UCE 670

"1) 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."

"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. "

"50. 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 be promptly reported to the 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"

"A. 12 USC 375a (1)&(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 the housing loan exceeds the higher of $25M or 5% of unimpaired capital and surplus, or $500M when aggregated with other loans to the executive officer, then the loan must also receive prior Board approval per 12 CFR 215.4(b). "

"6) 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

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

A - True 12USC83

"2. A bank has $30MM in Tier One Leverage capital. We can conclude capital is adequate. A. True B. False "

B

True of False - Discounted cash flows are generally used to calculate the Economic Value of Equity (EVE), while market values (when available) are used to calculate the Net Portfolio Value (NPV).

True - Refer to the Examiner Quick Reference Guide National Banks-Federal Savings Associations Quick Reference Guide

"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. Agency guidance includes the evaluation of conceptual soundness (validation), ongoing monitoring (benchmarking) and outcome analysis (back-testing) as core elements of an effective validation framework. See OCC Bulletin 2011-12, pg. 14

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

True. All national bank 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

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.

A customer has an existing loan for a property that is located in a flood zone. The property has adequate flood insurance and the policy does not expire for another six months. If the loan is renewed today, but no new funds are advanced and there are no changes to the terms of the loan, does the bank need to send a flood notice to the borrower? (Y/N)

Yes - refer to 12 CFR 22.9

Can an individual serve as the President of two banks at the same time? (Y/N)

Yes, as long as the banks are affiliated - Refer to 12 CFR 212 (Regulation L, Management Official Interlocks) for additional information including exemptions for non-affiliated banks as well as other information.

"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

"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 Community Bank Supervision Handbook, pg. 143 and the Liquidity Handbook.

"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.

"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 CFR 223.3(v).

"6. Which of the following is not an appropriate use of the Canary Early Warning System? I. To look for high levels of financial risk, II. To enable OCC staff to monitor systemic trends & OCC supervisory activities III. To assist in drawing conclusions about the amount of financial risk at a bank IV. To identify those banks moving rapidly toward a financial risk position, V. To use in planning an exam and allocating resources. A. All of the above are correct B. IV only C. II and IV D. I only E. III only "

"A. All of the above are correct. Please refer to PPM 5000-34 (Rev) Canary Early Warning System. "

"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 "

"Answer: d - Marital status. Prohibited basis under ECOA are: Race or color, Religion, National Origin, Sex, Marital Status, Age, Public assistance, The applicant's exercise, in good faith, of any right under the Consumer Credit Protection Act. Prohibited basis under FHA are: Race or color, National Origin, Religion, Sex, Family status (defined as persons under the age of 18 living with a guardian, pregnant women, and persons securing custody of children under 18)., Handicap. See Fair lending Handbook page 3-4."

"32. 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. Fair value is substandard, and impairment {i.e. depreciation] is classified loss.. 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. "

"B. See OCC 2004-25, dated 6-15-04. When you have a defaulted security, the depreciation is other than temporary and should be charged off against earnings. We revised the guidance to make sure it was consistent with GAAP (FAS 115). "

"When a bank reaches more than _______ in assets they must have an audit committee comprised entirely of outside directors. A.) $500 million B.) $1 billion C.) $2 billion D.) All banks must have audit committees of only outside directors. E.) Audit committees never need to be comprised of only outside directors. "

"B.) $1 Billion - Refer to 12 CFR 363. On a side note: Banks between $500 million and $1Billion should have the majority of members independent from management. "

"A closed-end loan on a 1-4 family residential home should be charged off when the loan is ______ days past due. A.) 90 B.) 120 C.) 150 D.) 180 "

"B.) 120 - Refer to OCC Bulletin 2000-20 UPDATED 9/17/16 to correct - original answer said 180 but that is for open end retail loans this says closed end - so 120 is correct"

True or False: A bank's President and Chief Executive Officer (if a person other than the President) must both be members of the Board of Directors.

