UCE All Practice Questions

True/False: A bank may take shares of its holding company stock as collateral on a loan.

True: While 12 USC 83 prohibits a bank from making any loan on the shares of its own capital stock, there is no prohibition against holding company stock. See 12 USC 83.

ABC National Bank has an internal loan program whereby all employees can get an auto loan for 36 months at 5%. Can a director of this bank take advantage of this loan program? A. Yes B. No

A. Yes, 12 CFR 215.4(a)(2)(i)

Which form must a national bank file with the OCC when acting as a registered transfer agent? A) TA-1 B) TA-2 C) SEC-1 D) None of the above.

A) TA-1 See TA Handbook

The Employee Retirement Income Security Act of 1974 (ERISA) is the primary regulation governing the administration of retirement accounts such as pensions and 401Ks. A) True B) False

A) True

The Securities Information Center (SIC) is designated by the SEC to manage a database of lost, stolen, counterfeit and missing securities. A) True B) False

A) True

12 CFR 9 requires that an audit be performed at least every __________?

A) calendar year; 12 CFR 9.9(a)

OCC Bank is trustee of the Jones Trust and the Smith Trust. As trustee, OCC bank has sole investment authority over both accounts. Management needs to begin liquidating assets from the Smith trust as required distributions are scheduled over the next 6-12 months. Trust Officer Gallagher decides to sell AT&T stock from this account to the Jones account, thus avoiding brokers fees. The shares were traded at the current market value. Assuming that these shares are appropriate for the Jones account, is this transaction permissible? A) Yes B) No

A-Yes (12 CFR 9.12(d))

A new company has the following assets: land $200,000, plant $1 million, furniture and equipment $500,000. The company will depreciate its fixed assets, except for furniture and equipment, on a straight line basis over 20 years. It will depreciate furniture and equipment on a straight-line basis over 10 years with a $50,000 salvage value remaining after ten years. What is the depreciation for the first year? A. $95,000 B. $115,000 C. $110,000 D. $105,000 E. $100,000

A. $95,000

12 CFR 1 categorizes investment securities into five "types." What are the capital limitations on Type V securities? A. 25% B. unlimited C. 10% individually D. 10% in aggregate E. National banks may not invest in Type V securities.

A. 25%

XYZ National Bank has the following capital and balance sheet items: Common stock $100 Risk weighted assets 15,000 Surplus 150 Adjusted total assets 17, 500 Undivided profits 200 Limited Life Preferred 100 Qualifying Debentures 100 ALLL 200 Based on these figures, the bank's Tier 1 risk based ratio is: A. 3.00% B. 4.33% C. 5.20% D. 2.57%

A. 3.00%; 12 CFR 3 Appendix A CS+Surplus+UP/ RWA

According to 12 CFR 7 Subpart A - Bank Powers, which of the following three activities are permissible? (Choose three.) A. A national bank may establish and operate a messenger service. B. A national bank may invest in a locally owned casino if it is providing jobs for its community. C. A national bank may maintain and operate a facility that sells lottery tickets on bank premises. D. A national bank may assist its customers in preparing their tax returns, either gratuitously or for a fee. E. A national bank may maintain and operate a postal substation on banking premises and receive income from it.

A. A national bank may establish and operate a messenger service. D. A national bank may assist its customers in preparing their tax returns, either gratuitously or for a fee. E. A national bank may maintain and operate a postal substation on banking premises and receive income from it.

The 2006 Interagency policy Statement on the Allowance for Loan and Lease Losses (ALLL) requires national banks to analyze the collectibility of its loans and maintain an ALLL at a level that is appropriate and determined in accordance with GAAP. Which two statements are true? (Choose two.) A. Amounts designated as "unallocated" may be included in the ALLL. B. If a loan is not impaired under FAS 114, that loan should generally be included in the assessment of the ALLL under FAS 5. C. If a loan is determined to be impaired under FAS 114, but the amount of the impairment is zero, that loan should be included in the assessment of the ALLL under FAS 5. D. If a bank has had very low or zero historical losses, it may rely on the industry average loss experience of 50 percent for doubtful loans and 15 percent for substandard loans in determining the ALLL. E. For purposes of estimating FAS 5 portions of the ALLL, historical loss experience should be based on the bank's average annual rate of net chargeoffs over the previous three years on similar loans.

A. Amounts designated as "unallocated" may be included in the ALLL. B. If a loan is not impaired under FAS 114, that loan should generally be included in the assessment of the ALLL under FAS 5.

An examiner reviews the bank's total relationship with one of its directors for compliance with Reg O. In the file there are several transactions documented. The examiner needs to determine what to review for Reg O. Which of the following does NOT qualify as an extension of credit? A. An advance against accrued salary or accrued compensation B. An increase in existing indebtedness C. Granting a line of Credit D. Issuance of a standby letter of Credit

A. An advance against accrued salary or accrued compensation; 12 CFR 215.3

What is a call option? A. An option that allows the issuer to redeem a security prior to maturity B. An option that allows the issuer to reprice the security prior to maturity C. An option that allows the purchaser to redeem the security prior to maturity D. An option that allows the issuer to substitute a similar security prior to maturity

A. An option that allows the issuer to redeem a security prior to maturity

Why do examiners need to analyze cash flow during their credit review? A. Banks make loans in cash and want repayment in cash. B. Balance sheets and operating statements are generally prepared on an accrual basis. Not on a cash basis. C. Cash flow analysis adjusts accrual-based balance sheets and operating statements to reflect actual cash flow. D. All of the above.

A. Banks make loans in cash and want repayment in cash.

The bankruptcy section which involves liquidation of a debtor's assets is: A. Chapter 7 B. Chapter 11 C. Chapter 12 D. Chapter 13

A. Chapter 7

Many economic sensitivity models compute the duration of a bank's financial instruments. Duration is a measure of the sensitivity of market values to small changes in interest rates. Which two statements exhibit general duration characteristics? (Choose two.) A. Duration may be positive or negative. B. The higher the duration, the greater the price sensitivity of the instrument to changes in market interest rates. C. A given fixed income instrument will have a lower duration in a low rate environment than in a high interest rate environment. D. For two instruments with the same maturity, a high-coupon instrument will have a higher duration than a low-coupon instrument and will also be more price sensitive.

A. Duration may be positive or negative. B. The higher the duration, the greater the price sensitivity of the instrument to changes in market interest rates.

Which of the following is false? A. FNMA securities are backed by the full faith and credit of the US Government B. Banks can purchase some equity securities C. GNMA securities are backed by the full faith and credit of the US Government D. Corporate bonds may be Type II or Type III securities

A. FNMA securities are backed by the full faith and credit of the US Government; 12 CFR 1.110

Which represents a bank's eligible investments? I. Stock in a banker's bank II. Investment Grade Corporate bonds III. Corporate stock (not acquired DPC) in XYZ Mining Corporation IV. Stock in three Community Development Corporations equaling 10.5% of the bank's capital and surplus. A. I and II only B. I and IV only C. II and III only D. III and IV only

A. I and II only; 12 CFR 1; 98-20

A bank has a loan to Mr. Smith and to the Lazy J Ranch, Inc. Under which of the following conditions can these two loans be combined for the purposes of the legal lending limit? I. The source of repayment for both loans is the sale of the Lazy J cattle II. Each loan was granted to purchase a 50% interest in Big Bob's feeder lot III. Mr. Smith receives 40% of his income from the ranch. IV. Mr. Smith individually, and through a trust, controls 50% of the Lazy J Ranch. A. I and II only B. II and IV only C. I, II, and IV only D. II, III, and IV only

A. I and II only; 12 CFR 32.5

The computation of risk based capital ratios quantifies the impact of which of the following risks? I. Credit Risk II. Interest Rate Risk III Concentration Risk A. I only B. I and II only C. I and III only D. I , II, and III

A. I only; 12 CFR 3

An external CPA audit and a financial opinion is required for: I. banks whose stock is publicly traded and is subject to SEC regulations II. banks with trust departments III. banks with total assets less than $150MM IV. banks with composite rating other than "1" A. I only B. I and III only C. III and IV only D. I, II, and III only

A. I only; 12 CFR 9.9 states trust departments must have external audits, but CPA not required.

A bank's Call Report: A. Must be signed by at least three directors B. Must be prepared by the bank's cashier C. Must be submitted within 20 days of the end of the quarter D. Must be reviewed by the bank president

A. Must be signed by at least three directors; 12 USC 161 (a)

What is the limit of Type I securities that a bank may purchase? A. No limitation B. 5% of capital and surplus C. 10% of capital and surplus D. 15% of capital and surplus 21. What is the limit of Type I securities that a bank may purchase? A. No limitation B. 5% of capital and surplus C. 10% of capital and surplus D. 15% of capital and surplus

A. No limitation

In reviewing a bank's investment portfolio, an examiner should use which of the following as the basis for computing any limitations? A. Par value B. Book value C. Purchase price D. Market value

A. Par value; 12 CFR 1.3

An Examiner reviews a $170M agricultural operating line. The loan is secured by a lien on stored grain. The market value of the grain is $220M. The loan has matured but has been extended for two months. Farmer McDonald plans to sell the grain soon. Grain prices remain stable. His most recent financial statement shows he is leveraged and has minimal liquidity. How should the loan be graded? A. Pass B. Special Mention C. Substandard D. Loss

A. Pass; Market value of the collateral covers.

An examiner reviewing the loan portfolio noted the bank's newly retained CPA firm has been granted an unsecured business loan on favorable terms. What should the Directors do? A. Replace the current CPA firm with another. B. Demand repayment of CPA firm's loan. C. Accept reports of CPA as qualified. D. Do nothing.

A. Replace the current CPA firm with another. CPA's operate under a professional code of ethics. Independence would be impaired by an unsecured loan with favorable terms.

Assets, having potential weaknesses which may, if not checked or corrected, weaken the asset structure or inadequately protect the bank's credit position at some future date, should be categorized as: A. Special Mention B. Substandard C. Doubtful D. Loss E. Pass

A. Special Mention

Following an internal loan review, a national bank made a significantly large provision to the ALLL two months after filing its Call Report. As a result, the bank's total risk based capital ratio has dropped to 7.75% (undercapitalized). An OCC examination is due in two months. For PCA, which statement accurately indicates the bank's PCA"notice of capital category" status? A. The bank must notify the OCC of the reduction in its capital position within 15 days after the provision was made. B. The bank must notify the OCC of the reduction in its capital position within 30 days after the provision was made. C. The bank waits for notification from the OCC during its upcoming examination D. The bank meets its requirements by accurately filing its next Call Report, indicating the reduction in capital.

A. The bank must notify the OCC of the reduction in its capital position within 15 days after the provision was made.12 CFR 6.3(c)(1).

12 USC 92a provides the authority of the Comptroller of the Currency to grant trust powers. A. True B. False

A. True

There is no restriction on how many times a debtor may file Chapter 11. A. True B. False

A. True

Banks must include with the call report a report of all extensions of credit to executive officers since the previous call report. True or False? A. True B. False

A. True, 12 CFR 215.10

Documentation on all loans to executive officers must include a call provision. A. True B. False

A. True, 12 CFR 215.5(d)(4)

National banks cannot take their own bank stock as collateral for a loan. A. True. B. False

A. True. 12 USC 83

Record retention guidelines are the same for paper or imaged documents. A. True B. False

A. True; 12 CFR 103 makes no distinction.

The president of a national bank must be a director and may also be the chairman of the board. A. True B. False

A. True; 12 USC 76

All violations must be entered in EV, not just those included in the ROE. A. True B. False

A. True; EV Handbook; EIC checklist

The OCC requires all national banks to adopt a written insider policy addressing its code of conduct and conflicts of interest. A. True B. False

A. True; Insider Activities Handbook page 2

According to OCC Bulletin 2000-20, the term "reage" means returning a delinquent, open end account to current status without collecting the total amount of principal, interest, and fees that are contractually due. A. True B. False

A. True; OCC Bulletin 2000-20

Independent trust banks must pay the General Assessment fee as well as an additional Independent Trust Bank Assessment fee. A. True B. False

A. True; OCC Bulletin 2002- 44

A national bank may appeal the asset quality rating as presented in its most recent final OCC report to the Ombudsman for review. A. True B. False C. Only if the bank has a composite rating of "3" D. Only if the bank has assets in excess of $500MM

A. True; OCC Bulletin 2002-9

A shared national credit is any loan or loan commitment with an original amount of $20MM or more and 1.) is shared by three or more unaffiliated and supervised institutions under a formal lending agreement or 2.) a portion of which is sold to two or more unaffiliated and supervised institutions with the purchasing institutions assuming their pro rata share of the credit risk. A. True B. False C. True, but the amount must be $15MM, not $20MM D. True, but the amount does not matter if the other criteria are met

A. True; PPM 5100 -2

A bank must file a Suspicious Activity Report for employee theft even if the employee makes restitution and agrees to resign. A. True B. False

A. True; Required by 12 CFR 21

Can a bank establish a subsidiary for the purpose of holding bank ORE without it being a violation of 12 USC 371c regarding the transfer of low quality assets? A. Yes B. No

A. Yes

The bank makes a loan for $2,000,000 to Customer A to buy into a partnership. The partnership has borrowings of $3,000,000 outstanding and an additional legally binding commitment of $1,000,000. Assume the Legal Lending Limit is $4,500,000. Is the loan to Customer A in violation? A. Yes B. No

A. Yes, 12 CFR 32.5(e)(2) requires loans made to the member to purchase an interest in the partnership to be added to the partnership's loans for LLL purposes.. In this case the loan to Customer A would be the illegal extension of credit.

An examiner reviews an appraisal for $1,350M on an office building at ABC National Bank. The appraisal was not prepared for ABC, but for another national bank nearby. In addition, the appraiser is not on ABC's approved list. Can the bank use this appraisal? A. Yes, if it documents that the appraisal was acceptable B. Yes, because the other bank is a national bank C. No, the appraiser must be on the bank's approved list D. No, the bank must order a new appraisal

A. Yes, if it documents that the appraisal was acceptable; 12 CFR 34.45

Mary Jones was recently hired by the bank as an assistant vice president because of her expertise in indirect lending, a new business line the bank wants to initiate with local used car dealers. Jones has established the policy and procedures to be followed by the new department she will oversee. Should she be considered an executive officer of the bank? A. Yes B. No

A. Yes; 12 CFR 215.2(e)(1)

In determining when a loan is "in the process of collection", a 30-day collection period has generally been applied. Is this 30-day collection period intended as a benchmark or as an outer limit? A. benchmark B. outer limit C. the benchmark is 90 days D. the outer limit is 90 days

A. benchmark

During the examination of a NB, by observation, the examiner noted employee practices frequently deviate from the bank's written policies in a particular area. To evaluate internal controls for that area, the examiner should: A. determine the safeguards in effect based upon actual practices B. determine if the policy safeguards provide for good internal controls C. review internal audit's assessment of the area D. review internal control factors in policy when it is revised

A. determine the safeguards in effect based upon actual practices; Internal Controls Handbook January 2001

Bank management is responsible for the implementation, integrity, and maintenance of risk management systems. Which two must management perform? (Choose two.) A. keep the directors adequately informed B. ensure policies are written C. annually assess the loan portfolio's risk D. develop policies that define the institution's risk tolerance E. provide a written report on staffing adequacy each year

A. keep the directors adequately informed D. develop policies that define the institution's risk tolerance

Which three supervisory actions can the OCC subject a bank to that is undercapitalized per Prompt Corrective Action (PCA) regulations? (Choose three.) A. restrict the growth of the bank's assets B. require the submission of a capital restoration plan C. restrict payments on the bank's subordinated debt D. restrict payments of capital distributions and management fees

A. restrict the growth of the bank's assets B. require the submission of a capital restoration plan D. restrict payments of capital distributions and management fees

What is OCC's policy on the reversal of interest? A. reverse all interest when loan is placed on nonaccrual B. do not reverse interest C. reverse only the interest that is expected to be uncollectible D. reverse principal

A. reverse all interest when loan is placed on nonaccrual

Every director of a national bank must own in his or her own right shares of the capital stock of the bank. How much does he or she need to own? A. the aggregate fair market value of $1,000 B. the aggregate market value of $500 C. the aggregate par value of $500 D. 1000 shares of stock

A. the aggregate fair market value of $1,000; 12 CFR 7.2005; 12USC 72

12 CFR 9, Fiduciary Activities of National Banks, contains provisions for the retention of fiduciary records. What is the minimum period that a bank must retain fiduciary account records upon the termination of an account or litigation? A. three years B. four years C. five years D. seven years E. ten years

A. three years

If losses equal to or exceeding _______ have at any time been sustained, no dividend shall be paid. A. undivided profits then on hand B. tier 2 capital as of last quarter-end C. surplus D. none of above

A. undivided profits then on hand; 12 USC 56

A bank takes a partial charge off on a loan because it believes that part of the obligation will ultimately be uncollectible. The loan is also placed on nonaccrual status. One year later, with two years remaining in the loan term, the borrower's financial condition improves dramatically. The loan is brought contractually current, and the bank now fully expects to collect the original contractual obligation, including the amount previously charged off. Can the loan be returned to accrual status? A. yes B. no C. yes, only if RE collateral D. cannot be determined

A. yes; Call Report instructions

In general, financial institutions are required to file currency transaction reports when the transaction involves more than $10,000. Which of the following would qualify as a transaction under this regulation? Choose all that apply. a) Deposits b) Withdrawals c) Exchange of currency d) Transfer of currency

All of the above - While some customers may be exempted, in general, financial institutions must file a report of each deposit, withdrawal, exchange of currency or other payment or transfer that involves more than $10,000. See 31 CFR 1010.311

Generally, which of the following are classified as "other assets" on the call report? Choose all that apply. I. Net deferred tax asset II. Accrued interest receivable III. Prepaid expenses IV. Bank-owned life insurance

All of the above are considered other assets on the call report. See Call Report instructions.

Choose all that apply. Per the Uniform Commercial Code, all commercial letters of credit must be issued: a) In favor of a specific beneficiary b) For a specific amount of money c) In a form clearly stating how payment to the beneficiary is to be made d) With a specific expiration date

All of the above. Commercial letters of credit are commonly used to finance contracts for the shipment of goods from seller to buyer. See Comptroller's Handbook for Trade Finance and Services, pg. 4

Which of the following guidelines are required of a bank's information security program? Choose all that apply. a) Must be written b) Designed to ensure confidentiality and security of information c) Designed to protect against anticipated threats d) Designed to protect against unauthorized access e) Designed to ensure proper disposal of customer information

All of the above: See Gramm- Leach- Bliley Act - 12 CFR 30, App. B, Pt. II, B

When reviewing a bank's investment portfolio, an examiner should use which of the following as the basis for computing any limitations? A. Par Value B. Book Value C. Purchase Price D. Market Value E. The greater of Par Value or Book Value

Answer - A. 12 CFR 1.3 states for the purpose of limitations for Type II and III securities, the amount of a security is to be based on the basis of the par or face value.

Under the Truth In Savings Act (Regulation DD), banks must compute interest on deposits using: A. Average daily balance or daily balance of the account. B. Highest balance of the account. C. Lowest balance of the account. D. Highest daily balance of the account. E. Any of the above methods as long as it is properly disclosed to the consumer.

Answer - A. 12 CFR 230.7 (a)(1) states, "institutions shall calculate interest from the full amount of principle in an account for each day by use of either the daily balance method or the average daily balance method."

Mandatory convertible debt: A. Unqualifiedly requires the issuer to exchange either common or perpetual preferred stock for subordinated debt instruments. B. Requires the issuer to sell stock in sufficient amounts to replace the debt obligation. C. Requires the issuer to exchange perpetual preferred stock for debt before the maturity date. D. May be included in Tier 1 capital. E. Maturity of such instruments must be greater than 15 years.

Answer - A. 12 CFR 3.100 (3)(5) defines mandatory convertible debt as "subordinated debt instruments which unqualifiedly require the issues to exchange either common or perpetual preferred stock for such instruments by a date at or before the maturity of the instrument."

Who is responsible for approval of trust accounts accepted by the bank? A. The Board of Directors. B. The Trust Committee. C. The Trust Officers Committee. D. The Trust Officer who signs the trust agreement. E. Both C and D only.

Answer - A. 12 CFR 9.4 states that a fiduciary account must receive prior approval of the directors before being accepted. The regulation allows the board to designate the performance of that responsibility but not the responsibility itself.

Which of the following represents a bank eligible investment: A. Stock in a Banker's Bank B. Corporate bond rated B- by Standards and Poors C. Corporate stock (not acquired DPC) in XYZ Mining Corp. D. Stock in a Community Development Corporation with investment equaling 6.5% of the bank's capital and surplus. E. None of the above.

Answer - A. 12 USC 24 allows a bank to invest up to an amount equal to 10 percent of its capital stock and unimpaired surplus in a Banker's Bank. Corporate bonds must be rated at least BBB by S&P to be eligible investments. A bank may not purchase corporate stocks except for certain exceptions, including Banker's Bank stock. Investment in CDC stock is limited to 5% of a bank's capital and surplus.

A loan at FNB ANYTOWN, U.S.A. to an executive officer of FNB ANYTOWN, U.S.A for housing purposes, must comply with which of the following statutory requirements of 12 USC 375A: I. No limitation on amount besides the bank's legal lending limit. II. Must have specific prior approval of its board of directors. III. Must be secured by a first lien on the dwelling. IV. Must be owned by the executive officer. V. Must be the executive officer's "residence". A. All of the above B. I, II, III and IV only C. II, III, IV and V only D. I, II and III only E. None of the above

Answer - A. 12 USC 375a (2) provides the qualifications noted in answers II, III, IV, and IV. 12 USC 375a (4) subjects loans prescribed in 12 USC 375a to no more than allowed by any other applicable regulation. Thus the officer's loan would be subject to legal lending limits.

If a matured debt has interest past due for more than six months, it is considered to be a statutory bad debt unless it is: A. Well secured and in the process of collection B. Well secured or in the process of collection C. In the process of collection only D. Well secured only if secured by marketable securities E. Reserved for in the allowance for possible loan and lease losses

Answer - A. 12 USC 56 specifically states that a debt which is over 6 months past due is a statutory bad debt unless both well secured and in the process of collection.

12 USC 61 provides for cumulative voting of shares for election of directors. This means that if, as a shareholder, you own 100 shares and there are five directors to be elected, you have how many votes to cast in the election? A. 500 B. 100 C. 20 D. 50 E. 300

Answer - A. 12 USC 61 states, "In all elections of directors, each shareholder shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected." Thus, total votes equal 100 X 5.

