net income = dividends received +parent operating income - parent expenses + EUE equity on undistributed income

cash dividends paid by sub, and received by parent + sub income not sent to shareholders multiply by ownership interest in sub = EUE


parent owns 85% of the bank sub

1000 dividend received
3400 EUE

5000 net income
(1000) dividend paid
=4000 net income
* 85% interest in sub
=3400 EUE flow to parent


EUE equity in undistributed earnings

amount of income from subsidiary not sent to shareholders as dividends times (*) ownership interest in the subsidiary.


BHCPR look at p. 22 under coverage analysis to review cash flow ratio for parent only

cash flow match ratio

numerator: cash flow from operations+noncash items+noncash items + operating expense /

denominator: operating expense + dividends


BHCPR look at p. 22 under coverage analysis to review cash ratios for parent only

BHC fees and other income ratio

if over 100% than the parent may be over charging the subs. the parent should only collect enough management fees to cover their basic overhead

numerator = fees + other income from subsidiaries
denominator = salaries + other expenses


impact rating in RFIC/D

need to know how to assess whether there will be negative impact based on risk management factors and financial factors

likelihood of negative impact on the depository institution


Impact financial factors

non depository: capital distribution, intra group exposure, CAEL ratings approach

parent company: leverage, cash flow, liquidity


assess whether the parent company's leverage is minimal, moderate or high

leverage is the use of debt to supplement equity, similar to using a credit car


advantage of leverage

raise funds quickly
shifts financial risk from stockholder to lenders
improves the parent's liquidity
interest is deductible
does not dilute existing shareholders/ improves ROE
less expensive


disadvantages of leverage

high debt levels place burden on subsidiaries
high debt levels may prevent new investment opportunities for parent
lenders may pose restrictive covenants


Leverage ratios

double leverage could put added stress in the sub

debt / equity
debt / tangible equity. this ratio is more realistic

double leverage ratio - parent takes on debt and pushes down to the bank

double leverage payback ratio - number of years to pay back to bring to zero. negative means that there is no double leverage


leverage large BHC > 150MM

high >30%
moderate 10-30%
minimal <10%

remember that large BHC is bigger so even 30% is also bigger in dollar value


leverage small BHC <150MM

high >100
moderate 30-100
minimal < 30

100% of a small figure is still small,


leverage key point

a holding company’s ability to service its debt in a timely manner is more important
than the actual amount of the debt.


debt to tangible equity ratio

computed for holding companies that have a significant level of intangible assets, such as goodwill. This ratio measures the amount of debt against the company’s tangible equity. It is calculated by dividing total debt by equity, less intangibles.


non bank CAELS
what impact would they have on the bank

Financial condition Big F

consolidated financial strength including the depository institution, parent and nonbank subsidiaries


intra group exposure

can potentially negatively expose the financial condition of bank

Checking accounts at the bank – must be handled appropriately
Loan repayments. Sub is receiving funding from parent to fund their loans to external customer
Loans between affiliates – lines of credit


know what is in each category

board oversight
policy procedure limits
internal controls


internal controls

segregation of duties


fixed charge coverage ratio (FCCR)

not in BHCPR - need to include in your write up


board and senior management oversight

stable team, conservative philosophy
understanding of the risk profile
adjust risk management appropriately
policies, limits and tracking reports are appropriate, understood and reviewed
effective supervision of staff


policies procedures and limits

cover all major business areas
thorough and up to date
consistent with institution's goals
any deficiencies or gaps are minor in nature



cover major risk risk and business areas
valid assumptions that are periodically tested
distributed to appropriate decision makers
accurate and timely