"False - Only the bank's President must be a member of the Board of Directors. - Refer to 12 CFR 7 "

True/Partially True/False: The Operational Risk RAS pertains to Information Technology and the related risks.

"Partially true - Operational Risk includes more than just Information Technology related risk. "Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, the misconduct or errors of people, and adverse external events. Operational losses result from internal fraud; external fraud; employment practices and workplace safety, clients, products, and business practices; damage to physical assets; business disruption and system failures; and execution, delivery, and process management." "

"Which is not required for fiduciary accounts? A.) Pre-acceptance review B.) Initial post-acceptance review C.) Annual review D.) All are required "

"Typical examiner answer - IT DEPENDS If the bank does NOT have discretionary power over the account then only a pre-acceptance review is required If the bank DOES have discretionary power over the account then all reviews are required. "

"For risk-based capital purposes, the allowance for loan and lease losses includes any allowance for credit losses on off-balance sheet credit exposures. a) True b) False "

"a - True. The allowable portion of the allowance includable for RBC purposes (1.25% of gross RWA) does include any allowance for credit losses on off-balance sheet credit exposures. Any excess allowances are deducted to arrive at total RWA. Call Report Instructions, pg. RC-R-30a, "An institution's allowance for loan and lease losses for regulatory capital purposes equals Schedule RC, item 4.c, "Allowance for loan and lease losses," less Schedule RI-B, Part II, Memorandum item 1, "Allocated transfer risk reserve included in Schedule RI-B, Part II, item 7, above," plus Schedule RC-G, item 3, "Allowance for credit losses on off-balance sheet credit exposures.""

"Assuming a national bank has no foreign offices, the call report must be submitted within 30 days following the end of the quarter. a) Yes b) No "

"a - Yes. For a national bank that has no foreign offices, the call report must be received by FFIEC's Central Data Repository (CDR) no later than 30 calendar days after the report date. See page 7 of the General Instructions in the Call Report Instructions and PPM- 5000-27 (REV). For bank that has more than one foreign office, other than a ""shell"" branch, the call report must be received by the CDR no later than 35 calendar days after the report date."

"A national bank made a book entry to provide for possible losses on loans. Which of the following effects will 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: Allowance for Loan & Lease Losses "

"FNB Anytown loaned $300 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. This exception applies to business loans with a transaction value of $1 million or less when the sale of, or rental income derived from, real estate is not the primary source of repayment. 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 $250 thousand threshold established for all other transactions. See OCC Bulletin 2010-42, Appendix A(5) "

"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, 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"

"The First National Bank of Nowheresville placed a commercial real estate loan on nonaccrual as it was 94 days past due. The loan was in the process of collection and well secured by collateral. Was the bank required to do this? a) Yes b) No "

"b - No, the bank was not required to place the loan on nonaccrual because the credit was BOTH well secured AND in the process of collection. While conservative, this is not a requirement per call report instructions. See call report instructions glossary, pg. A-59 "

"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 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) Additionally, the OCC has other resources available regarding enforcement actions including PPM 5310-3 "

"Per recordkeeping requirements, how many years should a bank retain each completed HUD-1 or HUD-1A after settlement? a) 1 year b) 3 years c) 5 years d) 7 years "

"c - Five years: A lender should retain completed HUD-1's for five years, unless the lender disposes of its interest and does not service the loan any longer. If the bank transfers the loan, the purchaser should retain the HUD-1 (received from originating bank in transfer) for the rest of the five-year period. See 12 CFR 1024.10(e) "

"For which of the following bank sizes must the audit committee contain all outside directors? a) Greater than $500 million b) Greater than $500 million but less than $1billion c) Greater than $1 billion d) All banks "

"c - Greater than $1 billion. Institutions with total assets of at least $1 billion are required to maintain an audit committee comprised entirely of outside directors. Banks with assets of $500MM-$1B, must be a majority. See 12 CFR 363.5 "

"Which of the following matters may bankers not appeal? a) Final 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. A bank may appeal any agency supervisory decision or action to its SO or to the Ombudsman, including • Examination ratings, Adequacy of the allowance for loan and lease loss methodology, Individual loan ratings, Violations of law, Shared National Credit (SNC) decisions, Fair-lending-related decisions, Licensing decisions, Material supervisory determinations such as matters requiring attention, Compliance with enforcement actions, Other conclusions in the report of examination (ROE). While banks may not appeal a decision by the SO to pursue a formal enforcement-related action, but banks may appeal conclusions in the ROE. See OCC Bulletin 2013-15."