A bank has a defaulted bond from XYZ Power Corporation in its investment portfolio. The bond has a book value of $1MM and a current market value of $300M. Which of the following is the proper classification for the bond: A. $300M Substandard and $700M Loss B. $300M Substandard and $700M Doubtful C. $1MM Substandard D $1MM Doubtful E. $1MM Loss

Answer - A. BC 127 (Rev) provides guidance on the classification of sub-investment quality securities. The Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks (referred to in the circular) states that depreciation in defaulted securities will generally be classified Loss with the remaining book value classified Substandard. The exception is that for municipal GO's, the depreciation is classified doubtful.

Securities issued by which of the following issuers would be subject to limitations for dealing in, underwriting, or purchase for the portfolio? A. Agricultural credit corporation (bank owns less than 80% of the corporation) B. Student Loan Marketing Association C. Government National Mortgage Association D. Federal National Mortgage Association E. None of the above

Answer - A. Sec. 203.1, page 4 in the CHNBE states that 12 USC 24 states there is a limitation of 20 percent of capital and surplus unless the association owns over 80 percent of the Agricultural Credit Corporation. 12 USC 24 paragraph 7 specifies issues from answers B, C, & D are not subject to limitation.

Loans to a bank's own executive officers, for other than housing and educational purposes, are subject to which of the following limitations in amount? A. No limitation. B. Higher of $25M or 2.5% of capital and surplus, but in no event greater than $100M. C. $1OM without prior board approval. D. Higher of $500M or 15% of capital and unimpaired surplus. E. Bank's legal lending limit.

Answer - B. 12 CFR 215.5(c)(4) contains the specific limitations as stated in the correct answer.

The minimum number of persons required to organize a national bank is: A. 10 B. 5 C. 15 D. 25 E. None of the above

Answer - B. 12 CFR 5.20(6): Organizing group means 5 or more persons acting in their own behalf or serving as reps of the HC. Side note: every national banking association board of directors shall consist of not less than 5 nor more than 25 members.

A majority-owned subsidiary of a national bank is a subsidiary in which the parent bank directly owns what percentage of its outstanding voting stock. A. More than 25%. B. More than 50%. C. 80% or more. D. 10% or more. E. None of the above

Answer - B. 12 CFR 5.34 (2), "A corporation is a subsidiary of any person which owns or beneficially owns more than 50% of the voting stock of the corporation."

If a national bank has five directors, two of them are directors of a manufacturing company, and together with their wives constitute the only directors of that company, the company: A. Is not an affiliate of the bank because it is not in the same line of business. B. Is not an affiliate of the bank because the directors do not compose a majority of the board of the bank. C. Is an affiliate because the directors obviously control the company. D. Is an affiliate because there are interlocking directors. E. None of the above.

Answer - B. 12 USC 371 (b)(1)(C)(ii) states, "The term affiliate with respect to a member bank means any company in which a majority of its directors or trustees constitute a majority of the persons holding any such office with the member bank.

According to 12 USC 371c, each loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate by a member bank or its subsidiary shall be secured at the time of the transaction by collateral having a market value equal to what percentage of the outstanding loan balance, if the collateral consists of municipal obligations? A. 100% B. 110% C. 120% D. 130% E. 140%

Answer - B. 12 USC 371c (c)(1)(B) states, "...shall be secured at the time of the transaction by collateral having a market value equal to 110 per centum of the amount of such loan or extension of credit if collateral is composed of obligations of any State or political subdivision of any State."

In constructing a cash flow statement, which of the following is not considered an outflow of cash? A. Increase in Asset(s) B. Decrease in Asset(s) C. Decrease in Liabilities D. Decrease in Equity E. None of the above

Answer - B. A decrease in assets would cause an in flow of cash. An example would be the sale of a fixed asset.

A national bank has a Tier 1 leverage ratio of 11%, a Tier 1 risk-based ratio of 12.5%, and a total risk-based capital ratio of 17%. Which of the following reasons may prohibit the bank from being classified "well capitalized" for prompt corrective action purposes? I. The bank has fixed assets in excess of 100% of capital. II. The bank is operating under a commitment letter, for capital. III. The bank is operating under a formal agreement, with a capital directive. A. I only. B. III only C. I and III only D. II or III E. None of the above; ratios indicate a "well capitalized" bank

Answer - B. BB92-52, pg. 2 states, "no bank is well-capitalized if it is subject to a formal agreement, an order to cease and desist, a capital directive, or a PCA directive."

A national bank has municipal general obligation bonds in its investment portfolio of the city of Anytown, USA. Your review discloses that these bonds are in default and the market for these issues remains unstable. Which of the following classifications is appropriate? A. Book value of the securities classified as substandard assets of the bank. B. Book value of the securities classified as doubtful. C. Market value of the securities classified as doubtful. D. Book value in excess of market value will be classified as loss, and the remainder classified as doubtful. E. Book value of the securities listed as loss.

Answer - B. BC 127 states that municipal GO issues in default will be classified as doubtful during the period the market for the issues remains unstable. Sec. 215.1, page 2 in the CHNBE defines a doubtful asset as a asset that does has all the weaknesses inherent in one classified substandard with added characteristics that make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The classification of loss is deferred until its more exact status can be determined.

All of the following are duties and responsibilities of an EDP examiner, except: A. Evaluate management (including the auditor). B. Reconcile and verify data system output reports. C. Review audit function (i.e., procedures, standards). D Review computer operations. E. Evaluate system and programming functions (i.e., procedures, standards).

Answer - B. In the FFIEC Information Systems Handbook, Pg 417-423, (Turnkey EDP Exam Procedures), does not include the reconcilement and verification of data system output reports.

For which of these loans is the bank NOT required to give the notice of special flood hazard? A. Loan A is to be secured by a restaurant located in a special flood hazard area in a nonparticipating community. B. Loan B is to be secured by a vacant lot in a special flood hazard area in a participating community. C. Loan C is to be secured by an apartment building in a special flood hazard area in a participating community. D. Loan D is to be secured by a rental house in a special flood hazard area in a participating community. E. All of the above loans require that a notice of special flood hazard by provided.

Answer - B. Only loans secured by improved real estate or by a mobile home located in a Special Flood Hazard Area in a participating community require flood insurance.

The coordinated purchase and sale of two securities in which there is a relative market imbalance is called: A. Short sales B. Arbitrage C. Due bills D. Reverse repo E. Principal trade

Answer - B. Sec. 204.1, page 2 in the CHNBE defines arbitrage is the coordinated purchase and sale of two securities in which there is a relative market imbalance.

The major objective of a sound funds management program is: A. Optimize dividend payout and stock value increases. B. Optimize earnings, flexibility, and manage interest rate risk. C. Optimize control of funds costs. D. Optimize flexibility only E. None of the above.

Answer - B. Sec. 405.1, page 1 in the CHNBE defines funds management as "the process of managing balance sheet and off-balance sheet instruments to maximize and maintain the spread between interest paid while ensuring the bank's ability to pay off liabilities and fund asset growth.

Which of the following is not a "Prohibited Basis" under the Fair Housing Act? A. Familial status B. Receipt of Public Assistance C. Handicap D. Color E. None of the above

Answer - B. Section 805 of the Fair Housing Act makes it illegal for a lender to deny a loan or to discriminate in fixing terms for loans made to finance the purchase, construction, improvement, or maintenance of housing because of race, color, religion, sec, handicap, familial status, or national origin.

A prudent loan officer, after a thorough analysis of the balance sheet and operating statements submitted by the applicant for a sizable loan, determines that the applicant cannot liquidate the obligation as proposed using the primary source of repayment. The loan officer would ordinarily: A. Ask the borrower for additional collateral. B. Decline the loan as currently structured and, consistent with bank policy and prudent lending standards, attempt to restructure the proposed terms of the credit to match the applicant's prospective cash flow. C. Seek a third party guarantee. D. Seek a higher interest rate. E. Both A and C above.

Answer - B. Since this is before the loan is made, the loan officer should attempt to restructure the proposed terms of the credit to match the applicant's prospective cash flow so long as bank policy and prudent underwriting standards can be followed.

Regulation 9 requires that all fiduciary accounts where the bank has investment discretion be reviewed: A. Every calendar year. B. Within fifteen months of the last review. C. Promptly upon acceptance. D. All of the above. E. Both A and B only.

Answer - D. 12 CFR 9.6 (b)(c)and 12 CFR 9.9 requires a prompt review of an account for which the bank has investment responsibility upon acceptance of the account. The board must also ensure that at least once each calendar year thereafter, and within 15 months of the prior review, the assets of the account are reviewed.

The type of opinion that is issued when a CPA's examination results in the CPA denying any professional responsibility for the quality of the financial statements is a (an): A. Unqualified opinion B. Disclaimer of opinion C. Adverse opinion D. Qualified opinion E. None of the above

Answer - B. The types of CPA opinions are discussed in the CHNBE Section 102.1. An unqualified opinion contains no modifying language regarding the scope or description of the auditor's work. An adverse opinion indicates the auditor has taken strong exception to some matter such that the financial statements do not fairly represent the financial position or do not conform to GAAP. A qualified opinion reflects the existence of some type of exception to GAAP necessary for an unqualified opinion but not so great as to result in an adverse opinion. A disclaimer of opinion will result if the scope of the audit was materially restricted for some reason or when the financial statements are affected by uncertainties. In such circumstances the CPA will deny any professional responsibility for the quality of the financial statements.

Which of the following statements is false for every extension of credit to an "Executive Officer": A. Shall be promptly reported to the board B. Shall not be on more favorable terms than allowed borrowers of similar credit standing C. If well secured, does not have to have a written demand feature included in the loan documents. D. Shall be one that the bank is authorized to make to borrowers other than its officers. E. The officer must submit a detailed current financial statement.

Answer - C. 12 CFR 215.5(d) states restrictions on loans made to a bank's executive officers. It specifically requires a demand feature on all such loans regardless of collateral coverage.

Each bank must provide the standard CRA public notice in the public lobby of each office and be available for public inspection at each of the following locations except: A. The main office B. A branch banking office C. An off-premises electronic deposit facility D. A limited service detached banking facility E. All of the above are correct

Answer - C. 12 CFR 25.44 states, "Each national bank shall provide, in the public lobby of each of its offices other than off-premises electronic deposit facilities the public notice set forth below."

When a credit is secured by inventory, the most important consideration in determining the value of the collateral is the: A. Ratio between sales and inventory B. Original cost of the inventory C. Ready market value of the inventory D. Book value of the inventory E. All of the above

Answer - C. 12 USC 371c (c)(1) states limits based on market value. If the bank would have to repossess an asset, only market value would be relevant.

If a bank purchases an investment security at a premium, the bank: A. Must charge off the premium only in the event of default of the security. B. Must amortize the premium only if pre-payments occur. C. Must either charge-off the entire premium at the time of purchase or amortize the premium over the life of the security. D. Is not required to take any action unless the amount of the premium is equal 5% or more of total bank revenue. E. May charge off the premium after the bond matures.

Answer - C. Call report instructions for Schedule RC-B. When an investment security is purchases at a price exceeding par of face value, the bank shall charge off the entire premium at the time of purchase or provide for a program to amortize the premium paid.

Which ratio on the UBPR reflects a more favorable condition the more negative the indicator is? A. Return on Average Assets B. Net Loss to Average Total Loans and Leases C. Net non core funding dependence D. Overhead less non-interest expense E. None of the above

Answer - C. If temporary investments exceed volatile liabilities (indicating the bank is not relying on borrowed funds), then the ratio will be negative. The more the negative it is, the more temporary investments will exceed volatile liabilities. However, if a bank's volatile liabilities EXCEED temporary investments, the ratio will be positive.

A credit has been characterized as having weaknesses that make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. This credit should be appropriately categorized as: A. Special Mention B. Substandard C. Doubtful D. Loss E. Fair

Answer - C. Sec. 215.1, page 2 in the Comptroller's Handbook for National Bank Examiners defines a doubtful asset as a asset that does has all the weaknesses inherent in one classified substandard with added characteristics that make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The classification of loss is deferred until its more exact status can be determined.

An examiner is asked by the bank what type of mutual fund they can invest in without restrictions. The examiner should advise bank management: Such mutual funds may consist of: A. Corporate obligations B. Equity instruments C. Foreign government obligations D. U.S. Government obligations E. All of the Above

Answer - D. 12 CFR 1 and 12 CFR 24 paragraph 4, state the restrictions related to investments in various types of securities. Of the choices provided, only obligations of the U.S. Government may be held without restriction. Therefore, the bank may, without restriction, invest in a mutual fund which consists solely of such obligations.

A bank's purchase of securities convertible into stock at the option of the issuer: A. Requires write down of the conversion feature at the time of purchase. B. Requires recording the transaction at par value. C. Requires immediate charge off of the premium rather than amortization. D. Is prohibited. E. None of the above.

Answer - D. 12 CFR 1.6 states that the bank's purchase of an investment security convertible into stock at option of the issuer is prohibited.

In complying with FIRA (loans to insiders), advance majority approval of the board of directors, with the borrower abstaining, is required when aggregate borrowings of an insider or related interest of that person exceed: A. $10M or the bank's legal lending limit for any loan type. B. $25M or 2.5% of capital, whichever is greater, whenever the loan is for "personal" or "other" purposes, up to the bank's legal lending limit. C. $100M or 5% of capital whichever is greater, regardless of the purpose of the loan. D. The higher of $25M or 5% of capital and surplus, or in any case, $500M. E. More than $25M or 2.5% of capital whichever is higher, or in any case $100M.

Answer - D. 12 CFR 215.4(b) states that prior approval is required if the aggregate of extensions of credit (including the proposed loan) to the insider and the insider's related interests exceeds the higher of $25M or 5% of the member bank's unimpaired capital and unimpaired surplus or, in any case, $500M.

A national bank must control what percentage of a subsidiary for it to be considered an operating subsidiary? A. 26% B. 51% C. 81% D. 100%

B. 51%

Which of the following affiliates is not exempt from the provisions of 12 USC 371c (loans to affiliates)? A. An affiliate engaged solely in holding bank premises of the member bank. B. An affiliate engaged solely in holding fully guaranteed obligations of the U.S. government. C. Where the affiliate relationship arises out of a bona fide debt previously contracted. D. Where the affiliate relationship exists as a result of common directors. E. Where the affiliate relationship exists by virtue of the ownership or control of shares in a fiduciary capacity.

Answer - D. 12 USC 371c (b)(1)(C)(ii) states, "The term affiliate with respect to a member bank means any company in which a majority of its directors or trustees constitute a majority of the persons holding any such office with the member bank." 12 USC 371c(2) specifically exempts the affiliates as described in answers A, B, & C.

At December 2012, year-to-date net profits totaled $100M for XYZ National Bank. Retained net profits for the years 2000 and 2001 were negative $75M and negative $10M respectively. Which of the following statements is correct with respect to the bank's planned 2012 dividends? A. There are no restraints on dividends of less than $100M, B. Dividends cannot be paid. C. The bank's dividends are not limited. D. Dividend payments exceeding $15M require approval from the Office of the Comptroller of the Currency. E. There are no restraints on dividends of less than $85M.

Answer - D. 12 USC 60 (b) states, "the approval of the OCC shall be required if the total of all dividends declared in any calendar year shall exceed the total of net profits of that year combined with its retained net profits of the preceding two years."

An institution should know its computer systems compatibility with other installations or other systems for expansion and backup purposes. Backup agreements should be: A. In writing B. Reviewed C. Tested periodically D. All of the above E. A and B only

Answer - D. BC177 (rev) Interagency Policy Pg 2, states, "the institution's contingency policy must be reviewed and approved on an annual basis documenting such reviews in the board minutes." For the policy to be reviewed it must be in writing. FFIEC Information Systems Handbook, Pg 27, states periodic testing of contingency plans should be conducted.

OCC's initial approach to reviewing loan account files for purposes of determining that the bank is practicing fair lending includes file comparisons: A. Between approved minority borrowers' and rejected minority borrowers' accounts. B. Between approved non-minority borrowers' and rejected non-minority borrowers' accounts. C. Between approved AND rejected minority borrowers' and approved AND rejected non-minority borrowers' accounts. D. Between approved non-minority borrowers' and rejected minority borrowers' accounts. E. As determined by the Compliance Manager in your individual district.

Answer - D. EB93-3, Interim Procedures for Examining for Racial or Ethnic Discrimination in Residential Lending, Pg 1, states, "the examiner should seek to maximize the likelihood that there will be files to review for marginally qualified declined black, Hispanic, or Native American applicant and for marginally qualified approved white applicants."

You have been assigned the task of analyzing the adequacy of the allowance for possible loan and lease losses (ALLL). You calculate the ratio of the ALLL to total loans which is 1.2%. At this point in your review, you should: A. Conclude that the ALLL is adequate. B. Consider this a potentially misleading measure of ALLL adequacy. C. Relate the dollar amount of potential loss exposure to that of the ALLL. D. B and C only E. None of the above

Answer - D. Page 17 in the Allowance for Loan and Lease Losses booklet states, "...because ratios or comparisons to industry averages in the report of examination may be misinterpreted by management, they should be avoided in that context." Page 17 of the same booklet states, "The allowance must cover the bank's best estimate of inherent losses in the entire portfolio as of the evaluation date."

A national bank's investment policy does not address the type of securities the bank currently is purchasing (mortgage-backed securities, collateralized mortgage obligations, etc.). Bank management appears to have delegated investment decisions to their bond broker. What are some of the ramifications of these practices? I. Directors could be liable for any losses II. Bank practices could be held to be "unsafe and unsound" III. Bank may become exposed to increased risks in the portfolio IV. Investment purchases may be subject to divestiture A. I and II only B. II and III only C. III and IV only D. All of the above. E. None of the above.

Answer - D. Sec. 203.1, page one in the Comptroller's Handbook for National Bank Examiners states that "Speculation is an unsafe and unsound practice." If a practice is unsafe and unsound, it is exposing the bank to increased risks. The Director's Book discuss the fact that directors could be liable for losses due to unsafe and unsound practices. Also, the investment purchase may be subject to divestiture if not specifically eligible by statute.

The conversion of input data to output data using a predefined system of procedures is called: A. Storage B. Programming C. Flowcharting D. Processing E. Information

Answer - D. Storage: a device that captures retains and supplies data. Programming: the process of preparing a list of instructions for the computer to use in solving a problem. Flowcharting: a programming tool to graphically present a procedure by using symbols to designate the logic of how a problem is solved. These 3 definitions are found in the FFIEC Information Systems Handbook - Glossary. Information is the collection of data, while processing is the conversion of input data to output data using a predetermined system of procedures (program).

In evaluating the risk in a loan secured by controlling shares of a bank, which of the following considerations is the most important? A. Asset size of the controlled bank B. Price the borrower paid for the stock C. Secondary sources of repayment D. Financial condition of the obligor E. Collateral coverage by the bank stock

Answer - D. The financial condition of the obligor is the most important consideration, because that will provide the primary source of repayment.

A bank with capital equal to $800,000 can loan to a borrower who is pledging U.S. securities with market value of $450,000 (par $500,000) a maximum of: A. $450,000 B. $ 80,000 C. $580,000 D. $500,000 E. $570,000

Answer - E. 12 USC 84 (c)(4) states with loans secured by bonds, notes, or other obligations fully guaranteed as to principal and interest by the United States shall not be subject to any limitation based on capital and surplus. Therefore, the bank can lend the base amount of $120M plus an amount equal to the entire market value ($450M) of the U.S. securities. A total of $870M.

Which of the following is a legitimate reason for a national bank to borrow? A. To meet temporary or seasonal loan demands B. To meet unexpected deposit withdrawals C. As an effective liability management tool D. A desire for increased earnings E. A, B, and C only.

Answer - E. Sec. 302.1, page 1 in the CHNBE states the following reasons when borrowing is justified and warranted: to meet the temporary and seasonal loan or cash requirements of its customer; To meet large and unanticipated deposit withdrawals which may arise during periods of economic distress; and as an effective management tool.

In order to provide funds to satisfy liquidity needs, a bank may: A. Liquidate investment securities. B. Increase liabilities of a term nature. C. Purchase treasury stock. D. Increase holdings of non liquid assets. E. A & B above.

Answer - E. Sec. 405.1, page 1 in the CHNBE list five ways to provide funds to satisfy liquidity needs: Dispose of liquid assets, increase short-term borrowing, decrease holdings of non-liquid assets, increase liabilities of a term nature, and increase capital funds.

The bank under your examination, as of has a 15% legal lending limit of $150,000. It has granted a loan of $220,000 to Mr. Anderson, a local farmer, secured by beef cattle. The bank inspected and appraised the cattle four months prior to the examination date and estimated the value at $100,000. Is the subject bank in violation of 12 USC 84? If so, by how much? A. $ 33,000 B. $ 38,000 C. $120,000 D. $133,000 E. No violation exists.

Answer - E. The bank may lend the base amount of $150M. In addition, 12 CFR 32.3(i) allows a bank to loan up to an additional 10% of capital and surplus provided the extension of credit is secured by livestock with a market value of at least 115% of the outstanding loan balance. The bank must maintain in its file an inspection and appraisal report not more than 12 months old. Therefore, the bank can also lend an additional $87M to Mr. Anderson for a total of $237M. No violation exists.

A national bank's cash transfers to/from a holding company in connection with a consolidated income tax obligation must: A. Include remittance to the holding company of all income taxes, including deferred taxes. B. Not exceed an amount based upon the amount of taxable income the bank would have reported had it filed a separate return. C. Be made only at such time as necessary to reasonably permit the holding company to make required estimated payments or final settlements with the IRS or at such time the payment would have otherwise been made to the IRS if filing a separate return. D. None of the above. E. B and C are mandatory.

Answer - E. The final paragraph of Banking Circular 105 quotes answers B and C, making answer E correct. 12 USCc-1(a)(1)(A) states, "A member bank and its subsidiaries may engage in any of the transactions described in paragraph (2) only on terms and under circumstances that are substantially the same, or at least as favorable to such bank or its subsidiary, as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies." Page 8 of the Comptroller's Handbook for National Bank Examiner's also quotes answers B & C.

To qualify as an "exempt transfer agent" under 17 CFR 240.17Ad-4, a Transfer Agent must document that they have received less ______items for transfer and processing for _____consecutive months.

Answer: 500 items; 6 consecutive months.

ABC National Bank is about to make a loan to Jane Doe in the amount of $276,000 to purchase a home that will be Jane's secondary residence. The subject home will be the loan's collateral. ABC National Bank ordered a flood determination on the property, which indicates the home is located in a special flood hazard area. The property is located in a community that participates in the National Flood Insurance Program. The appraised value of the home and property is $280,000. The value of the land is $90,000. The value of Jane's personal property is estimated to be $50,000. What is the amount of flood insurance required? A. $190,000 B. $240,000 C. $250,000 D. $276,000 E. No flood insurance is required because the home is not Jane's primary residence.

