ALLL Applications Asset Quality Flashcards
ALLL
Provides for estimated credit losses. Must maintain an appropriate ALLL and reasonable, documented methodology.
How often should the ALLL be evaluated?
At least quarterly
In evaluating adequacy of ALLL, assess
- classifications, 2. level of volume/trend 3. underwriting practices 4. reasonable of mgmts ALLL methodology
Provision for ALLL is listed on the _____ as an _____
income statement as an expense
ASC Topic 310 (FAS 114)
Accounting for individual impaired loans
Three measurement standards for impairment
1) PV of expected future CF, discounted at effective interest rate. 2) Loan’s observable market price. 3) FV of collateral, if loan is collateral dependent.
ASC Topic 450-20 (FAS 5)
Accounting for contingencies, quantitative and qualitative factors
All federally insured depository institutions must maintain an ALLL, except for federally insured branches and agencies of foreign banks.
TRUE
SR 11-7
Guidance on ALLL methodology
Under no circumstances can loan or lease losses be charged directly to ‘‘retained earnings’’ and capital.
TRUE
Increase ALLL
Debit Provision for Loan Losses (expense acct) Credit ALLL (contra-asset acct)
Charge-off loan loss
Debit ALLL Credit Loans (note that P&L is not impacted)
Future Recovery on a previously charged-off loan
Debit Cash Credit ALLL
Applications processed by the FRB
- membership 2. acquisition of a bank by a BHC 3. acquisition of a non-bank subsidiary 4. commencement of non-bank activities
When assessing new branch applications, the FRB considers the financial condition of…
financial condition and mgmt, capital adequacy, convenience and needs of community, and compliance with 24A (investment in bank premises)
A company holding at least 25% of a bank’s stock automatically classifies the company as
a BHC
Charters
State (FRB (state member bank) FDIC (state non-member)) National = OCC
Reg Y
BHC and change of control
Reg H
State member bank membership, investment limitations, governs branching
Section 3(a)(1) application
filed with FRB to acquire control of a bank or BHC. Directly or indirectly owning controlling, or having power to vote 25% or more of any class of voting security
Section 3(a)(3) application
Application filed to directly or indirectly aquire control more than 5% of any class of bank or BHC voting shares. Continue to file until it owns more than 50% of bank or BHC
Section 3(a)(5)
application filed when two or more BHC merge or consolidate.
Section 4c(8)
filed to engage in nonbanking activities
Non-banking activities
institutions must receive prior approval; unless, BHC is well capitalized, well managed, activites are closely related to banking. If so, BHC may submit written notification within 10 days of commencing activity.
To qualify as a FHC, all depository insititutions
well managed, well capitalized, receive a CRA rating of satisfactory or better, and must submit written declaration