"While reviewing minutes, the EIC noted the entire board approved a $500M line of credit to an affiliate company of Director Jones. Director Jones' personal debt, aggregating $100M, was also approved. The LLL 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 lending limit c) is a violation because Director Jones cannot vote to approve his personal company debt d) is not a violation, as long as the company debt is approved by the entire board"

"c - is a violation. See 12 CFR 215.4(b)(ii). No member bank may extend credit (which term includes granting a line of credit) to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's unimpaired capital and unimpaired surplus, unless: (i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank; and (ii) The interested party has abstained from participating directly or indirectly in the voting. "

"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

"23. 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

"When transferring securities to HTM from the AFS 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 calc b) Included as an adjustment to current earnings and reported on the 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 yield. The unrealized holding gain or loss at the date of transfer shall continue to be reported in AOCI but shall be amortized over the remaining life of the security as a yield adjustment. This amortization of the unrealized holding gain or loss will offset the effect on income of amortization of the related premium or discount. See Bank Accounting Advisory Series (October 2014), Section 1A, Questions 3 and 4. "

"Examiners note final audit reports are sent only to the President, who corrected and documented weaknesses in memos. Which is true of board supervision? a) Adequate because audit reports are reviewed by a senior officer and corrections are timely b) Adequate because sufficient audit trails exist and are readily available to the Board c) Inadequate, should be circulated to department heads and to the auditor d) Inadequate because reports should be forwarded from the internal auditor directly to the board or its audit committee"

"d - Inadequate because reports should be forward to the board or audit committee. Forwarding internal audit reports to the board ensures independence. See Internal and External Audits Handbook "

"American National has a general legal lending limit of $12,411 thousand. A customer has requested a loan for $19,750 thousand to purchase cattle. 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: Special lending limits exist for loans secured by documents covering livestock; however, extensions to 1 borrower may not exceed 25% of capital (15% general + 10% additional). Also, the MV 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."

The required flood insurance coverage for a residential property located in a flood zone is the lesser of; the outstanding balance of the loan, the insurable value of the structure or _________.

$250,000 - Refer to the Comptroller's Handbook, Flood Disaster Protection.

In Thrifts, consumer loans must not exceed _____% of total assets.

35% - Refer to 12 CFR 160.

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

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)

"The qualified thrift lender test requires an FSA to hold qualified thrift investments equal to at least ______% of the FSA's portfolio assets. A.) 55 B.) 65 C.) 75 D.) 85 "

65 - Refer to the Comptrollers Handbook, Qualified Thrift Lender edition.

"When a bank decides to close a traditional brick and mortar branch, they must file a notice with the OCC ________. A.) prior to the Board approving the closure B.) once the Board has approved the closure C.) 45 days in advance D.) 90 days in advance E.) only if the closure may have a negative impact to the bank's CRA program "

90 days in advance - Refer to the Comptrollers Licensing Manual and 12 USC 1831

"The investment officer of 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"

"10) When consolidating a bank and a subsidiary, the amount the bank invested in the sub should be subtracted from the bank's total stock investments. A. True B. False "

A

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

A

"12 USC 371 prohibits banks from selling classified loans to an affiliate bank. A.) True B.) False"

A

"13. Which activity increases bank assets? A. acquiring deposits B. liquidating investments C. increasing treasury stock D. selling Other Real Estate Owned E. increasing the Allowance for Loan and Lease Losses"