Answer: A Source: The Comptroller's Handbook, Flood Disaster Protection, May 1999

What types of reviews are not required per 12 CFR 9? A) Review of all accounts, at least annually. B) Review of all fiduciary accounts, at least annually. C) Pre-acceptance review of all new accounts. D) Initial post-acceptance review. E) All of these reviews are required.

Answer: A (12 CFR 9.6).

A national bank's information security program should include intrusion response procedures to address unauthorized access to computer networks. What are two goals of intrusion response procedures? (Choose two.) A. restoration of systems B. denial of service attacks C. containment of the intrusion D. elimination of internet connections

Answer: A and C Source: FFIEC Information Security Booklet

Which two statements about core earnings are true? (Choose two.) A. Core earnings reflect the overall quality of a bank's earnings. B. Core earnings include one-time items, such as security gains and/or losses. C. A bank's reliance on one-time items to increase earnings is indicative of strong earnings. D. Factors such as overhead expense and provision expense are included when calculating a bank's core earnings. E. Core earnings are generally comprised of net interest income, fee/service charge income and income from other core business units.

Answer: A and E Source: New Examiner Training Manual Procedures, Unit 4 - Earnings and Capital

Which three loans should be on non-accrual? (Choose three.) A. A commercial loan that is internally rated "Doubtful". B. A loan that is 95 days past due and the borrower recently filed bankruptcy. The loan-to-value is 67%. C. A loan that is 59 days past due and management has doubts about its ability to collect principal. The loan is unsecured. D. A loan secured by a single-family residence that is 90 days past due and internally rated "Substandard". The loan-to-value is 60%. E. A loan that is 110 days past due but management expects full payout within seven days by proceeds from an insurance claim. The loan-to-value is 80%.

Answer: A, B, and C Source: Comptroller's Handbook for Rating Credit Risk

What board-level committee(s) are required by regulation for all national banks exercising trust power? A) Trust Audit Committee B) Trust Investment Committee C) Trust Administrative Committee D) A and C E) None of the above.

Answer: A- Trust Audit Committee (12 CFR 9.9).

What is the appropriate classification for a sub-investment quality, available-for-sale debt security with "temporary" impairment? A. The fair value of the security should be classified "Substandard". B. The amortized cost of the security should be classified "Substandard". C. The fair value of the security should be classified "Substandard" and the impairment should be classified "Loss". D. The amortized cost of the security should be classified "Substandard" and a loan loss provision should be made for the impairment amount.

Answer: B Source: OCC 2004-25 Attachment - Uniform Agreement on the Classification of Assets and Appraisal of Securities held by Banks and Thrifts

What are included in the calculation of a bank's net interest margin? (Choose three.) A. total assets B. interest income C. interest expense D. non-interest income E. average earning assets

Answer: B, C and E Source: New Examiner Training Manual Job Aids, Unit 4 - Financial performance

The Uniform Interagency Trust Rating System, "UITRS," consists of which three components? (Choose three.) A. capital component B. compliance component C. management component D. account administration component E. earnings component for institutions with more than $100 million in total trust assets and for non-deposit trust companies

Answer: B, C, and E Source: OCC Bulletin 98-46 Uniform Interagency Trust Rating System

What is true regarding Federal funds? A. Federal funds are FDIC insured. B. Federal funds are a long-term liquidity tool. C. Federal funds are typically secured by U.S. Treasury securities. D. Federal funds may be difficult to obtain when a bank experiences financial difficulties.

Answer: D Source: Comptroller's Handbook for Liquidity

Management of ABC National Bank is attempting to increase its commercial real estate portfolio. The senior lending officer is negotiating with a potential customer over the refinancing of an existing loan currently owed to XYZ State Bank. The loan would be secured by a commercial building. XYZ State Bank is willing to share an existing appraisal it ordered two years previously that estimated the building's value at $1.5 million. What is true regarding the OCC's appraisal requirements? A. ABC National Bank must obtain a new appraisal because the existing appraisal is more than 12 months old. B. ABC National Bank must obtain a new appraisal because the existing appraisal was ordered by another financial institution. C. ABC National Bank does not need to obtain a new appraisal because the existing appraisal can be used so long as the appraiser assigns the appraisal to ABC National Bank. D. ABC National Bank does not need to obtain a new appraisal because the existing appraisal can be used so long as ABC National Bank documents the continued validity of the appraisal.

Answer: D Source: OCC 2005-6, FAQ on the Appraisal Regulations

Which situation presents a moderate or high quantity of interest rate risk? A. a low ratio of long-term assets to total assets B. a small volume of assets with embedded options C. a stable net interest margin over the last three years D. a large holding of fixed-rate residential real estate loans E. a high ratio of non-maturity deposits to long-term assets

Answer: D Source: Red Flags in Board Reports

The same bank wants to make a loan to a customer which is above its LLL. Marketable securities are obtained as additional collateral. The loan is funded on March 31st. On June 30th, the value of the collateral plummets and the resulting LTV increases to 150%. Which response correctly characterizes this situation? A) This is a violation. Loan should be called immediately. B) This is a violation. Collateral deficiency should be corrected immediately. C) This is now considered a non-conforming loan. Collateral deficiency should be corrected immediately. D) This is now considered a non-conforming loan. Collateral deficiency should be corrected within 30 days. E) This is now considered a non-conforming loan. Collateral deficiency should be corrected within 90 days.

Answer: D (12 CFR 32.6).

How often should a bank recalculate its Legal Lending Limit? A) Quarterly, to coincide with the filing of the Call Report. B) If changes occur in the bank's capital. C) When required by the OCC. D) A and B. E) All of the above.

Answer: E-all of the above (12 CFR 32.4).

17 CFR 240.17 Ad-17 requires recordkeeping transfer agent to maintain records, including written procedures which describe the Transfer Agent's methodology, to demonstrate its compliance with the ___________.

Answer: Lost securityholder search requirements.

OCC Bank sweeps all uninvested cash from discretionary accounts into a proprietary money market account with a current yield of 1.50%. The rate paid on this account is set by the board. Management feels that this arrangement is acceptable as this is the rate that they pay to their commercial customers as well. State law defers to 12 CFR 9. Is this permissible? A) Yes B) No

Answer: No (12 CFR 9.10(a)).

To withdraw as a registered Transfer Agent, 17 CFR 240 Ac3-1 requires submission of Form_______.

Answer: TA-W

Use the following income statement information ($000's): Interest on loans not held for sale: $2,785 Service charges on customer deposits: $500 Municipal bond interest: $1,275 Interest paid on time deposits: $1,835 Origination fees on loans held for sale: $325 Interest paid on Fed Funds purchased: $200 What is the bank's net interest income? a) $2,025 b) $2,225 c) $2,350 d) $2,850

Answer: a - $2,025: Service charges on customer deposits should be reported as noninterest income. In general, origination fees on loans are includable in interest income; however, when loans are held for sale, the origination fees should be deferred until sold with the gain/loss recognized as noninterest income. See Call Report Instructions, pg. RI-2

John Smith passes away, and under the terms of his will, a trust is established for his grandchildren. What type of trust is this? A) A living trust. B) A testamentary trust C) A guardianship D) A spendthrift trust E) None of the above

B) A testamentary trust - See handbook

Fiduciary assets are permitted to be commingled with bank assets? A) True B) False

B) False-12 CFR 9.13(b)

Because qualified EB accounts are "tax exempt", there are no IRS filing requirements. A) True B) False

B) False; IRS Informational Return 5500 is required

Trust Officer Gallagher needs to borrow money to buy a new bass boat. He can't borrow from the bank as it would create a Reg-O violation. Instead, he finds out what current loan terms the bank is currently offering for boat loans, and borrows the money from a trust he administers. The rate, terms and collateral are consistent with what he would have paid if he had borrowed from the bank. Is this permissible? A) Yes B) No

B) No 12 CFR 9.12(b)(2) Loans to insiders/employees are generally prohibited.

OCC Bank is named executor of estate. Consistent with its fiduciary responsibilities, OCC Bank instructs Trust Officer Gallagher to collect and liquidate all estate assets for the payment of bills and taxes. Included in the estate is a collection of antique fishing lures. All assets are valued and sold at a public auction. Trust Officer Gallagher, through bidding, purchases the fishing lure collection at auction. Is this permissible? A) Yes B) No

B) No; 12 CFR 9.12 (b) also prohibits the purchase of trust assets by insiders/employees. It was ruled that "public auctions" are not exempt as the trustee can control the advertisement, timing and conditions of the auction.

Which form must be completed annually by registered transfer agents? A) TA-1 B) TA-2 C) SEC-1 D) None of the above.

B) TA-2 See TA Handbook

In the absence of any additional collateral, 12 USC 84 and 12 CFR 32 limits the amount of money that could be lent to an individual borrower to ______% of tier-one capital +ALLL. A) 10 B) 15 C) 20 D) 25 E) 35

B-15%.

OCC Bank has a small trust department of only three employees. Due to limited space in the bank's main vault, trust assets are maintained in a locked fire-proof cabinet in the trust department. Trust Officer Gallagher maintains the key. Does this arrangement comply with 12 CFR 9? A) Yes B) No

B-No. (12 CFR 9.13)

A bank has a lending relationship with a borrower. Total outstanding equals $2,000M. The bank's LLL is $2,500M. The board approves a $1,000M commercial construction mortgage to the borrower. To date only $250M has been funded. Does the relationship constitute a LLL violations? A) Yes. B) No.

B-No. Because the funds have not yet been drawn in amount, that when combined with other loans, exceeds the LLL. This is considered a "non-qualifying commitment", the violation occurs once the funds are advanced (12 CFR 32.2 --verified with Jane Principe while at Luzerne NB).

A bank makes a loan on March 31st that is within its LLL. On June 30th, the bank's capital decreases, and as result, the loan is now above the recalculated LLL. Does this situation now cause a violation? A) Yes B) No

B-No. Loan is considered a non-conforming loan (12 CFR 32.6).

You are reviewing a loan file. The loan is secured by raw land and improved commercial property. The raw land is valued at $75,000 (subject to a $25,000 prior lien) and the improved commercial property is valued at $250,000 (subject to a $125,000 prior lien). What is the aggregate amount that could be loaned against the collateral pool, and conform to the supervisory loan-to-value limits? A. $93,750 B. $111,250 C. $132,500 D. $138,750

B. $111,250

The aggregate amount of covered transactions with an affiliate is limited to ____% of member bank capital. A. 5% B. 10% C. 15% - legal lending limit D. 25%

B. 10%, 12 USC 371c(a)(1)(A)

What is the minimum percentage of voting stock a shareholder must own to be considered a principal shareholder? A. 25% B. 10% C. 15% D. 5%

B. 10%; 12 CFR 215.11(a)(1)

An affiliate for purposes of 12 USC 371c includes any company that controls what percentage of the stock of the bank? A. 10% B. 25% C. 50% D. 80%

B. 25%

XYZ National Bank has the following capital and balance sheet items: Common stock $100 Risk weighted assets 15,000 Surplus 150 Adjusted total assets 12,500 Undivided profits 200 Limited Life Preferred 100 Qualifying Debentures 100 ALLL 200 Using this information, the bank's leverage ratio is: A. 3.00% B. 3.60% C. 4.00% D. 4.40%

B. 3.60%; 12 CFR 3 Appendix A CS+Surplus+UP/ATA

Which three loans are required to be on nonaccrual? (Choose three.) A. A residential real estate loan is 95 days past due, but the borrower has been making timely monthly payments for five months. B. A commercial loan with a loan-to-value of 50% is past due 119 days. The borrower has just filed for chapter 11 bankruptcy protection and repayment is uncertain. C. An unsecured commercial loan is 87 days past due and the bank anticipates payment from an insurance settlement within 30 days. D. A commercial loan is 85 days past due. Collateral is sufficient to cover the loan's principal balance, but the bank expects to charge-off $3,000 in interest and $400 in accrued late charges. E. A $20,0000 single-payment commercial note secured by machinery and equipment has renewed annually for the last ten years with no principal reduction. The loan is current, but the entire credit relationship is rated substandard.

B. A commercial loan with a loan-to-value of 50% is past due 119 days. The borrower has just filed for chapter 11 bankruptcy protection and repayment is uncertain. D. A commercial loan is 85 days past due. Collateral is sufficient to cover the loan's principal balance, but the bank expects to charge-off $3,000 in interest and $400 in accrued late charges. E. A $20,0000 single-payment commercial note secured by machinery and equipment has renewed annually for the last ten years with no principal reduction. The loan is current, but the entire credit relationship is rated substandard.

National banks are permitted to have how many Directors? A. At least 5, but no more than 23. B. At least 5, but no more than 25. C. At least 6, but no more than 21. D. At least 7, but no more than 27.

B. At least 5, but no more than 25. 12 USC 71a

The bankruptcy section which allows corporations and other businesses to reorganize debt to continue operation or liquidate assets is: A. Chapter 7 B. Chapter 11 C. Chapter 12 D. Chapter 13

B. Chapter 11

If a bank is "well capitalized" for Prompt Corrective Action purposes, the Capital component rating will always be a "1" or a "2". A. True B. False

B. False

In Examiner View, an examination may not be added to the strategy of a bank once the strategy has been built for the upcoming supervisory cycle. A. True B. False

B. False

In Examiner View, the only people who can open an exam are the portfolio manager or someone with Office View. A. True B. False

B. False

On the UBPR, if the NIM for the bank you are reviewing is in the 7th percentile, it means the bank performs significantly better than other banks in its peer group. A. True B. False

B. False

While reviewing NOW accounts at XYZ National Bank, an examiner notices two local for profit corporations have such accounts. The banker tells you they closely adhere to the requirement of seven days notice prior to withdrawing funds. This situation is OK. A. True B. False

B. False, Call Report Instructions - Glossary - Deposits

All banks must have an Audit Committee comprised of a majority of outside directors. A. True B. False

B. False; 12 CFR 363 applies to banks over 500 million. OCC Bulletin 99-37 encourages banks of all sizes to have an independent external audit. Committee membership is not discussed.

If a bank has a composite rating of "1", there are no limitations on the bank's investment in bank premises. A. True B. False

B. False; 12 USC 371d

For CRA examination purposes, a community bank with $200MM or more in assets is considered a Large Bank. A. True B. False

B. False; 250MM

A vacancy on the bank's board shall be filled by appointment by the bank's president and that director so appointed will hold that director position until the next election. A. True B. False

B. False; Appointed by the remaining directors - 12 USC 74.

To maintain their objectivity, the audit department should not be involved in initial discussions regarding new products and services. A. True B. False

B. False; Audit department should be involved in initial discussions so they can develop procedures and expertise to audit new areas. They may also highlight potential problem areas for management.

Examiners should review the bank's audit program toward the end of the examination to determine if we come to the same conclusion. A. True B. False

B. False; Review of audit program should occur before the exam or at the beginning to help se the scope.

Most community banks do not process large volumes of wire transfers, therefore, audits of this function are not critical. A. True B. False

B. False; There is potential for significant loss in this area in all banks.

How many people does the law require to form a bank? A. Two as long as they have the means to raise capital B. Five people is the minimum number to form a bank C. No more than 10 people may be involved in forming a bank D. There is no established number of people to form a bank

B. Five people is the minimum number to form a bank; 12 USC 21

A national bank has a Tier 1 leverage ratio of 11%, a Tier 1 risk based ratio of 12.5% and at total risk based ratio of 17%. What may prohibit the bank from being classified "well capitalized" for PCA? I. The bank operates under a Memorandum of Understanding for Capital II. The bank has fixed assets in excess of 100% of Capital III. The bank operates under a Commitment Letter for Capital IV. The bank operates under a Formal Agreement with a capital directive A. II only B. IV only C. I and IV only D. I, III and IV only

B. IV only; 12 CFR 6.4

Which three reports should a bank use to monitor loans to finance a residential construction project? (Choose three.) A. rent roll B. Inspection C. progress report D. general economic conditions E. borrower's financial condition

B. Inspection C. progress report E. borrower's financial condition

The overall economy is currently experiencing a credit crunch and your analysis of current rates discloses an inverted yield curve. Long-term rates, as compared to short term rates are: A. Higher B. Lower C. Stable D. Rising rapidly E. None of the above

B. Lower

Director Smith is wealthy and has many deposits with the bank. In reviewing the report of $100,000 + CD's you notice his rate is consistently 75 basis points higher than any others on the list. Is this a violation of Regulation O? A. Yes B. No

B. No, Reg O does not address deposits, but it is a violation of 12 USC 376 which does address insider deposits.

The purpose of policy making is to provide guidance to employees for making decisions and taking actions. Which statement is true? A. The Board of Directors or a delegated committee must revise all written policies annually. B. Policies should be stated in terms broad enough to allow for varying situations and discretion in execution. C. Policies are statements of direction from management that must be strictly adhered to in order to be effective. D. Banks are encouraged to obtain written policies from an outside source as long as they are not more than three years old.

B. Policies should be stated in terms broad enough to allow for varying situations and discretion in execution.

Maintaining strong passwords is an example of what control type? A. Detective control B. Preventive control C. Corrective control D. Recovery control

B. Preventive control; Preventive controls maintain strong passwords.

From a review of the UBPR, which statement is true about banks that elect Subchapter S status for income taxes? A. A flat 28% rate is applied to cash dividends. B. The UBPR adjusts after tax earnings and dividends used in the ratios. C. Dollar data displayed in the UBPR is adjusted for Subchapter S status. D. The UBPR does not adjust after tax earnings and dividends used in the ratios.

B. The UBPR adjusts after tax earnings and dividends used in the ratios.

During the examination of a NB, the examiner assigned to evaluate the bank's internal controls is given the following documents to review. Which of these do you think would be the LEAST useful in setting the scope of the review? A. The most recent external audit report B. The bank's UBPR C. The previous OCC ROE D. The most recent internal audit report and workpapers

B. The bank's UBPR; Internal Controls Handbook January 2001

In reviewing a commercial real estate loan file, you see the leases on office space is a "net lease" or "net, net net". This means: A. The lessor will pay all expenses such as maintenance, insurance and taxes B. The tenant will pay all expenses such as maintenance, insurance and taxes C. The tenant pays rent directly to the bank D. The tenant must deposit 3 months rent in advance

B. The tenant will pay all expenses such as maintenance, insurance and taxes; Real Estate Lending

Which three are addressed by a contingency funding plan? (Choose three.) A. effects on net income B. asset and liability strategies C. all of the bank's funding and liquidity needs D. the bank's funding preferences E. loan administration policies and procedures

B. asset and liability strategies C. all of the bank's funding and liquidity needs D. the bank's funding preferences

ABC national Bank engages in asset management activities and acts in the capacity of directed trustee for the majority of its trust accounts. Which three fiduciary responsibilities does the bank have for accounts as directed trustee? (Choose three.) A. select investments B. diversification of account C. full investment discretion D. discretionary distributions E. administer account per governing instrument

B. diversification of account D. discretionary distributions E. administer account per governing instrument

A loan should be placed on nonaccrual if it is 90 days past due when it is: A. well secured and in process of collection B. only well secured C. residential RE D. an installment loan

B. only well secured

Which of the following would generally result in placing all loans to a particular borrower on nonaccrual? A. they are all classified B. the same source of repayment C. they are guaranteed by the same individual D. bankruptcy

B. the same source of repayment

12 CFR 1 categorizes investment securities into five "types". Which two types are subject to a 10% limitation? (Choose two.) A. type I B. type II C. type III D. type IV E. type V

B. type II C. type III

12 USC 29 states a bank may hold a piece of other real estate for five years. Further, the OCC may approve the bank to hold the property for a period up to: A. 2 additional years only B. 3 additional years only C. 5 additional years only D. There is no limit with OCC approval

C. 5 additional years only

Which of the following should be included as components of the bank's non-interest income? I. Fees on fiduciary accounts II. Service fees on commercial loans III. Trading fees and commissions IV. Deposit service charges A. I and III only B. II and III only C. I, III, and IV only D. I, II, III, and IV

C) I, III, and IV only - Call Report instructions

Which of the following is not a factor of management's internal control environment? a) The organizational structure of the institution b) Management's philosophy and operating style c) Risk assessment d) External influences that affect the bank's operations and risk management practices (e.g. independent audits)

C) Risk assessment - Internal Controls Handbook, page 5

NB of Anywhere has been the transfer agent for their own publicly traded stock for years. This is the only issue in which they serve in this capacity. Bank TA=$50MM. Through a series of reverse stock splits, the number of shareholders has been reduced to 275. What does the bank need to do? A) Nothing B) Apply for a small transfer agent exemption C) Withdraw from registration D) Notify the OCC of the reverse stock split. E) File a new TA-1

C) Withdraw from registration P8 TA HB

A bank makes a $200M loan to a borrower for the purchase of 4 family residential property. Mgmt receives an evaluation on the property indicating an estimated value of $250M. There is a prior lien on the property in the amount of $25M. The borrower will not reside at this property. What is the LTV? a-88.88% b-80.00% c-90.00% d-77.77% e-none of the above.

C-90%. "The definition of a loan-to-value means the percentage or ratio that is derived at the time of the loan origination by dividing an extension of credit by the total value of the property.... The total amount of all senior liens on or interests in such properties should be included in determining the loan-to-value." (12 CFR 34.62-Appendix; definitions)

A bank's balance sheet contains the following information: Net Loans $17,000M ALLL 200M Capital 1,900M Surplus 1,900M Retained earnings (300M) TYD earnings 60M net What is the bank's general Legal Lending Limit? A. $645M B. $600M C. $564M D. $555M

C. $564M; (200+1900+1900-300+60) x .15

A national bank has purchased several securities that were (and continue to be) based on "reliable estimates". The bank's balance sheet lists: total assets $200MM; Tier 1 and ALLL $1,600M, investment portfolio $60MM. How much can the institution invest in this type of security? A. No limit - just prudent judgment B. $160M or 10% of equity capital C. $80M or 5% of equity capital D. $3MM or 5% of the total investment portfolio

C. $80M or 5% of equity capital; 12 CFR 1

On a 9/30/XX UBPR, Net income is reported as $1,635M; dividends declared are $442M; total assets are $194,909M; and average assets are $177,727M. The ROAA is: A. 0.83 B. 0.90 C. 1.23 D. 0.92

C. 1.23; ($1635/3) x 4 divided by $177,727M

What is the Legal Lending Limit for a bank with the following accounts? Capital Stock 1,750M Capital Surplus 7,270M ALLL eligible for tier 2 4,380M Remainder of ALLL 438M Retained Earnings 63,500M Dividends paid 2,319M Ineligible Intangibles 2,100M Net Income 7,500M Unrealized loss on securities 1,400M A. 12,660M B.12,378M C. 12,726M D. 12,516M

C. 12,726; To calculate the 15% legal lending limit, add capital stock, capital surplus, ALLL eligible for tier 2, remainder of ALLL, retained earnings, and net income. The capital number should be $84,838M, the 15% limit would be $12,726M

The aggregate amount of covered transactions with all affiliates is limited to ____% of member bank capital. A. 100% B. 50% C. 20% D. 10%

C. 20%, 12 USC 371c(a)(1)(B)

The aggregate amount of covered transactions with all affiliates is limited to ____% of member bank capital. A. 100% B. 50% C. 25% D. 10%

C. 25%

XYZ Bank holds all its assets until maturity. Which of the following would have the greatest sensitivity to a change in interest rates? A. A $100M, 30 year floating rate mortgage (no cap on rate changes) B. A $50M, 15 year fixed rate mortgage with a two year balloon C. A $75M, 5 year treasury bond D. A $25M, 5 year fixed rate auto loan with monthly payments

C. A $75M, 5 year treasury bond; Longest period before any portion can reprice.

Which three statements are true regarding a bank's Community Reinvestment Act (CRA) assessment area? (Choose three.) A. A bank may not have more than one assessment area. B. The OCC must use the assessment area delineated by the bank in its evaluation of CRA performance. C. A bank's assessment area must include all geographies where the bank has its main office, branches and deposit-taking ATMs. D. A bank's assessment area may not substantially extend beyond a Metropolitan Statistical Area (MSA) boundary unless it is located in a multi-state MSA. E. Management may adjust boundaries of the assessment area to include only the portion of a political subdivision that it can reasonably expect to serve.

