UFIRS Ratings Factors

Question 1

Capital UFIRS

Answer 1

• The level and quality of capital and the overall financial condition of the institution.
  • The ability of management to address emerging needs for additional capital.
  • The nature, trend, and volume of problem assets, and the adequacy of allowances for loan and lease losses and other valuation reserves.
  • Balance sheet composition, including the nature and amount of intangible assets, market risk, concentration risk, and risks associated with nontraditional activities.
  • Risk exposure represented by off-balance sheet activities.
  • The quality and strength of earnings, and the reasonableness of dividends.
  • Prospects and plans for growth, as well as past experience in managing growth.
  • Access to capital markets and other sources of capital, including support provided by a parent holding company.

Question 2

Asset Quality UFIRS

Answer 2

• The adequacy of underwriting standards, soundness of credit administration practices, and appropriateness of risk identification practices.
• The level, distribution, severity, and trend of problem, classified, nonaccrual, restructured, delinquent, and nonperforming assets for both on- and off-balance sheet transactions.
• The adequacy of the ALLL and other asset valuation reserves.
• The credit risk arising from or reduced by off-balance sheet transactions, such as unfunded commitments, credit derivatives, commercial and standby letters of credit, and lines of credit.
• The diversification and quality of the loan and investment portfolios.
• The extent of securities underwriting activities and exposure to counter-parties in trading activities.
• The existence of asset concentrations.
• The adequacy of loan and investment policies, procedures, and practices.
• The ability of management to properly administer its assets, including the timely identification and collection of problem assets.
• The adequacy of internal controls and management information systems.
• The volume and nature of credit documentation exceptions.

Question 3

Management UFIRS

Answer 3

• The level and quality of oversight and support of all institution activities by the board of directors and management.
• The ability of the board of directors and management, in their respective roles, to plan for, and respond to, risks that may arise from changing business conditions or the initiation of new activities or products.
• The adequacies of, and conformance with, appropriate internal policies and controls addressing the operations and risks of significant activities.
• The accuracy, timeliness, and effectiveness of management information and risk monitoring systems appropriate for the institution’s size, complexity, and risk profile.
• The adequacy of audits and internal controls to: promote effective operations and reliable financial and regulatory reporting; safeguard assets; and ensure compliance with laws, regulations, and internal policies.
• Compliance with laws and regulations.
• Responsiveness to recommendations from auditors and supervisory authorities.
• Management depth and succession.
• The extent that the board of directors and management is affected by, or susceptible to, dominant influence or concentration of authority.
• Reasonableness of compensation policies and avoidance of self-dealing.
• Demonstrated willingness to serve the legitimate banking needs of the community.
• The overall performance and risk profile of the institution.

Question 4

Earnings UFIRS

Answer 4

• The level of earnings, including trends and stability,
  • The ability to provide for adequate capital through retained earnings,
  • The quality and sources of earnings,
  • The level of expenses in relation to operations,
  • The adequacy of the budgeting systems, forecasting processes, and management information systems in general,
  • The adequacy of provisions to maintain the ALLL and other valuation allowance accounts, and
  • The earnings exposure to market risk such as interest rate, foreign exchange, and price risks.

Question 5

Liquidity UFIRS

Answer 5

• Volatility of deposits
• Reliance on interest-sensitive funds and frequency and level of borrowings
• Unused borrowing capacity
• The capability of management to properly identify, measure, monitor, and control the institution’s liquidity position, including the effectiveness of funds management strategies, liquidity policies, management information systems, and contingency funding plans
• Level of diversification of funding sources
• Ability to securitize assets
• Availability of assets readily convertible into cash
• Ability to pledge assets
• Impact of holding company and affiliates
• Access to money markets
• The institution’s earnings performance
• The institution’s capital position
• The nature, volume, and anticipated usage of the institution’s credit commitments

Question 6

SMTR UFIRS

Answer 6

• qualitative and quantitative factors.
• the institution’s size and the nature and complexity of its activities, the assessment should focus on the risk management process, especially management’s ability to measure, monitor, and control market risk.
• systems and controls,
• the potential for market risk to adversely affect earnings and capital.
• the trend in the institution’s recent risk measurements, the overall accuracy of the available measurements, and the presence of items with particularly volatile or uncertain interest rate sensitivity.