A

"19. 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

"23. Interest rates are presently low and loan demand is low. Interest rate projections call for an increasing prime rate over the next two years. Loan demand is expected to increase over the same period. What would be a prudent investment strategy for the bank to employ? A. buy Treasury bonds with short-term maturities B. buy municipal securities to increase tax-exempt income C. buy long-term, high-rate corporate bonds to maximize income D. discount future investment portfolio income by selling appreciated investments"

A

"24. First National Bank has structured its balance sheet so that it is highly asset sensitive. In recent months, the Federal Reserve has taken steps to slow economic growth and lower inflation. Given the bank's balance sheet structure and the Federal Reserve's actions, what can you expect? A. The bank's earnings will increase because the Fed's actions will result in rising interest rates. B. The bank's earnings will decrease because the Fed's actions will result in rising interest rates. C. The Fed's actions will have not impact interest rates and thus have no effect on the bank's earnings. D. The bank's earnings will increase because the Fed's actions will result in declining interest rates. E. The bank's earnings will decrease because the Fed's actions will result in declining interest rates."

A

"26) Federal savings associations are subject to a regulation regarding the holding period for ORE, but have no regulations regarding the disposition or additional expenditures for ORE. A. True B. False"

A

"29) Which of the following products are not permissible for thrifts? A. Consumer Loans - limit 50% of total assets B. Non-residential Real Estate Loans - limit of 400% of capital C. Real Estate Brokerage under a service corporation D. Commercial Loans - limit of 20% of total assets"

A

"3) 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, 45 b) 30, 15 c) 30, 30 d) 30, 45 e) 30, 60"

A

"30) Which of the following statements are not true for mutual institutions? A. Mutual institutions issue capital stock like other institutions B. Members of mutual associations have the right to vote to nominate and elect directors C. Mutual companies may have multi-tiered holding companies with a stock holding company as the middle tier D. Mutual holding companies have the same powers as a financial holding company"

A

"31) 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

"31. ABC National Bank provides servicing for over $4 billion in mortgage loans. The value of the mortgage servicing asset (MSA) is roughly $78 million. In order to hedge fluctuations in the value of the MSA, the bank has purchased futures and options on the 10-year Treasury. Which element of interest rate risk is inherent in this scenario and may contribute to the net ineffectiveness of the hedge? A. Basis Risk B. Options Risk C. Repricing Risk D. Yield Curve Risk"

A

"37) 12USC61 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"

A

"46. What change in the balance sheet represents a source of funds? A. decrease in other assets and investments B. increase in interest-bearing bank balances C. increase in real estate loans and increase in OREO D. decrease in time deposits and other savings deposits"

A

"Commercial paper is a debt instrument issued by companies that generally has a term of ________? A.) less than 1 year B.) 2 to 5 years C.) greater than 5 years D.) trick question - commercial papers is not a debt instrument"

A

"Rapid increases in the CANARY long-term assets to total assets ratio may signal high levels of optionality, as from structured notes or high risk MBS/CMO tranches purchased in anxiety for income. A. True B. False"

A

"The correct description of a bank's 2 rated consumer compliance program is __________. A.) Satisfactory B.) Adequate C.) Generally Strong D.) Generally Satisfactory. "

A

"20. 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 & B

"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

"6. 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 & B

"2. Which two are true regarding a national bank's ability to sell insurance products? (Choose two.) A. Banks may sell insurance products through an operating subsidiary. B. Banks may underwrite title insurance through a financial subsidiary. C. Banks are prohibited from directly selling most types of insurance products. D. Banks may sell insurance products through a financial subsidiary only in a community with a population less than 5,000."