C. A bank's assessment area must include all geographies where the bank has its main office, branches and deposit-taking ATMs. D. A bank's assessment area may not substantially extend beyond a Metropolitan Statistical Area (MSA) boundary unless it is located in a multi-state MSA. E. Management may adjust boundaries of the assessment area to include only the portion of a political subdivision that it can reasonably expect to serve.

What is the maximum amount of interest a national bank may charge on loans? A. A national bank may not charge more than 18%. B. There is no maximum amount of interest a national bank may charge. C. A national bank may charge the maximum rate of interest permitted by state law. D. A national bank may only charge 1% more than the discount rate on 90-day commercial paper.

C. A national bank may charge the maximum rate of interest permitted by state law.

An external CPA year-end audit report for a bank states the financial statements do not fairly present the bank's financial position and are not in conformity with GAAP. What type of opinion has been rendered? A. Unqualified B. Disclaimer C. Adverse D. Qualified

C. Adverse; CPA's issue when matters taken exception to are so severe as to affect the fairness of the financial statements as a whole.

FNB Anywhere wants to underwrite investments. They ask the examiner what securities they can underwrite. What advice is NOT correct? A. Banks can underwrite both Type I and Type II securities B. Banks can deal in both Type I and Type II securities C. Banks can underwrite Type III securities but may not own them in the bank's investment portfolio. D. Banks can underwrite Type II securities but may own them only up to the 10% investment limit.

C. Banks can underwrite Type III securities but may not own them in the bank's investment portfolio. 12 CFR 1.21

A bank's audit program requires 80% of commercial loans be subject to positive verification with a minimum response rate of 70%. What best describes a positive verification process? A. Customers with loan advances within the prior year are sent a verification notice to be returned to the auditor indicating the current balance. B. Customer receives a notice containing the loan balance. If a different balance exists, the customer returns the notice to the auditor. C. Customer is requested to confirm loan number, billing address, and loan balance outstanding and return to the auditor. D. Customer receives the audit notice with the current loan balance and is instructed to contact the bank's Loan Department if differences exist.

C. Customer is requested to confirm loan number, billing address, and loan balance outstanding and return to the auditor. Positive notification is not limited to a particular timeframe. It requires a customer to confirm specific information by returning a notice to the auditor.

Which statement is true if flood insurance is required? A. Borrower must purchase additional policy to cover junior lienholder. B. Flood insurance should cover the outstanding principal balance of the loan or the overall value of the improved property, whichever is less. C. Flood insurance must be obtained even if collateral is obtained as an abundance of caution. D. Lender may not lend on property in a flood zone in a nonparticipating community.

C. Flood insurance must be obtained even if collateral is obtained as an abundance of caution.

A bank's investment in premises is limited by 12 USC 371(d). Which of the following is not included in the computation? A. Leasehold improvements B. Real Estate acquired for future expansion C. Furniture and fixtures D. Applicable portions of construction account E. Both A and C

C. Furniture and fixtures

Director Jones is a director and shareholder of a closely held community bank. If Jones uses some of his stock as collateral on loans at another bank, does he have to make any special reports? A. No, it is his stock and where he pledges it is no one's business; B. He must report it only if he borrowed money for business purposes; C. He must report the outstanding amount of the credit to his board annually; D. He must report it to his board only if the amount is greater than $10M;

C. He must report the outstanding amount of the credit to his board annually; 12 CFR 215.12

An examiner reviews a $600M loan to a director for compliance with Reg O. Which of these items should be verified when determining if the loan is in compliance? I. The loan was made on substantially the same terms as comparable transactions II Prior approval was obtained III A majority of the Board approved the loan with the interested party abstaining IV The loan was for housing or educational purposes A. I and II only B. II and III only C. I, II, and III only D. I and IV only

C. I, II, and III only; 12 CFR 215.4 (a) and (b)

Which of the following is a characteristic of a repurchase agreement? I. Negotiations usually take place directly between the buyer and the seller II. Maturities can vary from overnight to several months. III. The seller remains entitled to receive all interest and principal payments on the security sold IV. The agreement can be terminated at any time due to the existing secondary market A. I and III only B. II only C. I, II, and III only D. II and IV only

C. I, II, and III only; OCC Bulletin 98-6; Red book. There is no secondary market.

The audit committee of ABC NB, a $575MM institution, is composed of two outside directors and one inside director. It meets regularly with internal/external auditors and follows up on their recommendations. The committee hires, evaluates and establishes compensation for the internal staff. Which of the following applies to this committee? A. It operates in an acceptable manner. B. It should not have authority to evaluate the internal audit staff. C. It should not include inside directors. D. It should not establish compensation for the internal audit staff.

C. It should not include inside directors. 12 CFR 363.5 (a)

Which of the following types of loans to executive officers are permitted without limit? A. Loans to partnerships of the officers; B. Loans to purchase stock of the bank; C. Loans for their children's education D. Unsecured loans for any purpose.

C. Loans for their children's education, 12 CFR 215.5 (c) (1)

The legal lending limit applies to which of the following: A. Daylight or intra-day overdrafts B. Banker's acceptances C. Loans which have been charged off but are still enforceable D. Loans secured by a segregated deposit account.

C. Loans which have been charged off but are still enforceable; 12 CFR 32.2(j)(v); 12 CFR 32.3(c)(2) and (6)

What would NOT be an objective of a sound investment policy? A. Minimize risk B. Provide adequate liquidity C. Meet pledging requirements for private deposits D. Provide an adequate return on funds

C. Meet pledging requirements for private deposits; 12 USC 90

ABC National Bank has a $5 million variable rate commercial loan portfolio which will reprice 90 days after a change in the prime rate. The bank funds this portfolio with 30-day certificates of deposit. On June 30, 2008, the prime lending rate increased by 100 basis points. At the same time, the bank raised the rate it pays on 30-day time deposits by 75 basis points. What will be the approximate impact on the bank's net interest income at December 31, 2008 from these interest rate changes? A. Net interest income will increase by $6,250. B. Net interest income will increase by $3,125. C. Net interest income will decrease by $3,125. D. Net interest income will decrease by $6,250.

C. Net interest income will decrease by $3,125.

The bank's internal auditor, Mr. Smith, recently resigned his position and the new auditor has been with the bank for less than a month. The audit committee in reviewing the last audit report of Smith notes the following statement: "significant errors were identified in the accounting entries for charged off loans." President Downs believes this statement is incorrect in that Smith did not test an adequate sample and has no basis for his conclusion. What is the best method for the audit committee to resolve this issue: A. Call the former auditor for his comments B. Direct the new auditor to perform a review of all charged off loans over the prior 12 months C. Review workpapers of the former auditor D. Alert external auditors and include the area in the engagement letter for the next external audit.

C. Review workpapers of the former auditor; Workpapers should provide a clear audit trail.

What is reflective of an asset quality rating of "2"? A. Asset quality or credit administration practices are less than satisfactory. B. The levels of risk and problem assets are significant and inadequately controlled. C. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention. D. Identified weaknesses are minor in nature and risk exposure is modest in relation to capital protection and management's abilities.

C. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention.

Executive officers and principal shareholders must report their borrowings from correspondent banks. Which of the following is not true? A. The maximum amount of the debt must be reported; B. The terms of the loan(s) must be included in the report; C. The member bank must keep these reports for two years; D. The report must be filed on or before January 31 of the following year

C. The member bank must keep these reports for two years; 12 CFR 215.22(d) requires 3 years.

Each director must take an oath of office when appointed or elected to a bank's board. Which of the following is false: A. The oath shall be taken before a notary public properly authorized and commissioned by the State B. The oath can be taken before any other officer having an official seal and authorized by the State to administer oaths C. The oath can be taken by an officer of the bank if that officer has one of the above designations D. The oath must be transmitted to the Comptroller of the Currency where it will be held on file for ten years

C. The oath can be taken by an officer of the bank if that officer has one of the above designations; 12 USC 73

Under which of the following circumstances would a bank have a valid reason to borrow from the Federal Reserve discount window? A. To accommodate a seasonal liquidity need which is below a threshold normally met by other sources B. To provide liquid funds to arbitrage into higher yielding FFS. C. To temporarily fund the unexpected loss of a large deposit relationship D. To reduce the bank's average cost of funds by funding nonseasonal loan growth with borrowings instead of deposits.

C. To temporarily fund the unexpected loss of a large deposit relationship; Discount window is used when no other funding alternatives are available. Sudden unexpected loss of funding. Fed does provide seasonal funding, but only if needs exceed threshold it is expected to fund from other sources. 12 CFR 201

For a bank to be considered "well capitalized" for Prompt Corrective Action purposes, what capital levels are required? A. Total Risk Based 10%; Tier 1 risk based 8%, Leverage 5% B. Total Risk Based 8%; Tier 1 risk based 8%, Leverage 5% C. Total Risk Based 10%; Tier 1 risk based 6%, Leverage 5% D. Total Risk Based 8%; Tier 1 risk based 6%, Leverage 4%

C. Total Risk Based 10%; Tier 1 risk based 6%, Leverage 5%; 12 CFR 6.4(b)(1)

What triggers an expansion of the audit program procedures? A. the bank has hired a new auditor since the prior exam. B. high growth areas of the institution have adequate audit and internal controls. C. actions by managers to influence the findings or scope of audits D. no significant changes in the external audit program since the prior examination E. the reporting process does not require the internal auditor to report audit findings to management

C. actions by managers to influence the findings or scope of audits

A bank may recognize interest on a cash basis (ie cash interest payments may be treated as interest income) as long as the book balance of the loan is deemed: A. uncollectible B. recognizable C. fully collectible D. measurable

C. fully collectible

Bank investments are accounted for at amortized cost when they are: A. available for sale B. trading C. held to maturity D. speculative in nature

C. held to maturity; FAS 115

What are three traditional fiduciary services offered by a community bank trust department? (Choose three.) A. retail brokerage services B. registrar and transfer agent C. investment management services D. personal trust, including estate administration E. corporate trust administration, including retirement plan services

C. investment management services D. personal trust, including estate administration E. corporate trust administration, including retirement plan services

A loan is considered well secured if: A. it is secured by RE B. there is a current appraisal C. the collateral is sufficient to discharge the debt D. if the collateral is in good condition

C. the collateral is sufficient to discharge the debt

The same bank wants to make a loan to a customer which is above its LLL. Marketable securities are obtained as additional collateral. The loan is funded on March 31st. On June 30th, the value of the collateral plummets and the resulting LTV increases to 150%. Which response correctly characterizes this situation? A) This is a violation. Loan should be called immediately. B) This is a violation. Collateral deficiency should be corrected immediately. C) This is now considered a non-conforming loan. Collateral deficiency should be corrected immediately. D) This is now considered a non-conforming loan. Collateral deficiency should be corrected within 30 days. E) This is now considered a non-conforming loan. Collateral deficiency should be corrected within 90 days.

D (12 CFR 32.6).

Can a director serve as member of both the Trust Audit and Trust Committees? A) No B) Yes, always C) Yes, with OCC approval D) Yes, as long a majority of the audit committee doesn't have conflicting duties. E) Yes, if the bank has less than $100MM in trust assets.

D (12 CFR 9.9(c))

Which of the following is not considered an "agency account"? A) Custody account B) Investment advisory account C) Investment management account D) An estate E) All are considered agency accounts

D) An estate - See handbook

What policies are not required per 12 CFR 9? A) Brokerage placement B) Selection and retention of legal counsel C) Inside information D) Investment manager selection. E) No policies are formally required per 12 CFR 9.

D) Investment manager selection. 12 CFR 9.5

Which of the following is not an example of a Defined Contribution Plan: A) 401k plan B) ESOP C) Profit sharing plan D) Traditional pension E) All are DCPs

D) Traditional pension

Which of the following loans or extensions of credit are not subject to the lending limits? A. Loans to leasing companies B. Loans secured by real estate C. Banker's Acceptances D. A & C E. B & C

D. A & C, 12 CFR 32.3(c)(2) & (10)

The management rating (1 through 5) is assigned giving consideration to which of the following? A. Technical competence, leadership, and administrative ability; B. Demonstrated willingness to serve the legitimate banking needs of the community; C. The size of the Board of Directors; D. A and B only; E. A, B, and C

D. A and B only;

In determining if a borrower has exceeded the bank's LLL, which of the following are not included in the calculation? A. Overdrafts B. A previously charge-off, but still enforceable loan C. A standby letter of credit D. A commercial letter of credit

D. A commercial letter of credit; 12 CFR 32.2(f)(2)

Which of the following risks can be associated with concentrations of credit? A. Credit risk B. Liquidity risk C. Foreign Exchange risk D. A, B, and C E. A and C only

D. A, B, and C

In addition to traditional fiduciary products, such as personal trusts, estate administration, and retirement plan services, what other fee- or transaction-based services may banks provide? A. Financial Planning B. Institutional cash management services C. Tax advisory and preparation services D. All of the above

D. All of the above

Why are national banks aggressively marketing new and complex financial products and services? A. To strengthen their competitiveness B. To meet customer demand C. To general fee income D. All of the above

D. All of the above; Asset management covers more than traditional fiduciary services and now includes all of the above activities.

When transferring securities to Held to Maturity from Available for Sale category, how should the unrealized gain or loss at the date of transfer be recognized? A. Included as part of the Tier 1 and Total RBC calculation B. Included as an adjustment to current earnings and reported on the bank's Report of Condition C. In the footnotes of the investment trial at year end D. Amortized as an adjustment to the bond's yield over the remaining life of the security and recorded in a separate component of equity.

D. Amortized as an adjustment to the bond's yield over the remaining life of the security and recorded in a separate component of equity. FAS 115 - Transfers between categories

Which statement is not true. A. Earnings may be rated '4' even if the bank is not generating losses. B. Budget and MIS are considered in the 'earnings' component as well as the 'management' component rating. C. Earnings at risk is a factor in the 'sensitivity to market risk' component as well as the 'earnings' component rating. D. An earnings rating of '1' indicates a bank with strong earnings and no increasing risk. E. All are true. F. None are true.

D. An earnings rating of '1' indicates a bank with strong earnings and no increasing risk. OCC Bulletin 97-1 and Comptroller's Handbook discussion of Supervision by Risk.

XYZ National Bank, total assets $85MM, has established a trading account for certain investments. What action would an examiner expect management to take? A. Provide minimal supervision over trading activities B. Make adjustments to fair value through a charge to undivided profits C. Account for trading account assets as permanent investments since total assets of the bank are <$100MM. D. Ensure these investments are marked to market monthly with unrealized gain or losses recognized in current income.

D. Ensure these investments are marked to market monthly with unrealized gain or losses recognized in current income. FAS 115

In which scenario would a bank want to maintain a higher level of liquidity? I. Recent trends show continuing substantial reductions in large deposit accounts II. Significant draws on unused line of credit and loan commitments are expected in the immediate future. III. The volume of small demand deposit accounts has increased significantly IV. There is a concentration of deposits in short-term municipal special assessment-type accounts. A. I and II B. II and IV C. I, II, and III D. I, II, and IV

D. I, II, and IV; An increase in volume of small DDA's would not require a higher level of liquidity.

Which of the following are examples of embedded options? I. Fixed assets a bank includes in its Gap report II. Borrower's ability to repay fixed rate loans III. Depositor's early withdrawal rights on time deposits IV. Caps on interest rates for variable rate loans. A. I only B. II and IV only C. III and IV only D. II, III, and IV only

D. II, III, and IV only

What would be contained in a CPA engagement letter? I. Qualifications of the CPA firm II. Reports to be generated by the firm. III. Period of time to be covered by the audit. IV. Scope of activities to be reviewed. A. II and III only B. I, II, and III only C. I, III, and IV only D. II, III, and IV only

D. II, III, and IV only; Bank should know qualifications before they hire and present an engagement letter.

While reviewing the 12/31/XX Board minutes, the examiner noted a $500M line of credit to ABC Co., an affiliate of Director Jones, was approved by the entire Board of Directors. Director Jones' personal debt, aggregating $100M, was also approved. The bank's legal lending limit was $600M. Director Jones's action in approving his loans: A. is a violation because the bank cannot lend to a Director's related company B. is not a violation, as long as the company debt does not exceed the LLL. C. Is not a violation, as long as the company debt is approved by the entire Board of Directors D. Is a violation because Director Jones cannot vote to approve his personal company debt.

D. Is a violation because Director Jones cannot vote to approve his personal company debt. 12 CFR 215.4(b)(ii)

Policy and underwriting exceptions are conditions in approved loans that violate the bank's loan policy or underwriting practices. Which statement is true regarding the OCC's view of exceptions? A. Loans with underwriting exceptions indicate unacceptable risk to the bank. B. Management may not violate the bank's loan policy if the loan amount is greater than $50,000. C. Management may violate the bank's loan policy as long as the loan amount is less than 5% of capital. D. Management may violate the bank's loan policy as long as they document, justify, and track the exception. E. Loans with underwriting exceptions indicate well-defined weaknesses, indicating that the loan should be criticized.

D. Management may violate the bank's loan policy as long as they document, justify, and track the exception.

To comply with Regulation O, advance majority approval of the board of directors, with the borrower abstaining, is required when the aggregate borrowings of an insider or related interest of that person exceed: A. $10M of the bank's legal lending limit for any loan type; B. $25M or 2.5% of capital, whichever is greater, whenever the loan is for "personal" or "other" purposes, up to the bank's legal lending limit; C. $100M of 5% of capital, whichever is greater, regardless of the purpose of the loan; D. More than $25M of 5% of capital, whichever is higher, or in any case $500M; E. More than $25M or 2.5% of capital, whichever is higher, or in any case $100M;

D. More than $25M of 5% of capital, whichever is higher, or in any case $500M; 12 CFR 215.4(b)

What is NOT true for risk based capital? A. Designed to strengthen the quality of Capital B. Recognizes the relative degree of risk within various assets C. Requires capital for off balance sheet activities D. Relates capital to total bank assets

D. Relates capital to total bank assets; 12 CFR 3

If a $100MM national bank has capital levels in the "adequately capitalized" category for PCA, which of the following is false: A. The bank will be examined on a 12 month cycle rather than an 18 month cycle B. The bank is restricted from accepting or renewing brokered deposits C. The premiums paid to the FDIC will increase D. The bank cannot pay dividends

D. The bank cannot pay dividends; 12 CFR 4

True or False? The primary accounting standard governing the accounting treatment of securities is FAS-114?

False- FAS -115 is the primary guidance.

A contract between two counter parties to exchange net cash flows on agreed upon dates for a specific period of time on an established notional principal is called: A. a pair-off B. a repositioning repurchase agreement C. a covered call writing D. an interest rate swap

D. an interest rate swap; Examiners Guide to Investment Products and Practices (Red book) glossary

According to OCC guidance, considerations in assessing collectibility do not include: A. the financial condition of the borrower B. borrower's equity in the underlying collateral C. the process of near-term cash flow D. banker intuition

D. banker intuition

A bank recently transferred to Other Real Estate Owned (OREO) a house still under construction. Which expense can be capitalized? A. lawn maintenance expenses B. realtor fees to market the property C. real estate taxes paid to obtain clear title D. construction costs to complete the house E. attorney fees related to the foreclosure of the property

D. construction costs to complete the house

Which is not a method of logical security? A. identifies authorized users B. controls access C. monitors unauthorized activity D. environmental controls E. all are methods of logical security

D. environmental controls; This is a method of physical security.

The effectiveness of board supervision of the internal audit function of FNB was evaluated recently. Examiners concluded final audit reports are periodically sent only to the President/CEO Doe. Weaknesses identified by the internal audit were corrected and documented in memos prepared by Doe. Board supervision is: A. adequate. Audit reports are reviewed by a senior officer and corrections are timely B. adequate. Sufficient audit trails exist and are readily available to the Board. C. inadequate. Memos should not be filed with President Doe. Memos should be circulated to department heads and to the auditor. D. inadequate. Reports should be forwarded from the internal auditor directly to the board or its audit committee.

D. inadequate. Reports should be forwarded from the internal auditor directly to the board or its audit committee. Internal/External audit handbook

What is Economic Value of Equity used to measure? A. equity risk B. liquidity risk C. trading account risk D. long-term earnings exposure E. short-term earnings exposure

D. long-term earnings exposure

A gap ratio of 0.90 for the 60 day time frame means that: A. 90% of the bank's assets reprice within 60 days. B. 90% of the bank's liabilities reprice within 60 days C. for every 1% change in interest rates in this time period, net interest income will change 0.90% D. more of the bank's liabilities than assets reprice in this time period.

D. more of the bank's liabilities than assets reprice in this time period. RSA/RSL at a given time period.

Which banking function has the least potential for money laundering activity? A. private banking B. trust departments C. offshore international activity D. mortgage banking E. wire transfer

D. mortgage banking; BSA/AML Handbook lists various departments vulnerable to money laundering activities.

How does a bank ensure that it has perfected its lien on real estate held as collateral? A. perform a Uniform Commercial Code (UCC) search B. verify lien status with the tax assessor C. obtain a list of prior lien holders from the borrower D. perform a title search after the deed of trust or mortgage is filed E. obtain a preliminary title opinion prior to filing the lien

D. perform a title search after the deed of trust or mortgage is filed A security interest in the collateral that is used to secure the performance of a debt that is protected from third-party claims. A perfected lien for real property must be filed with the correct legal authority. Perfected liens for real estate are achieved when the mortgage deed of trust is recorded in the land records of the appropriate municipality. To ensure the lien is perfected, you must test it after you file the deed of trust.