A & C

"44. A bank's liquidity forecast for the next 90 days shows the following projections: Uses of cash Loan growth $2,400,000 Dividend payment $ 600,000 OCC supervisory fee $ 23,000 Sources of cash Maturing investment securities $1,500,000 Loan principal amortization $ 245,000 Additional core deposits $ 700,000 Reduction in cash account $ 578,000 Which two describe the effects of these transactions on the bank's financial condition and performance? (Choose two.) A. the loan to deposit ratio will increase B. the return on asset ratio will decline C. the bank's total assets will increase D. the bank's core deposit to total assets ratio will decline"

A & C

"Which two administrative actions are legally enforceable? (Choose two.) A. Consent Order B. Formal Agreement C. Cease and Desist Order D. Memorandum of Understanding E. Matters Requiring Board Attention"

A & C

"29. 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 & D

"Which two are considered when determining the adequacy of liquidity and the quantity of liquidity risk? (Choose two.) A. the quality of the investment portfolio B. the volatility of the net interest margin C. the liquidity policy and established risk limits D. the bank's ability to meet anticipated funding needs E. the level and impact of basis risk and yield curve risk"

A & D

"1) 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. "

A (12 CFR 9.6)

"3) 12 CFR 9 requires that an audit be performed at least every __________? A) calendar year B) 15 months C) 18 months D) 3 years if audit receives a "1" rating from the OCC E) There is no timing requirement"

A (12 CFR 9.9(a))

"Evaluating interest rate risk from an earnings-at-risk perspective is effective when a bank has what type of positions? A. short-term positions (one- to two-year time frames) B. significant long-term positions (more than five years) C. significant intermediate-term positions (between two and five years) D. short-term and significant long-term positions (more than five years) "

A - Short-term positions (one- to two-year time frames)

"Which statement is true relative to a bank in a ""positive"" gap position? A. The bank is exposed to repricing risk. B. The bank is not exposed to options risk. C. The bank will have a positive net interest income. D. The bank is free of exposure to negative changes in interest rates "

A - The bank is exposed to repricing risk

"What does the duration of a bond attempt to measure? A. The time span over which the yield on a bond is a valid measure of the average rate of growth of value. B. The time span over which the price of the bond can be expected to remain constant. C. The time span over which the yield on the bond can be expected to remain constant. D. The time span over which both the price and yield of a bond can be expected to remain constant. "

A - The time span over which the yield on a bond is a valid measure of the average rate of growth of value. - Duration is a sister concept to yield in the sense that it provides an average time measure of when you will get your cash flows.

"National banks and Federal Saving Associations are subject to the same general lending limits under 12CFR32. A. True B. False"

A - True 12 CFR 160.93 makes FSAs subject to 12 CFR 32

"An audit committee is required for every insured FSA and national bank. A. True B. False"

A - True Pg 7 of the Quick Reference Guide

"Which auditing, reporting, & audit committee requirements apply to all NBs over $500MM in TA? I. An independent public accountant must audit financial statements II. An audit committee composed entirely of outside directors, independent of bank management III. IPAs 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

"The investment portfolio can provide liquidity in which three ways? (Choose three.) A. the maturity of a security B. the sale of securities for cash C. as a reverse repurchase agreement D. as collateral in a repurchase agreement"

A, B & D

"47. Which three of the following are reviewed when identifying volume and trends in funding? (Choose three.) A. funding concentrations B. wholesale funding that may be credit sensitive C. projected funding needs vs. available sources D. reasonableness of established policy limits/guidelines E. impact of funding changes on planning and budgeting processes"

A, B, & C

"33. 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, B, & D

"4. Interest rate risk related reports reviewed by senior management and the Board, or committee thereof, should include which three of the following? (Choose three.) A. the amount of interest rate risk taken B. compliance with established risk limits C. management's strategies relative to wholesale funding dependency D. appropriateness of management's strategies in light of the Board's risk tolerance"

A, B, & D

"36) OCC approval is required for which of the following? A. Issuance of preferred stock B. Issuance of subordinated debt C. Amendment of the articles of association D. Move main office to a branch site within city limits E. Reduce the capital stock of a bank"

A, B, & E

"48. What are three elements that should be included in a bank's contingency funding plan? (Choose three.) A. detailed action plans B. early warning triggers C. deposit pricing surveys D. earnings-at-risk (EAR) reports E. definitions of a crisis (or crises)"