Reliance by external auditors on the bank's internal audit reports would be acceptable when: A. the external auditor determines the program meets his/her standards B. the external auditor prepared the bank's internal audit program and trained its audit staff C. the bank's auditor was formerly employed by the external auditor D. there is a competent internal auditor and his/her audits meet accounting industry standards.

D. there is a competent internal auditor and his/her audits meet accounting industry standards. The internal auditor's standards and training may not meet the requirements of the accounting industry.

True or False? All assets secured by first mortgages on residential and multifamily residential properties carry a 50% risk weighting.

False- Those assets >90 days p/d, on non-accrual or TDR are excluded.

Ned, Ed and Eddie form a general partnership. The partnership borrows $500M from OCC Bank to fund start-up costs and provide WC. OCC Bank has a LLL of $750M. Individually, the partners have the following lending relationships with OCC bank: Ned: $125M Residential Mtg; $25M car loan; $75M tuition loan. Ed: $275M Residential Mtg. Eddie: $150M Residential Mtg; $10M car loan; $100M fully drawn personal line of credit secured by a segregated deposit account. Does the lending relationship between OCC Bank and the partnership create any LLL violations? A) No B) Yes- All three partners lending relationships violate the LLL. C) Yes- Ned's & Ed's borrowings violate the LLL. D) Yes- Ed's and Eddie's borrowing violate the LLL. E) Yes- Only Ed's borrowing violate the LLL.

E-Only Ed's. 12 CFR 32.5(e) states that loans to general partnerships are combinable with the loans of the individual partners. In this scenario Ed's lending relationship, when combined with the $500M partnership loan, exceeds the $750M LLL by $25M. Eddie's borrowing do not cause a violation as the $100M line of credit is exempt from the calculation due to the nature of the collateral.

According to the appraisal regulation, which loan requires an appraisal by a state-certified appraiser? A. A $200,000 commercial loan secured by rental property. B. A $1,100,000 loan fully secured by a U. S. government agency. D. A $270,000 loan secured by machinery, equipment, and a vacation home for which the real estate lien was taken as an abundance of caution. E. A $1,200,000 loan to purchase commercial real estate that is not dependent on the sale of, or rental income derived from, the subject real estate as the primary source of repayment.

E. A $1,200,000 loan to purchase commercial real estate that is not dependent on the sale of, or rental income derived from, the subject real estate as the primary source of repayment.

For a bank to use the notification requirement for establishing an operating subsidiary, it must meet which of the following requirements? A. Be 1 or 2 rated; B. Have an outstanding or satisfactory CRA rating; C. Not be under a commitment letter or memorandum of understanding; D. All of the above; E. A&B only; F. A&C only;

E. A&B only;

Examiners should analyze changes in bank debt for signs of deterioration in its borrowing ability and overall credit-worthiness. Indicators include, but are not limited to,: A. The payment of above market interest rates B. Unfamiliar or unusual lenders or frequent changes in lenders C. The payment of large fees to money brokers to obtain funds D. A shortening of maturities that is inconsistent with management's articulated balance sheet strategies E. All of the above

E. All of the above

Asset management, as defined by the OCC, includes which of the following areas: A. Traditional fiduciary activities B. Retail brokerage C. Investment company services D. Securities custody and transaction processing E. All of the above

E. All of the above; Providing financial services to a third party for a fee of commission. This is consistent with the definition of acting in a fiduciary capacity such as a trustee, executor, etc.

Key competitors to banking institutions in the asset management industry include all of the following EXCEPT? A. Brokerage firms B. Investment companies (mutual funds) C. Investment advisors D. Insurance companies E. Pension plans

E. Pension plans; Pension plans are not a key competitor to providing Asset Management services. They are key USERS of these products and services.

What are limitations to consider when analyzing a UBPR? A. Doesn't identify root causes B. Single ratio doesn't give the whole picture C. Gives CAMEL ratings D. Each bank has its own unique operating characteristics E. A, B, and D

E. The UBPR does not give you the bank's CAMEL ratings. However, it is understood that UBPR's only give you the numbers' it doesn't give the root causes or the whole picture.

Technology management should be considered in which of the following risk assessments? A. transaction B. compliance C. reputation D. strategic E. all of the above

E. all of the above; OCC Bulletin 98-3 discusses technology risk management.

How much can the bank lend to one customer if the bank takes U.S. Treasury Notes as collateral: A. 15% of lending limit B. 25% of lending limit C. 100% of lending limit D. not subject to lending limit E. subject to amount of market value of instrument

E. subject to amount of market value of instrument; 12 CFR 32.3(c)(3)(I)

True or False? There is no limit on how much Tier 2 Capital that a bank can include in its calculation of Total RBC.

False- Tier 2 Capital can not exceed Tier 1.

Which of the following is a true statement? A. Holding company strength/weakness should not be considered when assigning the capital component rating. Bank must stand on it's own. B. Capital can not be rated '3' if bank is 'well capitalized' per PCA. C. A rating of '2' indicates a satisfactory level of capital relative to bank's risk profile and peer group. D. A rating of '1' indicates strong capital levels, with low and stable risk factors. E. All of the above are true. F. None of the above are true.

F. None of the above are true. OCC Bulletin 97-1 and Comptroller's Handbook discussion of Supervision by Risk

True or False? Unrealized gains/losses for Available for Sale securities are adjusted against capital when calculating tier one capital?

False

True or False: Like national banks, the president of a Federal Savings Association is required to be a member of the board of directors.

False - 12 CFR 163.33(a)(1)(i) and "National Banks-Federal Savings Associations Quick Reference Guide"

True/False: While it is not appropriate for a bank to deal in lottery tickets, it is acceptable for a bank to advertise a lottery.

False - A bank is restricted from dealing in lottery tickets or advertising a lottery. See 12 USC 25a (of 12 USC Chapter 2 for National Banks)

True/False: Banker's acceptances are subject to the same lending limit restrictions as other extensions of credit.

False - Banker's acceptances are not subject to legal lending limitations. See 12 CFR 32.3(c)(2)

True/False: If a bank has a composite rating of "1", there is no limitation on the bank's investment in bank premises.

False - Banks rated a composite "1" or "2" can make investments up to 150% of capital without prior OCC approval as long as the bank is, and will continue to be, well-capitalized after purchase. The bank must still notify the OCC after the purchase. See 12 CFR 5.37

True/False: Fiduciary asset accounts of a bank are permitted to be commingled with bank assets.

False - Fiduciary assets cannot be commingled with bank assets. See 12 CFR 9.13(b)

True/False: Substantial financial interdependence exists between borrowers when at least 25 percent or more of a borrower's gross receipts and 50 percent of more of expenses are derived from transactions with the other borrower.

False - This is one test of the Common Enterprise methodology for the LLL to determine if loans should be aggregated. Substantial financial interdependence exists when 50 percent or more of gross receipts OR gross expenditures are derived from the other borrower. These thresholds also include any intercompany loans, dividends or capital contributions. Another test for a common enterprise is common control. See 12 CFR 32.5(c)

The maximum aggregate amount that a bank can lend to its insiders is always limited to a 100% of its unimpaired capital and unimpaired surplus. True or False.

False. 12 CFR 215.4(d)(2) permits bank with less than $100MM in total assets to lend up to 200% if- • The board determines that such a practice is consistent with safe and sound banking practices and its necessary to attract and retain qualified directors; • It is authorized by board resolution; • The bank meets or exceeds all regulatory capital requirements; AND • The bank received a "Satisfactory" rating or better at its last exam.

True or False? A hedge is used to increase returns?

False. A hedge is a strategy to limit one's risk should an investment not perform as expected. Glossary-red investment book.

True or False? Non-interest income is never impacted by changes in interest rates.

False. Certain non-interest income/expense items are effected by changing interest rates (e.g. loan origination fees). Comptroller's Handbook for IRR, pg 2.

True or False? EC-222 governs the classification of dairy loans.

False. EC-222 governs the classification of crop carryover loans.

True or False? A UCC-1 is used to perfect a security interest in aircraft.

False. Form FAA-1 must be filed with the FAA.

True or False? The probability of a security being "called" increases as rates increase.

False. Issues are more likely to be called as rates decrease so that issuers can reissue debt at a lower cost.

True/False A bank made a loan of $500,000 to one customer, fully secured by a perfected security interest in U.S. Treasuries. Assuming the bank has a legal lending limit of $475,000, the loan is in violation of the legal lending limit.

False. Loans or extensions of credit, to the extent fully secured by the current market value, are not subject to legal lending limits when secured by U.S. obligations. See 12 CFR 32(3)(i)

True/False - A rate-sensitive assets (RSA) to rate-sensitive liabilities (RSL) ratio of 0.63 suggests that the bank has more assets than liabilities subject to repricing.

False. See IRR Handbook, pg 19

True/False: While extensions of credit to individual insiders are subject to standard legal lending limits, the aggregate limit of all insider loans is limited to 150 percent of capital.

False. The aggregate lending limit for insiders cannot exceed 100% of capital and surplus. There is an exception for banks with deposits<$100MM, which the aggregate limit can be increased to 200% of capital and surplus. See 12 CFR 215.4

True/False: First National Bank's BSA program provides for a system of internal controls, independent testing, and designates an individual as BSA officer. Based on this information alone, we can ascertain that the program is effective and meets regulatory requirements.

False. The four pillars of a BSA program include internal controls, independent testing, BSA officer, and employee training. In addition, the program/policy should be written, approved by the Board annually, and notated in the minutes. See 12 CFR 21.21

True or False? It is permissible to rebook a previously charged-off loan provided that all past-due payments have been made current and the borrower can document the viability of continued repayments.

False. Under GAAP, when a loan is charged-off its cost basis is changed and accordingly, it can not be rebooked.

True/False: Like national banks, federal savings associations must be a member of the Federal Reserve System.

False: A national bank must be a member of the Federal Reserve System under 12 USC 222. An FSA cannot be a member of the Federal Reserve System under 12 USC 321. See Quick Reference Guide, pg. 24 http://occnet.occ/human-resources/training/training-guidance-by-audience/examiners/commissioned/quick-reference-guide.pdf

True/False: On the UBPR, if the net interest margin for the bank you are reviewing is in the 7th percentile, it means the bank performs significantly better than other banks in its peer group.

False: If a bank is in the 7th percentile, this means that 93 percent of its peer banks have a better NIM. See UBPR User's Guide, pg. II-3

True or False? 12 USC 62 requires that shareholder records be maintained and be made available for public inspection.

False: Such records are only to be made available to other shareholders.

In compliance with legal lending limits, FNB Podunk made a loan secured by livestock in 2013. In 2014, the collateral value declined below the market value exception. Due to this decline in value, the loan is a violation of the legal lending limit. a) True b) False

False: While not a violation, this would be a "nonconforming" loan. In this instance, bank management would need to remedy the collateral shortfall within 30 days. See 12 CFR 32.6(a)(2) and (c)

Which of the following are required to allow the OCC to extend an examination frequency to 18 months? Choose all that apply. I. Bank is well capitalized and has total assets of less than $500 million II. Bank has composite and management ratings of 1 or 2 III. Bank is not subject to a formal enforcement proceeding IV. No person acquired control of the bank during the preceding 12-month period in which a full-scope exam would have been required

I, II, III, and IV. All of the preceding are required in order to extend the frequency to 18 months. See Bank Supervision Process Handbook, pg 11

Which of the following is included in the risk assessment for operational risk? Choose all that apply. I. Employee turnover II. Information technology III. Compensation programs IV. Internal control environment

I, II, and IV - The quantity of operational risk and the quantity of operational risk management are heavily influenced by the quality and effectiveness of a bank's system of internal control. Compensation programs are primarily considered when rating strategic risk. See Community Bank Supervision Handbook, Appendix A

Which of the following are true in regards to national banks? Choose all that apply. I. A national bank may not hold real estate in a subsidiary II. A national bank may act as a general insurance agent if certain requirements are met III. A national bank may maintain and operate a postal substation IV. A national bank may not prepare income tax returns for customers

II and III: A national bank may organize a bank premises subsidiary and may prepare income tax returns for customers free or a fee. While a national bank may act as an insurance agent, it may only do so in offices that are located in a location with a population that does not exceed 5,000. See 12 CFR 7

In regards to overdrafts, which of the following are true? Choose all that apply. I. Federal credit union members must either deposit funds or obtain an approved loan within 60 days from the date of the overdraft II. Overdrafts paid are considered extensions of credit to the borrower III. National banks should charge off overdraft balances within 60 days, unless the borrower is under a repayment plan IV. National banks should charge off balances within 60 days, regardless if the borrow is under a repayment plan

II and IV - As a safety and soundness consideration, national banks should charge off overdrafts beyond 60 days old. The existence of a repayment plan would not extend the charge-off determination period beyond 60 days. In contrast, federal credit unions are required by regulation to not exceed 45 days (instead of 60). See OCC Bulletin 2005-9, pg. 3

Which of the following is not a requirement when issuing preferred stock? I. Approval by the OCC and a majority of stockholders II. Amending of the articles of association to reflect issuance if necessary III. Be "well-capitalized" per PCA IV. Bank must ensure par value of preferred stock is paid in before issuance is valid

III - Be "well-capitalized" per PCA. An exception is available to newly organized banks that have not issued common stock. In addition to the three requirements listed above, the bank should provide a signed document specifying the amount of issue to the OCC for certification and approval. See 12 USC 2 §51a

A bank has unimpaired capital and unimpaired surplus of $7269M. Director X has $300M in extensions of credit and requests a loan for another $50M. Is prior approval of a majority of the board legally required? Yes or No.

No. 12 CFR 215.4(b) states that prior approval is only required when an extension of credit, when combined with all other extensions of credit to the same insider, is greater than the Higher of $25M or 5% of the bank's unimpaired capital and unimpaired surplus. In this situation, the $350M is less than the 5% (7269M*.05%=$363M).

Yes or No. A $100M loan carries a split classification of Pass/Doubtful due to the existence of cash collateral ($50M). However, the borrower is now bankrupt and the sufficiency of remaining collateral is suspect. The bank elects to only put the Doubtful portion in non-accrual citing that no loss is associated with the cash collateralized portion. Does this conform with GAAP?

No. A Q&A on the Credit Risk Homepage states, "Accounting designations are made for an entire contractual balance."

A bank lends $1.1MM to commercial borrower to purchase RE. The purchased property secures the debt. The borrower provides the bank with an MAI prepared appraisal that was completed for the borrower six months ago. The market value stated in the appraisal is $1.5MM. Does this transaction comply with the requirements of 12 CFR 34? Yes or No?

No. A bank can only accept an appraisal prepared for another financial institution (12 CFR 34.45(b)(2).

Yes or No? Bank 777 has a multi-family building in OREO which is fully occupied. Monthly rents are applied to the OREO balance, thus reducing the bank's exposure. Is this acceptable?

No. Per the Call Report instructions, any income received from OREO properties is recognized as other income.

The bank has $10,000M in unimpaired capital and unimpaired surplus. President Jones has the following loans at the bank: PMM on vacation home $150M (1st lien) Education loan for children $50M Education loan for wife $25M HELOC on primary residence $40M (bank doesn't have 1st position) 2 car loans $40M Does this relationships comply with 12 CFR 215?

No. The PMM for the vacation residence and the education loan for the children qualify as exemptions under 12 CFR 215.5 (c). However, the education exemption only applies to children, not spouses. Therefore, the total amount of extension of credits to President Jones is $105M.

Which of the following is a public document? a) Board Resolution. b) Formal Agreement. c) Commitment Letter. d) Memoranda of Understanding. e) All are public documents.

b) Formal Agreement.

True or False? Banks are prohibited from disclosing PCA capital categories in advertisements or promotional materials unless otherwise required by law or authorized by the OCC.

True

True or False? A director must be a US citizen.

True (12 USC 72)

True/False: A bank must file a Suspicious Activity Report for employee theft even if employee makes restitution and agrees to resign.

True - A bank must report any known or suspected criminal activity relating to directors, officers, or employees, regardless of the amount involved. See 12 CFR 21.11(c)(1)

True/False: Back-testing of an interest rate risk model involves the comparison of actual outcomes with model forecasts over a specified period.

True - While sometimes used interchangeably with validation, a back-test compares actual results to forecasted results. Model validations typically test the mathematical theory and conceptual soundness of the model itself. See OCC Bulletin 2011-12, pg. 14

True or False? Bank's are not permitted to hold stocks as investments.

True.

True or False? For appealing decisions to the Ombudsman, the Ombudsman must ensure that no retaliation has been taken against the bank by examiners by contacting the bank 6 months after the date of the decision letter and within 6 months of the completion of the first examination following the appeal.

True.

True/False A national bank director must be a U.S. citizen.

True. All directors must be United States citizens. See 12 USC Chapter 2, §72

True/False: As a best practice, bank management should track the aggregate level of exceptions as it relates to credit quality.

True: When viewed individually, underwriting exceptions may not appear to increase risk significantly; however, when aggregated, even well mitigated exceptions can increase portfolio risk significantly. See LPM Handbook, pg 26

XXX

XXX

A bank has unimpaired capital and unimpaired surplus of $15,000M. Director Y has aggregate extensions of credit totaling $450M. She requests an additional extension of credit for $100M. Is prior approval of a majority of the board legally required? Yes or No.

Yes. 12 CFR 215.4(b)(2) requires prior approval a majority of the board for all insider's whose aggregate borrowings exceed $500M.

A bank lends $300M to a borrower for the construction of their primary residence. The loan will be secured by a 1st mortgage on the residence. Is a FIRREA conforming appraisal required? Yes or No.

Yes. 12 CFR 34.43 requires FIRREA appraisals for all residential RE loans in excess of $250M.

A bank lends $300M to a borrower for the purchase of a commercial rental property. The purchased property secures the debt. Current leases and appraisal indicate that rental cashflows will be sufficient to repay terms of the loan. Is a FIRREA conforming appraisal required? Yes or No?

Yes. If repayment of the loan is to come from the rental CF of the property, the threshold drops from $1MM to $250M (12 CFR 34.43(a)(1) and (5)(ii))

Which of the following is a type of asset liquidity? a) Federal funds sold b) Federal funds purchased c) Brokered deposits d) Repurchase agreements

a - Federal funds sold. Other forms of asset liquidity includes unencumbered securities and interest bearing bank balances. All other liquidity avenues would be considered liability liquidity. See Liquidity Handbook, pg. 13

North Bank, N.A. has historically had well-developed funds management practices and access to funding sources on favorable terms. The last Canary report indicated more than sufficient on-hand liquidity. Based on these facts, what is the most likely component rating? a) "1" b) "2" c) "3" d) "4"

a - "1" A rating of "1" indicates strong liquidity levels and well-developed duns management practices. The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs. See Bank Supervision Process Handbook, pg 52.

Which of the following liquidity ratings indicates that management has reliable access to sufficient sources of funds on favorable terms? a) "1" b) "2" c) "3" d) "4"

a - "1" A rating of "1" indicates strong liquidity levels and well-developed funds management practices. The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs. See Bank Supervision Process Handbook, Appendix A, pg. 53

For executive officers and directors, permissible inadvertent overdrafts cannot exceed $___ or remain outstanding longer than ___ days. a) $1,000; 5 business days b) $5,000; 5 business days c) $1,000; 5 calendar days d) Inadvertent overdrafts are not permitted

a - $1,000; 5 business days. In addition, the fee should be the same as those for other customers of the bank in similar circumstances. See 12 CFR 215.4(e)

Use the following call report information ($000's): Tier 1 Capital $27,399 Total Equity Capital $30,232 Tier 2 Capital $ 948 Allowance $ 1,056 What is the bank's total risk-based capital? a) $28,347 b) $28,455 c) $30,232 d) $31,288

a - $28,347. $27,399 + $948 = $28,347. Total risk-based capital is comprised of Tier 1 and Tier 2 capital. In addition, any deductions for total risk-based capital should be removed, if applicable. See Call Report Instructions, pg. RC-R-10a

What is the maximum term limit for a national bank director? a) 3 years b) 5 years c) 10 years d) There is no limit

a - 3 years: The maximum term for a director is three years. At the end of the three-year term, the director would need to be reappointed for another term. See 12 CFR 7.2024

Which of the following maximum interest rates are available to service members upon request? a) 6% b) 7% c) 8% d) 9%

a - 6%. Per the Servicemember's Civil Relief Act, an obligation that is incurred before entering military service shall not bear interest at a rate in excess of 6 percent. See 50 USC Appendix, §527(a)(1)

Which of the following supervisory loan-to-value limits apply to raw land? a) 65% b) 75% c) 80% d) 85%

a - 65% SLTV. The supervisory LTV for raw land is 65%. The other limits apply to land development, construction, and improved property. See 12 CFR 34, Subpt. D, App. A

Which of the following bankruptcy chapters results in liquidation of the borrower's assets? a) Chapter 7 b) Chapter 9 c) Chapter 11 d) Chapter 13

a - Chapter 7. Chapter 7 involves the collection and selling of assets. Chapters 9, 11, and 13 are reorganizations. See 11 USC 7

Which of the following journal entries would appropriately account for a collection of a bad debt previously charged off? a) DR: Cash | CR: ALLL b) DR: Cash | CR: Provision Expense c) DR: ALLL | CR: Income d) None of the above

a - DR: Cash | CR: ALLL: Writing off debts only affects balance sheet accounts. Income statement accounts have already been adjusted with the provision expense. It should be noted that this is the net accounting entry. To fully account for the recovery, the bank should reinstate the loan and corresponding allowance (DR: Loans | CR: ALLL), then account for the cash received (DR: Cash | CR: Loans). The net realizable value of the loan account remains the same before and after the write off.