A, B, & E

"49. What are four areas of liquidity management that should be reviewed at a bank with declining asset quality? (Choose four.) A. rollover risk B. legal restrictions C. collateral positions D. concentrations of credit E. contingency funding plans"

A, B, C, & E

"Which three are considered collateralized wholesale funds? (Choose three.) A. public funds B. brokered deposits C. federal reserve advances D. treasury tax and loan accounts "

A, C & D

"18. What are three funding sources included on a Rollover Risk report? (Choose three.) A. FHLB Advances B. Savings Accounts C. Fed Funds Purchased D. Certificates of Deposit E. Money Market Deposit Accounts"

A, C, & D

"16. When evaluating a bank's funds management activities, which three practices or conditions should trigger additional board scrutiny? (Choose three.) A. heavy dependence on volatile liabilities B. modest loan and deposit growth objectives C. concentrations of assets or funding sources D. change in the use of board approved securities dealers E. holding significant amount of assets, liabilities, or off-balance sheet products with embedded options"

A, C, & E

"2. A bank's risk measurement tools should be able to capture the exposure from embedded options. Which three products contain embedded options? (Choose three.) A. structured notes B. U.S. Treasury bonds C. overnight fed funds sold D. mortgage-backed securities E. money market deposit accounts"

A, D, & E

"28. 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, D, & E

"What are three attributes of a ""marketable"" security? A. Is registered under the Securities Act of 1933 B. Is bank stock or a Trust Preferred security of a bank C. Can be purchased at a negotiated price without sustaining a loss D. Can be sold with reasonable promptness at a price that corresponds reasonably to its fair value E. Is offered and sold pursuant to Securities and Exchange Commission Rule 144A and rated investment grade or the credit equivalent "

A, D, and E

"Name all that are public actions against banks. A.) Formal Agreement B.) Memorandum of Understanding C.) Cease & Desist Orders D.) Civil Money Penalties E.) Orders of Investigation "

A,C,D - Refer to PPM 5310-3

"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."

A- Trust Audit Committee (12 CFR 9.9).

"8) 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))

"OCC Bank has a LLL of $750M. Bob Jones, a local farmer, has the following loans from OCC Bank: $500M CRE mortgage; originated 3/1/1995. $25M Demand note secured by $26M in IBM stock; originated 12/1/1999. $100M Personal line of credit secured by $150M in U.S. Treasury Notes; originated 1/5/2000. $250M WC fully advanced line of credit (unsecured); originated 3/31/2000. $250M Livestock loan secured by security interest in dairy cattle; originated 4/1/2000. $250M Livestock loan secured by security interest in pigs; originated 4/2/2000. $188M Amortizing equipment loan secured by farm equipment; originated 3/31/1999. Does the remaining exposure constitute a violation of the LLL? A) Yes B) No"

A-Yes. Though the stock secured demand note and the two livestock loans qualify for additional limits, the remaining exposure totals $938M which exceeds the 15% limit (12 CFR 32.3).

"10. 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. "

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."

"37. 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. "

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.

"During an examination, an examiner instructs the bank to place a loan on nonaccrual. What accounting entry is required? A. Debit Interest Income | Credit Accrued Interest B. Debit Accrued Interest | Credit Interest Income C. Debit ALLL | Credit Cash D. Credit Accrued Interest | Debit ALLL "

A. Debit Interest Income Credit Accrued Interest.

"60. Which bank is required by 12 CFR 363 to have their annual financial statement audited by an independent public accountant? A. bank with total assets 750 million at prior year end B. bank with total assets 750 million at prior year end, a sub of a holding company with audited statements C. bank with total assets 250 million at prior year end, Composite rating 3 D. bank with total assets 250 million at prior year end, Composite rating 1 E. all banks are required to obtain annual audited statements per 12 CFR 363"

A. Discussed in 12 CFR 363.1 and 363.2. Threshold is 500 million. Though not required for smaller banks, the OCC strongly encourages them to obtain audited statement.