Which of the following would qualify as a principal shareholder for insider activities? a) Owning 10 percentage of voting stock b) Owning 20 percentage of voting stock c) Owning 25 percentage of voting stock d) Owning 50 percentage of voting stock

a - Owning 10% of voting stock. For purposes of Reg O, any person holding more than 10 percent of a bank's voting stock would be considered a principal shareholder. See 12 CFR 215.2(m)(1)

A reservist with the National Guard received military service orders dated 6/24/2013 with a reporting date to active service of 8/12/2013. When applying the appropriate interest rate reduction, which date should the bank use? a) The date of the military orders b) The date 30 days after the reservist received the orders c) The date the reservist notifies the bank d) The date the reservist enters active duty

a - See 50 USC Appendix §516(a)

What is the OCC's definition of asset management? a) The business of providing financial products or services to a third party for a fee or commission b) The business of providing financial products or services to customers for the purpose of generating profits c) The business of providing financial products or services to wealthy clients for the purpose of preserving wealth d) The business of providing financial products or services to a third party for a fee or commission for the purpose of preserving wealth

a - See Asset Management Handbook, pg. 1

Which of the following real estate loans would require flood insurance? Assume the property is located in a special flood hazard area unless otherwise noted. a) A purchase loan for a four-walled barn with an original principal balance of $4,500 and repayment term of 18 months b) A purchase loan for a permanently affixed mobile home not located in a SFHA c) A purchase loan for a four-walled barn with an original principal balance of $3,000 and repayment term of 9 months d) An acquisition and development loan to acquire raw land that will be developed into buildable lots

a - See FDPA Handbook, pg 35; Exemptions

Which of the following assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the institution's position at some future date? a) Special Mention b) Substandard c) Doubtful d) Loss

a - Special Mention. Special mention assets are not adversely classified but pose elevated risk. See Rating Credit Risk Handbook, pg 16

Which of the following is a general characteristic of federal savings associations (FSAs) earnings? a) FSAs tend to have less diverse sources of earnings b) FSAs heavily rely on commercial and consumer lending c) Generally have higher return on assets due to balance sheet diversification d) All of the above

a - Tend to have less diverse earnings with a mortgage focus. While FSAs tend to specialize in real estate lending, over time they have acquired a wider range of powers and offer business and consumer loans. See Quick Reference Guide, pg. 89

During an examination, it is determined the bank's allowance for loan and lease losses (ALLL) is inadequate and the bank must increase the ALLL by $50 thousand. Which of the following would occur as a result of the provision? I) The bank's ROA will decline II) The bank's NIM will decline III) The bank's overhead expense will increase. a) I only b) III only c) I and III d) I, II, and III

a - The bank's ROA will decline: The net interest margin is a combination of interest income and expenses, and does not reflect provisions for the ALLL. In addition, provisions are not accounted for in the bank's overhead expense. See UBPR User's Guide

Which of the following is true of the call report for national banks? a) Must be signed by at least three directors b) Must be prepared by the bank's cashier c) Must be submitted within 20 days of the end of the quarter d) Must be reviewed by the bank president

a - The call report requires at least three director's signatures attesting to the report's accuracy. In addition, the processor should receive the call report within 30 days following the call report date. See 12 USC 161(a) and OCC PPM 5000-27

Modified duration measures the price sensitivity of a security to a given percentage change in interest rates. a) True b) False

a - True. Duration can mean both the price sensitivity and the weighted average term to maturity. Modified duration refers to the price sensitivity of securities. The greater the number, the more sensitive the bond or security value is to interest rate changes. See Interest Rate Risk Handbook, pg. 57

On the UBPR, the Average Personnel Expense per Employee means the average salary (including benefits) per employee expressed in thousands of dollars. a) True b) False

a - True. This measure includes employee benefits. See UBPR User's Guide, pg. III-12

In reviewing loans for compliance with insider lending regulations, which of the following would NOT qualify as an extension of credit? a) An advance against accrued salary or accrued compensation b) An increase in existing indebtedness at borrower's request c) Granting a line of credit d) Issuance of a standby letter of credit

a - While an advance of unearned salary or other unearned compensations for a period in excess of 30 days is an extension of credit, an advance against accrued salary or other accrued compensation is not an extension of credit. See 12 CFR 215.3(b)(1)

First National Bank has an internal loan program whereby all employees can get an auto loan for 36 months at 5%. Can a director of this bank take advantage of this loan program? a) Yes b) No

a - Yes: While offering preferential rates to a director is prohibited, there is an exception when it is widely available to all employees. See 12 CFR 215.4(a)(2)(i).

On the UBPR, which of the following criteria is used to define all commercial bank peer groups? a) Asset size b) Number of banking offices c) Asset mix d) Location

a - asset size. The UBPR breaks banks into 15 peer groups and a De Novo group. All banks are grouped by assets, which are then further stratified between number of banking offices and locations for smaller asset sizes. For peer group purposes, banks with assets of more than $300 million are not segregated by the number of offices or location. While the de novo is grouped by years, they are subject to a $750MM asset limitation. See UBPR User's Guide, Pg. II-2

Per deposit regulations, which of the following must banks use to compute interest on deposits? a) Average daily balance or daily balance of the account b) Highest balance of the account c) Lowest balance of the account d) Highest daily balance of the account e) Any of the above methods as long as it is properly disclosed to the consumer

a - average daily or daily balance. The Truth in Savings Act states that interest should be calculated by using the daily balance or average daily balance method for computation. See 12 CFR 1030.7(a)(1)

A national bank just made a book entry to provide for possible losses on loans. Which of the following effect would the entry have on expenses? a) Increase b) Decrease c) Stabilize d) No effect

a - increase. The journal entry will cause an increase to expenses and the allowance for loan and lease losses. The appropriate entry would be the following: DR: Provision Expense CR: ALLL

First National Bank is a small bank, with growth primarily centered in loans. Recently rates have increased and the bank's net interest margin has declined. Which of the following is the most likely cause of this trend? a) The bank is liability sensitive b) The bank has a matched gap position c) The bank is flush with liquidity d) The bank is asset sensitive

a - the bank is liability sensitive: A liability sensitive position indicates liabilities are repricing faster than assets. The earnings of a liability-sensitive bank generally decrease when interest rates rise because their liability costs are increasing faster than their ability to increase asset rates. See Interest Rate Risk Handbook, pg. 8

Which of the following are considered non-core liabilities? Choose two. a) Time deposits above the insurance limit b) Demand deposits c) Brokered deposits d) Savings deposits

a and c - See UBPR User's Guide, pg. III-50

First National Bank plans to purchase a loan participation from a large state bank. Per OCC guidance, which of the following is true? Choose all that apply. a) FNB should perform an independent credit analysis on the credit b) FNB only needs to review a credit analysis performed by the selling bank c) The purchase should include an agreement by the seller to provide available credit information d) FNB should perform a pre-purchase analysis consistent with that of an investment security

a and c: The purchase of participations may constitute an unsafe and unsound banking practice in the absence of satisfactory documentation, credit analysis, and other controls over risk. The acceptance by a purchaser of an analysis issued by the seller does not satisfy the need to conduct an independent credit analysis. See Banking Circular - 181 "Purchase of Loans in Whole or in Part-Participations"

Which of the following is not an effective measurement tool for determining the impact of interest rate changes on capital? a) Gap. b) Economic Value of Equity. c) Duration. d) Modified Duration. e) All are equally effective.

a) Gap.

Which of the following might a bank do in order to provide funds to satisfy liquidity needs? Choose all that apply. a) Liquidate investment securities b) Increase liabilities of a term nature c) Purchase treasury stock d) Increase holdings of non-liquid assets

a, b - See Rating Credit Risk Handbook, pg. 41

For banks with trust departments, which of the following is a required component rating for all banks under the Uniform Interagency Trust Rating System? Choose all that apply. a) Management b) Operations, Controls, and Audits c) Earnings d) Compliance e) Asset Management

a, b, and d. An earnings component rating is not required for banks with fiduciary assets less than $100 million. In addition, the OCC will waive the asset management rating if the bank's activities do not include managing or advising fiduciary assets. See Bank Supervision Process Handbook, Appendix C

Which of the following is true of a standby letter of credit? Choose two. a) Represents an obligation of the bank to a third party, contingent upon the failure of the bank's customer, to perform under the terms of the contract b) Drafts will be drawn when the underlying transactions is consummated as intended c) Beneficiary will be paid when the terms of the letter are met and the required documents are submitted to the paying bank d) Drafts will be drawn only when the underlying event fails to occur as intended

a, d - Answer choices b and c apply to commercial letters of credit. The primary difference between the two is that a standby letter of credit is only contingent. It is used when the bank's customer defaults or is nonperforming on the intended contract, similar to a guarantee. See Trade Finance Handbook, pg. 8-11 and Call Report Glossary, pg. A-53 and 54

Which of the following auditing, reporting, and audit committee requirements apply to all national banks with $500 million or more in total assets? I. An independent public accountant (IPA) must audit financial statements II. An audit committee composed entirely of outside directors, independent of bank management III. IPAs may or may not make their work papers available to OCC examiners upon request IV. A separate attestation by an IPA on the effectiveness of management's assertions over internal controls a. I only b. I and II only c. I, II, and IV only d. I, II, III, and IV

a- I only: IPAs must make work papers available upon request. Only institutions with total assets of at least $1 billion are required to maintain an audit committee comprised entirely of outside directors (majority for $500MM-$1B) and obtain a separate IPA attestation. See 12 CFR 363.

Per MM- (Structural Weakness guidance), which of the following loans would not be included in a SW review: (Note, there may be more than one correct answer) a) a 30 year commercial RE mortgage originated in 1996. b) a $300M residential RE mortgage originated 6 months ago. c) a $100M commercial loan internally rated Special Mention. d) a $1000M commercial line of credit downgraded to Special Mention during the exam. e) none of the above.

b & c.

When increasing or decreasing capital stock, at a minimum, ______shareholder approval is required? a) 1/2 b) 2/3 c) 3/4 d) governed by corporate by-laws. e) only OCC approval is required.

b (12 USC 57, 59)

Director Smith owns the required amount of shares when elected to the Board in April 2001. Through a subsequent divorce settlement, the amount of the shares he owns in his own right is reduced below the regulatory threshold. What happens? a) nothing, he met the standard when elected. b) he must vacate his position. c) he has until the next election to reacquire the required number of shares.

b (12 USC 72)

Use the following quarterly bank call report balance sheet information (in $000's) Average Assets: $168,682 ALLL: $1,650 Gross Risk-Weighted Assets (before deductions): $115,000 Total Equity Capital: $19,303 Total Risk-Weighted Assets: $110,787 For tier 2 capital purposes, what is the allowable portion of the bank's allowance for loan and lease losses? a) $1,385 b) $1,438 c) $1,650 d) $2,109

b - $1,483. The amount of the ALLL allowed cannot exceed 1.25 percent of the bank's gross risk-weighted assets. Gross RWA is reported in Schedule RC-R, item 59 and refers to RWA before deductions for any excess ALLL. See Call Report Instructions, Schedule RC-R, pg RC-R-10

A loan is secured by the following collateral: Collateral Type Value Senior Lien Raw Land $135,000 $53,000 Improved Commercial $360,000 - What is the aggregate amount that can be loaned against the collateral pool and still conform to supervisory loan-to-value limits? a) $340,750 b) $359,300 c) $393,750 d) $407,250

b - $359,300 [((135,000-53,000)*.65) + (360,000*.85) = $359,300]. The SLTV for raw land and improved commercial property is 65% and 85%, respectively. When a loan is crosscollateralized with two or more properties or a collateral pool, the maximum SLTV should be calculated after subtracting any senior liens. See 12 CFR 34 Subpart D, Appendix A

If a material event occurs between Call Reports that results in a lowering of the PCA category, within how many days is the bank required to notify the OCC? a) 10 days b) 15 days c) 30 days d) 45 days

b - 15 days. A written notice that an adjustment to the capital category may have occurred is required. See 12 CFR 6.3(c)

For the purpose of 12 USC 371c, an affiliate with which of the following percentage ownership is deemed to have control? a) 10% b) 25% c) 50% d) 80%

b - 25%: Control is obtained at 25% ownership, while an affiliate would be considered an operating subsidiary with over 50% ownership and a sister bank with 80% or more ownership. See 12 USC 371c. 371c applies specifically to legal restrictions as it relates to transactions with an affiliate.

Which one of the following capital limits apply to the aggregate amount of securities purchased primarily on the basis of reliable estimates? a) 3 percent b) 5 percent c) 10 percent d) 15 percent

b - 5 percent. Banks may treat debt securities as investments if they believe, based on reasonable estimates, that the obligor will be able to satisfy its obligations. The aggregate par value of these securities may not exceed 5 percent of capital. See 12 CFR 1.3(i)(1) and (2)

Generally, an account receivable turnover ratio of 7.0 means the average collection period would be: a) 42 days b) 52 days c) 60 days d) 84 days

b - 52 days: Receivables days on hand estimates how long it takes an entity to collect on its receivables based on a year. Since the entity collected all of their receivables 7 times throughout the year, the collection period was approximately 52 days (365 days/7.0=52). See Asset- Based Lending Handbook, pg. 11

In the event a bank is undercapitalized, how many days does the bank have to file a written capital restoration plan? a) 30 days b) 45 days c) 60 days d) 90 days

b - A national bank shall file the plan with the OCC within 45 days of the date that the bank receives notice or is deemed to have notice that the bank is undercapitalized. See 12 CFR 6.5 (a)

In relation to hotel lending, which of the following is calculated by dividing the room revenue by the number of rooms occupied for a given period? a) Occupancy Rate b) Average Daily Rate c) Revenue per Available Room (RevPAR) d) Vacancy Rate

b - ADR. Once ADR has been calculated, RevPAR can be determined by multiplying the ADR by the occupancy rate. See Commercial Real Estate Lending Handbook, pg 46

First National bank has five directors, of which two are directors of a manufacturing company. Together with their wives, the two directors constitute the only directors of the company. Which of the following is true of the manufacturing company? a) The company is not an affiliate of the bank because it is not in the same line of business b) The company is not an affiliate of the bank because the directors do not compose a majority of the board of the bank c) The company is an affiliate because the directors obviously control the company d) The company is an affiliate because there are interlocking directors

b - An affiliate is defined as any company in which a majority of its directors or trustees constitute a majority of the persons holding any office within the member bank or any company that controls the member bank. See 12 USC 371c (b)(1)(C)(ii)

Use the following quarterly bank call report balance sheet information (in $000's): Total Assets: $56,720 Commons Stock: $750 Average Assets: $55,600 Surplus: $800 Subordinated Debt (qualifies as capital): $350 Undivided Profits: $1,785 What is the bank's Tier One Leverage capital ratio? a) 6.63% b) 6.00% c) 6.50% d) 5.88%

b - Common stock 750 + surplus 800 + undivided profits 1785 / Average Assets 55600. Qualifying subordinated debt is a component of Tier II capital. See UBPR Instructions, pg

Which of the following is the risk to earnings or capital arising from violations of laws, rules, or regulations, or from nonconformance with prescribed practices, internal polices, or ethical standards? a) Strategic Risk b) Compliance Risk c) Operational Risk d) Reputation Risk

b - Compliance Risk. Compliance risk is not limited to risk from failure to comply with consumer protection laws, but also encompasses the risk of noncompliance with all laws and regulations. See Bank Supervision Process Handbook, pg. 98

First National Bank has a risk-based capital (RBC) ratio of 12 percent, a tier 1RBC ratio of 5 percent, and a tier 1 leverage ratio of 8 percent. The bank is not under any form of enforcement action. Per Prompt Corrective Action, the bank would be considered which of the following? a) Well-capitalized b) Adequately-capitalized c) Undercapitalized d) Significantly Undercapitalized

b - Currently, the bank would fall under the "adequately-capitalized" definition. To be well-capitalized, a bank must have a RBC ratio of 10% or greater, a tier 1 RBC ratio of 6% or greater, and a leverage ratio of 5% or greater. It should be noted that as of January 1, 2015, tier 1 RBC minimums would change. See 12 CFR 6, pg. 5

Which of the following funding would not be considered wholesale funding? a) Brokered deposits b) Large CDs obtained through local businesses c) Repurchase agreements d) Federal Home Loan Bank advances

b - Examples of alternative funding sources include federal funds lines, repurchase agreements (repos), correspondent bank lines, Federal Home Loan Bank (FHLB) advances, Internet deposits, deposit-sharing arrangements, and brokered deposits. See Liquidity Handbook for more info

FNB Anytown loaned $600 thousand to a borrower for the purchase of commercial rental property and rental cashflows are sufficient to repay the terms of the loan. The bank does not have to obtain a state-certified appraisal because it was a commercial loan less than $1 million. a) True b) False

b - False. An exception exists for real-estate secured business loans less than $1 million. However, if the primary source of repayment is the sale of real estate or rental income derived from, the business loan exception of $1 million defaults to the $500 thousand threshold established for all other transactions. See 12 CFR 34.43 and OCC Bulletin 2010-42, Appendix A(5)

While a prearranged overdraft is not considered an extension of credit for legal lending limits, an unexpected overdraft is. a) True b) False

b - False. An overdraft, whether or not prearranged, is considered an extension of credit for legal lending limits. Intra-day overdrafts for which payment is received before the close of business is not considered an extension of credit. See 12 CFR 32.2(q)(1)(iv)

By nature, carryover debt on an agriculture loan indicates a well-defined credit weakness and should be classified as substandard. a) True b) False

b - False. Examiners should not automatically classify carryover debt and should carefully examine all relevant data to ensure an accurate rating. When collateral does not cover carryover debt and repayment capacity is not evidenced, the carryover balance should be classified and the examiner needs to determine whether a loss rating is appropriate. See Agriculture Lending Handbook, pg. 25

A national bank may never declare a dividend if the total amount of all dividends exceeds current year net income and the retained earnings of the preceding two years. a) True b) False

b - False. The OCC may approve dividends that exceed the threshold; however, approval should be obtained BEFORE declaring the dividend. See 12 USC 60

The OCC can initiate a variety of informal and formal actions against national banks. Which of the following actions are public documents? a) Board Resolutions b) Formal Agreements c) Commitment Letters d) Memoranda of Understanding

b - Formal Agreements. While Formal Agreements are issued pursuant to the OCC's Cease and Desist Order authority, they are considered less severe than C&Ds. See Bank Enforcement Actions document, http://el.occ/publications/publications-by-type/internal/enforcement-action-guidance.html

Which of the following indicates a moderate quantity of price risk? I. Bank is active in mortgage banking with servicing assets material to capital II. Bank does not participate in hedging activities III. Bank has a modest amount of OREO, but is concentrated in types that are not expected to realize significant negative value changes IV. Originating and distributing loans into the capital markets is a key business line for the bank a) II only b) I and III c) I, III, and IV d) I, II, III, and IV

b - I and III. In general, price risk is the highest in trading and hedging activities. Price risk also arises from activities whose value changes are reflected in the income statement. See Community Bank Supervision Handbook, Appendix A, pg 146.

Which of the following investment types is limited to 10 percent of capital and surplus when the purchase is based on adequate evidence of ability to perform? a) Type I b) Type II c) Type IV d) Type V

b - Type II. Type II and Type III investments are limited to 10 percent of capital and surplus when the value is based on adequate evidence of the maker's ability to perform. See Investment Handbook and 12 CFR 1.

Which of the following investment types may national banks underwrite? I. Type I II. Type II III. Type III IV. Type IV a) I only b) I and II c) I, II, and III d) I, II, III, and IV

b - Types I and II. National banks may not underwrite Type III, IV, or V securities. See 12 CFR 1.3

Which of the following circumstances would require a loan write-up? I. When the loan adversely rated exceeds the greater of $100 thousand or 2 percent of capital in a "3" rated bank II. When the loan adversely rated exceeds the greater of $150 thousand or 5 percent of capital in a "1" rated bank III. When an insider loan is adversely rated in a "3" rated bank IV. A special mention or classified Shared National Credit in a "1" rated bank a) II only b) I and III c) II and III d) I, II, III, and IV

b - I and III. Write-ups are strongly recommended when the special mention or classified loan is Shared National Credit, when the amount adversely rated exceeds the greater of $150M or 5% of capital, when management disagrees with the classification, when an insider loan is adversely rated, or when a violation of law is involved. They are MANDATORY when a bank is, or may be, rated "3", "4", or "5" AND when any one of the last three items in the recommended list apply. The threshold decreases to $100M or 2% of capital for these banks. See Rating Credit Risk Handbook, pg. 41

Which of the following is considered an insider for the purposes of Regulation O? I. A shareholder owning 8 percent of the bank's voting securities II. A shareholder owning 21 percent of the bank's voting securities III. An EVP that does not have authority to participate in major policy making functions IV. Any employee of the bank a) I and II only b) II only c) I, III, and IV only d) I, II, III, and IV

b - II only. See Insider Activities Handbook, pg 9

Under the direct appeal process, within how many days is the Ombudsman required to issue a response? a) 30 b) 45 c) 60 d) 90 e) 120

b - In the absence of any extenuating circumstances, the Ombudsman will issue a written response to the appeal within 45 days. See OCC Bulletin 2013-15.

A bank has unimpaired capital and surplus of $7. 3 million. Director X has $300 thousand in extensions of credit and requests a loan for another $50 thousand. Is prior approval of a majority of the board legally required? a) Yes b) No

b - No. Prior approval is only required when the aggregate extensions of credit to an insider is greater than the higher of $25M or 5%. See 12 CFR 215.4(b)

Is it appropriate for a senior trust officer to be a member of the bank's fiduciary audit committee? a) Yes b) No

b - No. The fiduciary audit committee must not include any officers or affiliates who participate significantly in the administration of the bank's fiduciary activities. The committee must also have a majority of members who aren't members of another committee that has powers to manage and control fiduciary activities. See 12 CFR 9.9 (c)

Which of the following addresses loan portfolio stress testing? a) 12 CFR 1 b) OCC Bulletin 2012-33 c) 12 CFR 215 d) OCC Bulletin 2010-12

b - OCC Bulletin 2012-33

Assuming First National Bank owns 100 percent of Mortgages R Us, which of the following best describes the mortgage company? a) Statutory subsidiary b) Operating subsidiary c) Financial subsidiary d) b and c

b - Operating subsidiary. Operating subsidiaries engage in activities that are part of, or incidental to, the business of banking. Financial subsidiaries engage in activities that are financial in nature. A financial subsidiary does not engage solely in activities that national banks may engage in directly. See Related Organizations Handbook, pg. 7

According to OCC guidance, which of the following loan types would not be included in commercial real estate for concentration purposes? a) One- to four-family residential construction loans b) Owner-occupied nonfarm nonresidential loans c) Multifamily residential property loans d) Non owner-occupied nonfarm nonresidential loans

b - Owner-occupied nonfarm nonresidential loans: As loan portfolio concentrations exceed specified limits, they may be identified for further supervisory analysis. Specifically excluded from the scope of our guidance is loans secured by nonfarm nonresidential properties where the primary source of repayment is cash flow from ongoing operations by the party who owns the property. See OCC Bulletin 2006-46.

A review of the bank's indirect automobile portfolio reveals four loans that are 105 days delinquent. How should these loans be graded? a) Special Mention b) Substandard c) Doubtful d) Loss

b - Per retail guidance, open- and closed-end retail loans past due 90 days should generally be classified substandard; however, exceptions do exist. One- to four-family residential real estate and home equity loans (if the bank also holds the senior mortgage) need not be classified on delinquency status alone if the LTV is less than or equal to 60 percent. See OCC Bulletin 2000-20

When reviewing the UBPR, which statement is true about banks that elect Subchapter S status for income taxes? a) A flat 28% rate is applied to cash dividends b) The UBPR adjusts after tax earnings and dividends used in the ratios c) Dollar data displayed in the UBPR is adjusted for Subchapter S status d) The UBPR does not adjust after tax earnings and dividends used in the ratios

b - See UBPR User's Guide, pg. III-4

When reviewing a commercial real estate loan for an office building, an examiner notices that the lease agreements are triple net. In general, what is meant by triple net? a) The lessor will pay all expenses such as maintenance, insurance and taxes b) The tenant will pay all expenses such as maintenance, insurance and taxes c) The tenant pays rent directly to the bank d) The tenant must deposit three months of rent in advance

b - Tenant pays all expenses. See Commercial Real Estate Handbook Appendix C, pg. 124

FNB Anytown needs to provide funds to satisfy liquidity needs. Which of the following may the bank do? a) Increase holdings of liquid assets b) Increase liabilities of a term nature c) Purchase treasury stock d) Increase holding of non-liquid assets e) All of the above

b - The bank may increase liabilities of a term nature. For example, management may purchase federal funds to obtain appropriate liquidity in the short term. All other choices would require a use of funds. See Liquidity Handbook

Which of the following is best described as the purchase of securities with the intent to resell and profit from short-term price movement? a) Investment portfolio holdings b) Trading c) Underwriting d) Securities distribution

b - Trading. Securities held in trading accounts should be periodically (at least monthly) marked to market, with unrealized gain or losses recognized in current income. See Investment Securities Handbook

Which of the following is not one of the steps in money laundering? a) Placement b) Transference c) Layering d) Integration

b - Transference. Although money laundering is a diverse and often complex process, it basically involves three independent steps (placement, layering, integration) that can occur simultaneously. See FFIEC BSA/AML Examination Manual, pg. 12

Which of the following recovery locations are generally equipped with electricity, ventilation, computers and other hardware, and external communication links, but may lack certain applications or a sufficient number of workstations? a) Cold Site b) Warm Site c) Hot Site d) Tertiary Location

b - Warm Site. A warm site provides resumption capacity somewhere between that of a hot and cold site. The recovery site is less costly, more flexible, and requires fewer resources to maintain than a hot site. See FFIEC Business Continuity Planning Handbook, pg G-8

Complex National Bank has purchased a credit-impaired loan from a national bank down the street. The former bank had the loan placed on nonaccrual status due to credit deterioration. Which of the following is the best accounting treatment for Complex National Bank? a) Accrual; the loan was purchased not originated b) Accrual; if the bank can reasonably estimate cash flows c) Nonaccrual; the loan was previously on nonaccrual status d) Neither; the loan should be considered an investment security

b - accrual if the bank can reasonable estimate cash flows. Purchased credit-impaired (PCI) loans may be placed on accrual if the bank can reasonably estimate cash flows from the loan or pool of loans. See Bank Accounting Advisory Series (BAAS) Topic 2B, Question 28 and 29. The call report instructions glossary also has a brief description of PCI loans.

A "cap" or "floor" is an example of _________. a) Prepayment risk b) An embedded option c) A put option d) A call option e) A warrant

b - an embedded option: Caps and floors are embedded options that help to control interest rate fluctuation on variable instruments. See Interest Rate Risk Handbook

As of March 30, City National Bank has an RSA/RSL ratio of 1.08 indicating a relatively even balance sheet. Based on this information, we can determine that the bank has low interest rate risk because repricing risk is minimal. a) True b) False

b - false. Interest rate risk is comprised of repricing, basis, yield curve, and options risks. We must review all applicable risks in addition to repricing risk. A ratio greater than one suggests that the bank is asset-sensitive and has more assets than liabilities subject to repricing. See Interest Rate Risk Handbook, pg. 19

A creditor may never require the signature of an applicant's spouse on an instrument, other than a joint applicant, if the applicant qualifies under the creditor's standards on an individual basis. a) True b) False

b - false: Generally, a creditor may not require a spouse's signature unless he or she is a joint applicant. However, as with almost all regulations, there are exceptions. Generally, a creditor may only obtain the spouse's signature if the collateral taken is owned jointly and the signature is needed legally, under the law of the state in which the property is located, to obtain access to the collateral. See Equal Credit Opportunity Act, 12 CFR 1002.7(d)

Which of the following documents is required to establish a testamentary trust? a) Declaration of trust b) Will c) Contract d) All of the above

b - will: Testamentary trusts are established by a will and takes effect after successfully passing through the probate process upon the testator's death. See Personal Fiduciary Services Handbook, pg. 16

Which of the following best describes a firewall? a) A "hot site" serviced by a vendor b) Detects and prevents receipt and transmission of unauthorized data protection c) A method of virus protection d) Encodes messages in a form unreadable to an unauthorized interceptor

b -A firewall is a hardware or software link in a network that relays only data packets clearly intended and authorized to reach the other side. See FFIEC IT Glossary, http://ithandbook.ffiec.gov/glossary.aspx

The allowable amount of the ALLL for inclusion in Tier 2 Capital is limited to ____% of risk weighted assets? a) 1.00% b) 1.25% c) 1.50% d) 1.75% e) no limit

b) 1.25%

Which of the following bulletins summarizes OCC expectations for banks regarding capital adequacy and provides guidance on capital planning? a) OCC Bulletin 2011-21 b) OCC Bulletin 2018-20 c) OCC Bulletin 2010-13 d) OCC Bulletin 2012-18

b) OCC Bulletin 2018-20, previously 2012-16

What does Regulation-U govern? a) rates charged on loans. b) margin loans. c) loan fees. d) all of the above. e) none of the above.

b) margin loans.

ABC Bank has the following RBC levels: Total-11.99% Tier One-6.99% Leverage-4.99% What PCA category does it fall within? a) well-capitalized b) adequately capitalized c) undercapitalized d) significantly undercapitalized e) critically undercapitalized

b, Leverage must be > 5%.

What is required for a bank to reduce permanent capital? Choose all that apply. a) A bank may never reduce permanent capital b) With approval by the OCC c) When shareholders owning an aggregate two-thirds of its capital stock vote to approve d) The distribution of cash or other assets must be a part of the reduction plan

b, c - A reduction to permanent capital requires approval by the OCC and at least 2/3 of the owning shareholders voting consent. While a distribution of cash or other assets is authorized under an approved reduction plan, this is not the only option (e.g. Treasury stock). See 12 USC 59 or Capital and Dividends Licensing Manual, pg. 7

Which of the following could be considered a BSA red flag? Choose all that apply. a) Audit is risk focused b) The volume of SARs is very high c) The volume of SARs is very low d) Large volume of transactions to geographic areas that are consistent with customer's business e) Customers make frequent transfers between accounts in the bank

b, c, and e: A high or low volume of SARs may indicate employees are not trained properly or that employees are intentionally not reporting SARs when required by law. In addition, frequent transfers between accounts could indicate customers are trying to circumvent CTR requirements or launder money. See Detecting Red Flags in Board Reports: A Guide for Directors, pg. 58

12 CFR 34.62 (Appendix) requires banks to track all FDICIA LTV exceptions and report the aggregate dollar volume to the Board how often? a-monthly b-quarterly c-semi-annually d-annually e-there is no frequency requirement.

b-quarterly

What is the maximum dollar cap (excluding allowed exceptions) that an executive officer can borrow from a bank? a-$25M b-$100M c-$500M d-the bank's legal lending limit e-there is no limit.

b. 12 CFR 215.5

_______ risk arises when a bank or a bank's customer has the right (not the obligation) to alter the level and timing of the cash flows of an asset, liability, or off-balance sheet instrument. a) basis b) option c) yield curve d) mismatch e) none of the above

b. Comptroller's Handbook for IRR, pg 16

The ____________ perspective identifies risk arising from long-term repricing or maturity gaps. a) earnings b) economic c) accounting d) 3-6-3 e) none of the above

b. Comptroller's Handbook for IRR, pg 8

A contract granting the right to buy a given financial instrument, at a specific price for a specified period time is a _____________________. a) put option. b) call option. c) prepayment option. d) warrant. e) none of the above.

b. Glossary-red investment book.

_______ risk occurs when market rates for different financial instruments, or the indices used to price assets and liabilities, change at different times or by different amounts. a) prepayment b) basis c) yield curve d) option e) liquidity

b. basis, Comptroller's Handbook for IRR, pg 15

The maximum period a Federal Savings Association can hold other real estate owned is ten years. a) True b) False

b: While national bank and FSA regulations do not share the same OREO requirements, the intent of the regulations is similar. OREO can be held through a subsidiary as an equity investment in real estate; however, the subsidiary is not includable for capital purposes. See Quick Reference Guide, pg. 62

Apple Bank (chartered 1911) has the following capital income levels at Year End 2001: Capital: 100M Surplus: 85M Income: 25M 2000 Income 40M 1999 Income 20M What is the maximum dividend that can be declared/paid? a) No dividend can be paid until capital equals surplus. b) $10M with $15M allocated to surplus. c) $22.5M with $2.5M allocated to surplus. d) $25M e) $85M

c (12 USC 60 states that, "until such time that capital equals surplus, no dividend shall be declared unless there has been carried over to the surplus fund not less than one-tenth part of the association's net income".

Which of the following asset types are not included in the 20% risk category. Pick up to two. a) general obligations of municipalities. b) securities or portions of loans conditionally secured by the US Government or its Agencies. c) revenue obligations of municipalities. d) claims on depository institutions. e) balances due from the FRB.

c (50%) and e (0%)

Use the following call report information (in $000's) for CY-0: CY-0 NI: $2,000 Commons Stock: $750 CY-1 RE: $2,150 Surplus: $800 CY-2 RE: $975 Undivided Profits:$9,750 Assuming this institution has never declared dividends, what is the maximum current-year dividend the bank can declare without receiving prior approval from the OCC? a) $1,550 b) $2,000 c) $5,125 d) $9,750

c - $2,000+$2,150+$975 = $5,125. Per 12 USC 60, a national bank must obtain prior approval from the OCC to pay dividends that would exceed its net profits for the current year combined with retained net profits of the prior two years. See Capital Accounts and Dividends Handbook, pg. 11

Currently, ABC Company's inventory is $900 thousand. The company reported average inventory at $1,235 thousand and cost of goods sold at $2,173 thousand. What is the inventory turnover ratio? a) 0.41 b) 0.57 c) 1.76 d) 2.41

c - 1.76 times: COGS of $2,173 divided by Average Inventory of $1,235 = 1.76 times. Inventory turnover measures how many times a business is able to turn inventory during the year and is calculated as COGS/Avg Inv. A high rate is desirable. See Asset-Based Lending Handbook, pg. 10

FNB Small Town purchased a $950 thousand state tax-exempt municipal bond with a yield of 4.5 percent. What is the tax equivalent yield if the bank's state marginal tax rate is 8 percent? a) 2.50 percent b) 4.17 percent c) 4.89 percent d) 5.62 percent

c - 4.89 percent = 4.5%/(1-8%): Tax-equivalent yields provide a comparison between taxable securities and tax-exempt securities. A taxable security would need to have at least the same pre-tax yield as a muni's tax-equivalent yield to be comparable. The tax-equivalent yield (TEY) is calculated as follows: TEY = Muni yield/(1-tax rate)

Upon notification that there is insufficient flood insurance coverage, how long does a borrower have to obtain sufficient coverage? a) 15 days b) 30 days c) 45 days d) 60 days

c - 45 days. Once the borrower has received notice that flood insurance is insufficient or about to expire, the borrower has 45 days to obtain sufficient coverage. If not obtained within 45 days, the bank may purchase forced-place insurance. See 12 CFR 22.7 and Flood Handbook, pgs. 8-9

FNB anywhere makes a $200,000 loan to a borrower for the purchase of 1-4 family residential property. A recent evaluation of the property indicated an estimated value of $250,000. There is a prior lien on the property in the amount of $25,000. The borrower will not reside at this property. What is the LTV? a) 88.88% b) 80.00% c) 90.00% d) 77.77%

c - 90% Loan-to-value calculations should include the total amount of all senior liens on or interests in a property, not just the originating bank's loan. See 12 CFR 34.62, Appendix, Definitions

Which of the following is reflective of an asset quality rating of "2"? a) Asset quality or credit administration practices are less than satisfactory b) The levels of risk and problem assets are significant and inadequately controlled c) The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention d) Identified weaknesses are minor in nature and risk exposure is modest in relation to capital protection and management's abilities

c - A rating of 2 indicates satisfactory asset quality and credit administration practices. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention. Risk exposure is commensurate with capital protection and management's abilities. See Bank Supervision Process Handbook, pg. 48

Which of the following assets would not be considered an investment in bank premises? a) Parking facilities b) Capital leases c) Furniture and fixtures d) Real estate acquired for future expansion

c - Bank premises are defined as 1)premises that are owned and occupied by the bank, 2)capitalized leases and leasehold improvements, 3)remodeling costs to existing premises, 4)real estate acquired and intended for future expansion, and 5)parking facilities that are used by customers or employees. See 12 CFR 5.37

Which of the following enforcement actions becomes effective thirty days after service? a) Formal Agreement b) Consent Order c) Cease and Desist Order (C&D) d) Temporary C&D Order

c - Cease and Desist Order: True C&D orders (issued without consent of the board) become effective 30 days after service unless it is contested. The other enforcement actions listed are effective immediately, even though a temporary C&D order can be contested within 10 days of issuance. See 12 USC 16, §1818(b)(2).

Which of the following is not a minimum appraisal standard? a) Conform to generally accepted appraisal standards (USPAP) b) Be written and contain sufficient information and analysis to support decision c) Contain all three approaches to value d) Be performed by a state certified or licensed appraiser

c - Contain all three approaches to value. The appraisal should use the best approach to value for the individual property. See 12 CFR 34.44 and OCC Bulletin 2010-42, Section VIII

Which of the following rating classifications is described as having a weakness that makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable? a) Special Mention b) Substandard c) Doubtful d) Loss

c - Doubtful. Generally, a doubtful asset has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Because of the high probability of loss, nonaccrual accounting treatment is required for doubtful assets. See Rating Credit Risk Handbook, pg 17

A board policy that establishes extremely low tolerances for interest rate risk is likely to affect the bank in which way? a) Increase the bank's basis risk b) Reduce the bank's dependence on core deposits c) Reduce the bank's ability to generate high returns d) Increase the bank's return volatility

c - Due to the risk/return principle, extremely low risk tolerances is likely to reduce the bank's ability to generate high returns

When a loan is placed on nonaccrual, which of the following has to be true in order for a bank to recognize interest on a cash basis? a) Recorded loan balance must be uncollectible b) Recorded loan balance must be recognizable c) Recorded loan balance must be fully collectible d) Recorded loan balance must be measurable

c - Fully collectible: While an asset is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining recorded investment in the asset (i.e., after charge-off of identified losses, if any) is deemed to be fully collectible. See Call Report Instructions Glossary, pg. A-61

When must a bank file a suspicious activity report, assuming no suspect was identified on the date of incident detection? a) Immediately b) Within 30 days of initial detection c) Within 60 days of initial detection d) Within 90 days of initial detection

c - Generally, SARs should be filed with FinCEN within 30 days of detection of the incident. Filing can be extended to 60 days if no suspect has been identified; however, in no case should the filing be delayed more than 60 days. See 31 CFR 1020.320(b)(3)

Which of the following bank investments would be accounted for at amortized cost? a) Available for sale b) Trading c) Held to maturity d) Speculative in nature

c - Held to maturity: Investment securities may be carried at amortized cost only when the bank can demonstrate the intent and ability to hold the securities to maturity. See Investment Handbook, pg. 23

American National Bank has decided to close one of its branch locations due to branch expenses. Which of the following is true regarding the former banking premises? I. The holding period for OREO begins on the date the bank ceases to use the former premises without relocating II. The bank may hold the property three years III. The bank may hold the property as long as it desires, as long as the bank requests an extension IV. The bank may hold the property no more than ten years, even with an extension A. I only B. I and II C. I, II, and IV D. I, II, III, and IV

c - I, II, and IV only. A national bank must dispose of OREO at the earliest time prudent judgment dictates, but the holding period must be no longer than five years. In addition, the OCC may grant multiple extensions, as long as those extensions, in the aggregate, do not exceed an additional five years. See Other Real Estate Owned Handbook, pg 4

A bank's customer identification program must contain account-opening procedures detailing the identifying information to be obtained from each customer. At a minimum, which of the following information must the bank obtain before opening an account for US persons? I. Customer name II. Date of birth, for an individual III. Employer, for an individual IV. Address a) I and II only b) II only c) I, II, and IV only d) I, II, III, and IV

c - I, II, and IV only. In addition to customer name, date of birth, and address, the bank should also obtain the identification number for the individual or corporation. See 31 CFR 1020.220 for further guidance on CIP as there may be exemptions.

Per the UBPR, which of the following would be considered a noncurrent loan? I. A consumer loan that is 30 days past due II. A doubtful loan that is 40 days past due III. A commercial loan that is 95 days past due IV. A substandard loan that is 103 days past due a) I and II b) III and IV c) II, III, and IV d) I, II, III, and IV

c - II, III, and IV. Per the UBPR, a noncurrent loan is defined as loans and lease-financing receivables past due at least 90 days, plus those in nonaccrual status. As doubtful classification automatically results in nonaccrual status, the fact that the credit is only 40 days past due does not matter. See UBPR User's Guide

A bank recently acquired title to a parcel of "other real estate owned". When should the bank obtain an appraisal for the property? a) Annually b) Every five years c) Not required at time of foreclosure if supported by a valid appraisal or appropriate evaluation d) Not required if the amount is less than $250M or 5% of capital

c - If a bank has a valid appraisal or an appropriate evaluation obtained in connection with a real estate loan, then the bank need not obtain another appraisal when it acquires ownership of the property. See 12 CFR 34.85 (b)

Which represents a use of bank funds? a) Acquiring deposits b) Issuing additional capital c) Increasing investment securities d) Increasing the allowance for loan and lease losses

c - Increasing investment securities is a use of bank funds. Both acquiring deposits and issuing capital is a source of bank funds, while increasing the ALLL is a non-cash expense.

An auto loan is 130 days past due and the bank has no plans to repossess the asset. Which of the following would be the best risk rating for the credit? a) Substandard b) Doubtful c) Loss of the full balance d) Write-down to collateral value

c - Loss of the full balance. Closedend retail loans that are past due 120 days or more should be classified as loss and charged off. Loans with nonreal estate collateral may be written down to collateral value (less cost to sell) if repossession is assured and in process. In this example, management has no plans to repossess so the entire loan balance should be written off. See OCC Bulletin 2000-20

An operating subsidiary of a national bank is a subsidiary in which the parent bank directly owns what percentage of its outstanding voting stock? a) 10% or more b) More than 25% c) More than 50% d) 80% or more

c - More than 50%. See 12 CFR 5.34(2)

Which of the following establishes the agency's expectations for risk management as it relates to Bank-Owned Life Insurance? a) OCC Bulletin 2001-43 b) OCC Bulletin 2001-47 c) OCC Bulletin 2004-56 d) OCC Bulletin 2012-31

c - OCC Bulletin 2004-56

Generally, which of the following is the most important consideration in determining the value of collateral when then credit is secured by inventory? a) Ratio between sales and inventory b) Original cost of the inventory c) Ready market value of inventory d) Book value of the inventory e) All of the above

c - Ready market value of the inventory. Management should obtain appropriate values for inventory collateral. In the event of default, the value the bank could liquidate/sale inventory may vary greatly from the original cost or book value of the inventory. See Accounts Receivable and Inventory Financing Handbook

Which of the following would not be included in other real estate owned? a) Real estate acquired in full or partial satisfaction of debt b) Real estate formerly used for bank premises that will no longer be used c) Real estate acquired with plans for future expansion d) Real estate acquired for future expansion that will no longer be used for expansion

c - Real estate acquired and intended for future expansion would be treated as bank premises, NOT OREO. See 12 CFR 5.37 and 34.81

Generally, which of the following is not indicative of a bank with a "2" composite rating? a) The bank is fundamentally sound b) The bank is in substantial compliance with laws and regulations c) Risk management practices may be less than satisfactory d) There are no material supervisory concerns and the bank may require limited supervision

c - Risk management practices that are less than satisfactory are generally indicative of a "3" rated bank. See Bank Supervision Process Handbook, Appendix A

When assessing the quantity of interest rate risk, what is characteristic of a moderate risk rating? a) there is little or no exposure to multiple indexes that price assets & liabilities b) repricing mismatches are longer-term, and may be significant, complex, or difficult to hedge c) mismatches on longer-term positions exist but are manageable and could be effectively hedged d) no significant mismatches on longer-term positions exist, and shorter-term exposures are simple and easily adjusted to control risk

c - See Community Bank Supervision Handbook, Appendix A

Generally, which of the following is true in regards to the aggregate amount of all loans in excess of the supervisory loan-to-value limits? a) Should not exceed 30 percent of total capital b) Should not exceed 50 percent of total capital c) Should not exceed 100 percent of total capital d) There is no limit

c - The aggregate amount should not exceed 100 percent. In addition, within the aggregate limit, total loans for all commercial, agricultural, multifamily, or other non-1-to-4 family residential properties should not exceed 30 percent of total capital. See 12 CFR 34, Subpt. D, App. A

If a director is reelected to the board of a national bank and resigns six months into the term, which scenario best complies with regulation? a) No action required if at least 5 directors remain b) The director can personally select his successor c) The board fills his position by appointment until the next election d) A special election is required e) OCC is required to appoint a temporary director.

c - The board fills the position by appointment. See 12 CFR 7.2007(b) or 12 USC 74.