"25. Farmers and Merchants National Bank has the following financial data: Net interest income (TE) $5MM Average Earning Assets $100MM Average Interest Bearing $ 70MM Funds (Net of Required Reserves) Total Assets $135MM Total Liabilities $110MM Based upon the above information, the bank's ""Net Interest Margin"" is calculated at: A. 5.00% B. 5.50% C. 6.00% D. 2.00% E. 12.00%"

A. NIM equals net interest income (TE) as a percentage of average earning assets $5MM/$100MM = 5.00%

"38. 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 fair 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 "

A. OCC 2004-25 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 impairment (amortized cost less fair value) in defaulted securities will generally be classified Loss with the Fair Value classified Substandard. An event of default is considered to represent other than temporary impairment.

"33. 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 "

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.

"3. Which of the following is the correct accounting category for ""overdrafts""? A. Asset B. Liability C. Capital D. Operating Account, Expense E. Operating Account, Income"

A. The Call Report definition of an overdraft includes this statement, "Planned overdrafts are to be classified in Schedule RC-C by type of loan according to the nature of the overdrawn depositor. Unplanned overdrafts in depositors' accounts are to be classified in Schedule RC-C as "All other loans."

"30. Because rapid change is often a strong indicator of higher risk, Canary's rate of change measures should receive a higher level of focus and analysis than the static measures. A. True B. False "

A. True. Please refer to Canary PPM 5000-34 (Rev). ROC benchmarks are only calculated for banks that already exceed the static benchmark or are rapidly approaching it.

"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 - Per Call Report Instructions

"A bank with trust powers must retain records on all account for a period of _______ years after the latter of; the termination of the fiduciary account or the termination of any litigation relating to the account. A.) 3 B.) 5 C.) 7 D.) 10 E.) Bank's must establish their own record keeping guidelines and document them in their trust policy. "

A.) 3 - Refer to 12 CFR 9.8

"A bank's investment in Small Business Investment Companies (SBIC) may not exceed ______% of capital and surplus. A.) 5 B.) 10 C.) 15 D.) 25 "

A.) 5 - Refer to the Comptrollers Handbook on Investment Securities and 15 USC 682(b)

"A precious metals "dealer" must have an AML program, however in order to exclude small businesses of the requirement a "dealer" is defined as__________. A.) An entity that purchased or sold more than $50M in precious metals/stones in the prior calendar year. B.) An entity that had sales of greater than $1MM in the prior calendar year. C.) An entity that purchased or sold more than $250M in precious metals/stones in the prior calendar year. D.) An entity without physical presence in a brick and mortar store front. "

A.) An entity that purchased or sold more than $50M in precious metals/stones in the prior calendar year. - Refer to FinCen FAQs - http://www.fincen.gov/statutes_regs/guidance/html/faq060305.html

"There is a $900M loan to a single asset entity owned by three doctors. The doctors will lease 45% of the property for their respective practices and the remainder will be leased out to others. Which is required? A.) Appraisal B.) Evaluation C.) Neither "

A.) Appraisal - the majority of the property generates rental income - Refer to 12 CFR 34.42.

"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

"16. 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."

"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 has significant liquidity d) The bank is asset sensitive"

Answer: 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

"13) 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

"13) What is the risk-weighted asset value for a $100,000 line of credit with a credit conversion factor of 50% and a risk weight of 100%? A. $150,000 B. $50,000 C. $100,000 D. $75,000"

B

"20) What are some of the characteristics of LIBOR? A. Quoted as an interest rate, fixed at 11:00 EST, uses 30/360 as the day count fraction B. Quoted as an interest rate, fixed at 11:00 AM London time, used for floating rate instruments C. Quoted in Sterling Pounds, fixed at 11:00 AM London time, used for swap transactions D. Quoted in US dollars, fixed at 11:00 EST, used for floating rate instruments"

B

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

B

"25) What is the maximum amount of Directors at a Thrift Institution? A. 5 B. 15 C. 20 D. 25 E. None of the above."