Which of the following is true when a bank purchases an investment security with a premium? a) The bank must amortize the premium from date of purchase to the call date b) The bank must charge off the premium only in the event of default of the security c) The bank must amortize the premium over the life of the security d) The bank is not required to take any action unless the amount of the premium is equal 5% or more of total bank revenue

c - The difference between the purchase price and par value represents the premium, which all banks are required to amortize. A premium must be amortized and a discount must be accreted from date of purchase to maturity, not to call or put date. See Call Report Instructions, pg. A-66

Use the following income statement information ($000's): Net interest income: $3,015 Personnel expense: $1,236 Noninterest income: $1,315 Total overhead expense: $2,320 Net income: $871 What is the bank's efficiency ratio? a) 28.55 b) 37.54 c) 53.58 d) 76.95

c - The efficiency ratio is calculated by comparing total overhead expense ($2,320) to net interest income and noninterest income ($3,015+$1,315). The ratio measures how much overhead it takes to earn a dollar of revenue. See UBPR User's Guide, pg. III-12

Which of the following is not exempt from obtaining an appraisal/evaluation? a) Lien on real estate taken by the lender in an abundance of caution b) A loan that is not secured by real estate, even if the proceeds of the loan are used to acquire real property c) Real estate transactions with a transaction value equal to or less than $250,000 d) Operating leases that are not the economic equivalent of the purchase or sale of the leased property

c - While an appraisal is not explicitly required, institutions should obtain an evaluation consistent with safe and sound banking practices. See OCC 2010-42: "Interagency Appraisal and Evaluation Guidelines" Appendix A, pg. 17

Which of the following matters may bankers not appeal? a) Examination ratings b) Adequacy of the allowance for loan and lease loss methodology c) Formal enforcement-related actions d) Violations of law

c - formal enforcement-related actions. In addition to official enforcement decisions, remarks in an ROE and other communications about POTENTIAL formal enforcement actions made prior to a review committee decision are preliminary and therefore may not be appealed. See OCC Bulletin 2013-15

Which of the following common benchmarks is used in an economic value analysis to provide a measure of the underlying value of the bank's current position? a) Par value b) Book value c) Present value d) Future value

c - present value: The economic value of instruments sensitive to interest rate changes equals the present value of their future cash flows. By evaluating changes in the present value of the contracts that result from a given change in interest rates, one can estimate the change to a bank's economic value. See Interest Rate Risk Handbook, pg. 5

If Director Jones is reelected to the Board of Grapefruit Bank and resigns 6 months into his term, which scenario best complies with regulation? a) no action required if at least 5 directors remain. b) Director Jones can personally select his successor. c) the Board fills his position by appointment until the next election. d) a special election is required. e) the OCC is required to appoint a temporary director.

c) (12 USC 74)

Under the Second Tier Appeal process (when a bank disagrees with a supervisory office appeal), a bank must file notice of appeal within ____ days, and in the absence of extenuating circumstances, the Ombudsman will issue a written response within _____days. a) 15, 15 b) 30, 15 c) 30, 30 d) 30, 45 e) 30, 60

c) 30, 30

Once a bank becomes undercapitalized, it must submit a Capital Restoration Plan within ____days? a) 15 b) 30 c) 45 d) 60 e) 90

c) 45

Per 12 USC 71a, a national bank must have a minimum of ____ and a maximum of ____ directors? a) There is no restriction. b) 5, 15 c) 5, 25 d) 5, 35 e) 5, no maximum number.

c) 5, 25

ABC bank has a small investment portfolio that consists entirely of US Treasury Securities. To boost earnings, management decides to divest half of these holdings and reinvest in FNMA MBS issues. What impact will this have on risk based capital? a) no impact. b) will increase. c) will decrease.

c) RBC will decrease as FNMA carry a 20% risk weighting as compared to 0% for US Treasuries.

Bank 123 holds purchases a newly issued bond, at par. Rates then increase by 200 basis points over the next 6 months. What will happen to the market value (MV) of the bond? a) no change. b) it will be called. c) the MV should increase. d) the MV should decrease.

d) the MV should decrease.

Which of the following components of interest rate risk involves changes in the relationship between interest rates of different maturities within the same index or market? a) Repricing risk b) Basis risk c) Yield curve risk d) Option risk

c) Yield curve risk - See IRR Handbook, pg 9

Per 96-18 (National Banks Appeals Process), what matter(s) can not be appealed to the OCC Ombudsman. a) adequacy of the ALLL. b) examination ratings. c) enforcement-related actions or decisions. d) loan classifications that are significant to the bank. e) none of the above.

c) enforcement-related actions or decisions.

12 CFR 34.62 (Appendix) caps the amount of lending that a bank can do outside the FDICIA LTV standards at 100% of capital. What is the additional sub-limit with respect to commercial RE? a-15% b-25% c-30% d-50% e-there is no additional sub-limit.

c-30%

Bank ABC's balance sheet that is positively gapped (cumulative 1 year position). Assuming that no yield curve, basis, options or prepayment risk exists, what is the probable impact on earnings if rates suddenly decrease? a) no change. b) earnings will increase. c) earnings will decrease.

c. If there are more RSA repricing as compared to RSL, yields will decrease resulting in decreased earnings.

Which best describes a bank that exhibits low liquidity risk? a) The bank relies heavily on short-term funding sources b) The bank's loan to deposit ratio is above its national peer group c) The bank's cost of funds is low compared to its local peer group d) Loan growth is projected to exceed deposit growth over the next year

c: The remaining choices indicate greater liquidity needs than Choice C. See Liquidity Handbook and Community Bank Supervision Handbook, pg. 142

American National has a general legal lending limit of $12,411 thousand. A customer has requested a loan for $19,750 thousand. The bank has a current inspection valuing the cattle at $9,870 thousand. Assuming the customer has no other debts, what is the maximum amount the bank can lend to the customer? a) $9,870 b) $12,411 c) $19,750 d) $20,685 e) $20,993

d - $20,685 : Special lending limits exist for loans secured by documents covering livestock; however, extensions to one borrower may not exceed 25 percent of capital (15% general plus 10% additional). In addition, the market value of the collateral must be at least 115% of the credit amount over the 15% general limit. See 12 CFR 32.3(b)(3) The math: We can determine that the bank's capital is $82,740 ($12,411/0.15); therefore, the maximum the bank can lend is $20,685 ($82,740*0.25). While the bank has the collateral value to lend $20,993 (e), the bank is limited to the 25% threshold.

On May 31, a bank buys a $100,000 par value municipal bond with a coupon rate of nine percent, which is yielding eight percent. Interest on the bond is payable twice a year at the end of the second and fourth calendar quarters. The book value of the bond on the date of purchase is $112,000. The accrued interest is included in the purchase price of the bond. What is the amount of the accrued interest purchased? a) $1,875 b) $3,000 c) $3,333 d) $3,750

d - $3,750: As interest payments are calculated using the coupon rate of 9% and par value of $100,000, the bank is entitled to receive $4,500 semiannually or $750 a month of accruable interest. Considering the bank purchased the bond on May 31 (five months of the first semiannual payment), the bank would have paid the seller $3,750 in accrued interest.

Use the following September 30, 2014 UBPR information: Net Income $1,365 Total Assets $194,300 Dividends $464 Average Assets $186,753 What is the bank's ROAA? a) 0.64 b) 0.73 c) 0.94 d) 0.97

d - 0.97: (($1,365/3)*4)/$186,753 = 0.97. In general, income and expense items on the UBPR are shown for year-to-date periods. Income and expense ratios on pages 1, 3, 7, and 11 of the UBPR are annualized to allow ratio comparison between quarters. See User's Guide for UBPR

Which of the following is not an appropriate risk-weighting for risk-weighted asset? a) 0% b) 20% c) 50% d) 75%

d - 75%. The risk-weights used on schedule RC-R include 0%, 20%, 50%, and 100%. See Call Report instructions

FNB has a gap ratio of 0.90 during the 60-day time period. What does this mean? a) 90% of the bank's assets reprice within 60 days b) 90% of the bank's liabilities reprice within 60 days c) for every 1% change in interest rates in this time period, net interest income will change 0.90% d) more of the bank's liabilities than assets reprice in this time period

d - A rate-sensitive assets to rate-sensitive liabilities ratio greater than 1.0 indicates that more assets on the balance sheet are subject to repricing than liabilities. The opposite is true for ratios less than 1.0. See IRR Handbook, pg. 19

During a recent asset quality review, an examiner downgraded a loan from special mention to doubtful. What should have been done with the accrued interest on the credit? a) A reversal of accrued interest proportionate to the amount designated as doubtful b) Nothing; the loan should continue to accrue interest c) A reduction to interest income only d) A reversal of all previously accrued but uncollected interest

d - A reversal of all previously accrued but uncollected interest: A risk rating of doubtful results in automatic nonaccrual status. In accordance with GAAP, all previously accrued but uncollected interest should be reversed. The appropriate journal entry for current-year interest reversal would include a debit to interest income and a credit to accrued interest. See call report instructions, pg. A-60

Which situation presents an increased quantity of interest rate risk? a) a low ratio of long-term assets to total assets b) a small volume of assets with embedded options c) a stable net interest margin over the last three years d) a large holding of fixed-rate residential real estate loans e) a high ratio of non-maturity deposits to long-term assets

d - All choices indicated less interest rate risk than a large holding of fixed-rate residential real estate loans. A large holding of fixed-rate mortgages indicates that management will be unable to price these products in the short term, increasing IRR. Depending on the rate environment, these loans also may be subject to prepayment. See Director's Toolkit book "Detecting Red Flags in Board Reports", pg 26

When an individual loan is considered impaired, management must measure the extent of the impairment. What measurement method(s) may the bank base the impairment on? a) The present value of the loan's future cash flows b) The observed market value of the loan c) If a collateral dependent loan, the collateral value less the costs to sell d) All of the above

d - All of the above are appropriate. ASC 310-10-35-22 (formerly FAS 114) allows the use of (a); however, additionally allows (b) and (c) as "practical expedients." See Allowance for Loan and Lease Losses Handbook, pg 6

Which of the following should be included in an effective risk management process for vendor management? I. Plans that outline the bank's strategy, identify inherent risks, and detail how the bank selects, assesses, and oversees third parties II. Contingency plans for terminating the relationship in an effective manner III. Ongoing monitoring of third party activities and performance IV. Proper due diligence in selecting a third party a) I and II only b) II only c) I, III, and IV only d) I, II, III, and IV

d - All of the above. See OCC Bulletin 2013-29: "Third-Party Relationships," pg. 1

Which of the following is a collateral valuation method used to limit the amount of funds the lender will advance the borrower? a) Blanket assignment b) Factoring c) Trade cycle analysis d) Borrowing base

d - Borrowing base. A borrowing base is used in accounts receivable/inventory financing and specifies the maximum amount that can be borrowed in terms of collateral type, eligibility, and advance rates. See Accounts Receivable and Inventory Financing Handbook

In reviewing the bank's retail credit portfolio, an examiner notices that a 1-4 family residential mortgage is 103 days past due. Based on the aforementioned, the loan should be graded as which of the following? a) Special mention b) Substandard c) Loss d) Cannot be determined based on the facts

d - Cannot be determined based on the facts. Generally, open- and closed-end retail loans past due 90 cumulative days should be classified Substandard. However, there is an exception as it relates to 1-4 family residential real estate loans. If the credit is properly secured with an LTV equal to or less than 60 percent, they're not classified solely on delinquency status. One would need to consider other salient facts. See OCC Bulletin 2000-20: Uniform Retail Credit Classification

Which of the following is the risk to current or anticipated earnings or capital arising from an obligor's failure to meet the terms of any contract with the bank or otherwise perform as agreed? a) Price Risk b) Liquidity Risk c) Basis Risk d) Credit Risk

d - Credit Risk. Credit risk is found in all activities in which settlement or repayment depends on counterparty, issuer, or borrow performance. See Community Bank Supervision Handbook, Appendix A, pg 130.

When bank management materially restricts the scope of an external auditor, what type of opinion is issued? a) Unqualified b) Qualified c) Adverse d) Disclaimer

d - Disclaimer. When management restricts the scope of the audit, a disclaimer opinion is issued. An adverse opinion would be issued if the financial statements did not fairly represent the condition of the bank or did not conform to GAAP. See Internal and External Audits Handbook, pgs. 40 - 41

Which of the following forecasting tools would a bank typically use in order to measure longer-term interest rate risk, in addition to capturing option risk? a) Gap report b) Sources and uses of funds report c) Earnings-at-risk simulation model d) Economic value of equity simulation model

d - EVE model. While earnings-at-risk simulations typically span 12- and 24-month horizons, EVE models are able to capture a broader spectrum of maturities. Also, management can account for option risk with assumptions. See Interest Rate Risk Handbook, Appendix E

Which of the following is not included in the on-hand liquidity ratio? a) Interest bearing bank balances b) Reverse repurchase agreements c) Fair value of AFS securities d) Fair value of HTM securities

d - Fair value of HTM securities. While HTM securities are included, it is the book value not the fair value. All of the other choices are included in the on-hand liquidity ratio. See Canary User's Guide (PPM 5000-34)

Which of the following is true regarding federal funds? a) Federal funds are FDIC insured b) Federal funds are a long-term liquidity tool c) Federal funds are typically secured by U.S. Treasury securities d) Federal funds may be difficult to obtain when a bank experiences financial difficulties

d - Fed funds may be difficult to obtain under financial difficulties. Fed funds are a short-term alternative funding source. Many banks use this type of funding during contingency situations; however, the availability of funding under distressed condition may be severely limited. See Liquidity Handbook, pgs. 16-17

Which of the following enforcement actions is always signed with the consent of the bank board? a) Cease and Desist Order b) Prompt Corrective Action Directive c) Order of Investigation d) Formal Agreement

d - Formal Agreement. Always signed by the bank board, these actions are considered less severe than cease and desist orders. While other enforcement actions may be entered into by consent, it is not required. See "Bank Enforcement Actions" http://el.occ/publications/publications-by-type/internal/enforcement-action-guidance.html

Due to low loan demand, Hurting for Profit, N.A. plans to purchase $1 million in additional investment securities. Which security would have the least impact on risk-based capital ratios? a) FHLB 5-year, non-callable bond b) AAA-rated, 10-year corporate bond c) FNMA collateralized mortgage obligation (CMO) d) GNMA pass-through mortgage-backed security (MBS) e) AA-rated General Obligation (GO) 20-year bond, callable in 5 years

d - GNMA pass-through MBS. MBS issued by GNMA receive a 0% risk-weight when calculating risk-based capital. See 12 CFR 3

All national banks must maintain a security program. Which of the following is required as a part of the security program? I. Procedures for opening and closing for business II. Procedures that will assist in identifying persons committing crimes against the bank III. Initial and periodic training of employee responsibilities IV. Selecting, testing, operating, and maintain appropriate security devices a) IV only b) I and II c) I, II, and IV d) I, II, III, and IV

d - I, II, III, and IV. A bank's security program should include all of the above. See 12 CFR 21.3

Which of the following is correct in regards to a national bank's board of directors? I. The number of directors must be at least 5, but no more than 25 II. Original executed oaths of directors must be filed with the OCC III. Each director must own an aggregate value of $1,000 in stock IV. The president of a national bank must be a member of the board of directors a) I and II only b) II only c) I, II, and IV only d) I, II, III, and IV

d - I, II, III, and IV. A bank's board may have more than 25 members, after notifying the OCC as to why the reason for the increase occurred. The value of stock (or qualifying equity interest) may be based on the par value, shareholder's equity value, or fair market value. See 12 CFR 7 for more information. Specific documentation can be found in 12 CFR 7.2024, 2008, 2005, and 2012, respectively.

In general, Community Reinvestment Act examinations occur every three years. Which of the following cycle extensions apply to banks having assets less than $250 million? a) Small banks do not receive any extensions b) Once every 60 months for banks with a previous rating of "Outstanding" c) Once every 48 months for banks with a previous rating of "Satisfactory" d) B and C

d - In addition to the cycles noted above, supervisory agencies have discretion in frequency when the small bank received a "less than satisfactory" rating at the previous examination. See the Gramm-Leach-Bliley Act of 1999, Title VII, Subtitle B, Sec. 809

Which of the following prohibited bases applies to the Equal Credit Opportunity Act, but not the Fair Housing Act? a) Race or color b) Religion c) National origin d) Marital status

d - Marital status. Marital status is a prohibited basis under ECOA, but not FHA. FHA includes familial status, which is defined as persons under the age of 18 living with a guardian, pregnant women, and persons securing custody of children under 18. See 12 CFR 1002.2(z) for ECOA and 24 CFR 100.20 for FHA

Which of the following thresholds would require advance majority approval of the board of directors, with the borrower abstaining? a) The higher of $10M or the bank's legal lending limit b) The higher of $25M or 2.5% of capital, when the loan is for "personal" purposes c) The higher of $100M or 5% of capital, regardless of purpose d) The higher of $25M or 5% of capital or in any case, $500M

d - Prior approval is required if the aggregate of extensions of credit to the insider and related interests exceeds the higher of $25M or 5% of the member's bank's unimpaired capital or surplus, or in any case, $500M. See 12 CFR 215.4 (b)

Which of the following is considered capital and surplus for the purposing of legal lending limits? a) Common stock and paid-in surplus b) Total bank equity c) Total risk-based capital d) Tier 1 capital, tier 2 capital, and any excess allowance not includable in tier 2 capital

d - T1+T2+Excess ALLL. See 12 CFR 32.2

FNB Anywhere sold a portion of its held-to-maturity (HTM) investment portfolio to gain additional liquidity. Which statement is true? a) The bank has "tainted" the HTM investment portfolio and may never again have a HTM portfolio b) The bank has "tainted" the HTM investment portfolio and all remaining securities in the existing portfolio must be liquidated c) The bank can continue to operate a HTM portfolio because selling from the HTM portfolio for liquidity purposes is one of the "safe harbor" exemptions d) The bank has "tainted" the HTM investment portfolio and all remaining securities in the existing portfolio must be transferred to the available-for-sale (AFS) category

d - The bank has "tainted" the HTM portfolio and all remaining HTM securities should be reclassified as AFS. There are certain "safe harbor" exemptions under which a bank may sell a portion of their HTM portfolio; however, to gain additional liquidity is not one of them. See OCC Bank Accounting Advisory Series, Topic 1A (question 8) or Accounting Standards Codification (ASC) 320

The investment officer at First National Bank would like to add a municipal bond to the bank's investment portfolio. She believes that the bond is investment grade due to its Moody rating of Baa1. Which of the following OCC Bulletins should she consult for additional due diligence requirements? a) OCC Bulletin 2014-36 b) OCC Bulletin 2011-19 c) OCC Bulletin 2012-24 d) OCC Bulletin 2012-18

d - The depth of the due diligence should be a function of the security's credit quality, the complexity of the structure, and the size of the investment. See OCC Bulletin 2012-18: "Alternatives to the Use of External Credit Ratings"

Assuming all properties are located in a special flood hazard zone, which of the following would require the escrowing of flood insurance? a) A commercial loan secured by a shopping center for which the lender requires the escrowing of other funds b) A residential loan for a 1-4 family home for which the lender does not require the escrowing of other funds c) An agriculture loan secured by 27 acres of land for which the lender requires the escrowing of other funds d) A business loan secured by a residential rental property for which the lender requires the escrowing of other funds

d - The escrow requirement is limited to loans secured by "residential improved real estate." Therefore, the determining factor in applying the requirement is not the purpose of the loan, but the purpose of the building. See Flood Handbook, pg 12

Which of the following loans would require an appraisal? a) $200,000 commercial loan secured by rental property b) $1,100,000 loan fully secured by a U. S. government agency c) $270,000 loan secured by machinery, equipment, and a vacation home for which the real estate lien was taken as an abundance of caution d) $1,200,000 loan to purchase commercial real estate that is not dependent on the sale of, or rental income derived from, the subject real estate as the primary source of repayment

d - This loan would require an appraisal as the transaction value is over $1 million. While the other loans do not require an appraisal, choices (a) and (c) would require evaluations under 12 CFR 34.43(b). Loan (b) would not require an appraisal as it is secured by a government agency. See 12 CFR 34.43

Which of the following is not exempt from the restrictions on transactions with affiliates? a) An affiliate engaged solely in holding bank premises of the member bank b) An affiliate engaged solely in holding fully guaranteed obligations of the U.S. government c) Where the affiliate relationship arises out of a bona fide debt previously contracted d) Where the affiliate relationship exists as a result of common directors

d - Where the affiliate relationship exists as a result of common directors. Choices a, b, and c are not considered affiliates when reviewing restrictions on transactions with affiliates. When there is common directorship, that organization would be an affiliate. See 12 USC 371c(b)(1) and (2)

Upon foreclosure or physical possession, whichever is earlier, OREO should be recorded at a) the fair value of the property, capitalizing any estimated cost to sell b) the fair value of the property c) the outstanding loan amount upon foreclosure d) the fair value of the property, less the estimated cost to sell

d - the fair value of the property, less the estimated cost to sell - OREO Handbook, page 6

12 USC 72 requires directors to hold a minimum of ____ (par value) of the bank's stock ( ____ (par value) for bank's with less than $25M in capital)? a) no requirement exists. b) $500, $100 c) $1000, $250 d) $1000, $500 e) $1000, no minimum for banks with less than $25M in capital.

d) $1000, $500

How long is a UCC-1 filing valid? a) matches the life of the loan. b) 1 year. c) 3 years. d) 5 years. e) 10 years.

d) 5 years.

12 CFR 215.4(e) permits inadvertent overdrafts to insiders only if they do not exceed $______ and do not remain outstanding longer than _______days? a-$5,000 and 5 calendar days. b-$5,000 and 5 business days. c-$1,000 and 5 calendar days. d-$1,000 and 5 business days. e-inadvertent overdrafts are not permitted.

d-$1,000 and 5 business days.

A bank provides you with the following information: Outstanding loan balances: $1,000M (includes $100M loan to Director Z 100% secured by deposit account). Available balances under lines of credit: $500M. Financial standby letters of credit: $50M Performance standby letters of credit: $150M For the purposes of the regulation, what is the aggregate outstanding amount of all insider extensions of credit that should be used in limit calculations and reported on Schedule M of the Call Report? a-$1,000M b-$1,500M c-$1,550M d-$1,600M e-$1,700M

d. The call report instructions default to the regulation's definition of "outstanding" extensions of credit. 12 CFR 215.3 defines all of the above as extensions of credit. 12 CFR 215.4(d)(3)(C) Exceptions- states the general limit does not apply to extensions of credit secured by segregated deposit accounts.

What are transactions between affiliates typically called? a) subsidiary transactions b) covered transactions c) incidental transactions d) none of the above

d: Control is obtained at 25% ownership, while an affiliate would be considered an operating subsidiary with over 50% ownership and a sister bank with 80% or more ownership. See 12 USC 371c. 371c applies specifically to legal restrictions as it relates to transactions with an affiliate.

In regards to transactions with affiliates, which of the following would not be considered a "low-quality" asset? a) A loan that is nonaccrual b) A loan that is more than 30 days past due c) A pass loan whose terms have been renegotiated due to financial deterioration d) A loan classified as substandard e) All of the above are "low-quality" assets

e - all of the above. Banks may not purchase a low-quality asset from affiliates unless the bank committed to purchase the asset, pursuant to an independent credit evaluation, before the time the asset was acquired by the affiliate. See 12 USC 371c, 12 CFR 223, or Related Organizations Handbook, pg. 8

An asset concentration is defined as any exposure that equals or exceeds____________. a) 10% of total loans. b) 15% of total loans. c) 25% of total loans. d) 15% of capital. e) 25% of capital.

e) 25% of capital.

What factors must be present to warrant a temporary Cease & Desist Order? a) OCC determines that it is necessary to protect bank. b) Criminal intent is suspected. c) Books and records are so incomplete that OCC can not determine the financial condition of the banks. d) all of the above e) a & c

e) a & c