B

"26. Liquidity is obtained from what source? A. gap report B. balance sheet C. loan trial balance D. income statement"

B

"27) Which of these lines typically do not require collateral? A. A fed line for a troubled bank. B. An overnight line from a correspondent bank. C. A federal home loan term line. D. None of the above"

B

"28) What investments are reported in RC-B of the call report? A. Federal Home Loan Bank B. Fannie Mae Mortgage Backed Securities C. Federal Reserve Stock D. All of above"

B

"28. What would cause a bank's net interest margin to decline? A. asset sensitive and rates are rising B. liability sensitive and rates are rising C. asset sensitive and rates are steady D. liability sensitive and rates are declining E. assets and liabilities are matched and rates are steady"

B

"31. 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

"32) A director of a FSA must be a citizen? A. True B. False"

B

"32. ABC National Bank reports a significant volume of structured FHLB advances on its quarterly call report. These liabilities are a source of which element of interest rate risk? A. Basis Risk B. Options Risk C. Repricing Risk D. Yield Curve Risk"

B

"33) A national bank and an FSA do not have to deduct deferred tax assets in calculating the tangible equity ratio under PCA. A. True B. False"

B

"34) Revenue bonds are backed by the issuers taxing authority with the promise to pay off the bonds from tax receipts. A. True B. False "

B

"35) In constructing a Cash Flow Statement, which of the following is not considered an outflow of cash? A. Increase in assets B. Decrease in assets C. Decrease in liabilities D. Decrease in equity E. None of the above"

B

"39) From which capital account are dividends paid? A. Common Stock B. Undivided profits C. Surplus D. Perpetual preferred stock"

B

"40) Is an affiliate violating 12USC371c by selling a criticized loan to another affiliate? A. Yes B. No C. Only if the asset was classified prior to the bank's commitment to buy it."

B

"42) 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

"50. ABC National Bank reported the following on its June 200x Call Report: -Goodwill Impairment: $ 300 -Total Overhead Expense $ 4,757 -Total Interest Income (TE) $ 6,536 -Total Interest Expense $ 1,940 -Non Interest Income $ 3,047 What is the bank's efficiency ratio? A. 58.3% B. 62.2% C. 66.2% D. 69.9%"

B

"6) Identify the item that does not explain how control is determined for purposes of 12USC371c. A. Control, in any manner, of the election of a majority of directors or trustees. B. Direct or indirect ownership, voting powers or control of 19% of the stock. C. Influence over management or policies, as determined by the Board of Governors. D. Either direct or indirect ownership, voting power or control over 25% of the voting securities."

B

"7) What is the result of multiplying the value of an off-balance sheet activity or item by its conversion factor (1, 20, 50, 100 percent)? A. A risk-weighted asset value. B. A credit equivalent to the off-balance sheet activity of item. C. The amount of the bank's exposure one-year from now. "

B

"8) What is the essential difference between US T-notes and US T-bonds? A. T-notes are backed by the full faith and credit of the US government; T-bonds are not. B. T-notes are issued in maturities of up to 10 years; T-bonds have original maturities of more than 10 years. C. T-notes are settled on the business day following trade; T-bonds follow a skip settlement convention. D. There is no difference; the two are synonymous."

B

"8. On June 1, 20X1, a bank purchased a 4% government coupon bond due December 31, 20X4, with interest payable semiannually on June 30 and December 31. Accrued interest was included in the purchase price and debited correctly on the general ledger. On which date should the accrued ""interest on bonds purchased"" account first be credited? A. June 1, 20X1 B. June 30, 20X1 C. December 31, 20X1 D. June 30, 20X2 E. December 31, 20X4"

B

"9) 12CFR215 outlines acceptable parameters for paying overdrafts of an executive officer or director of the bank. Which of the following is not an acceptable parameter? A. Written pre-authorization for transfer of funds from another account of the account holder at the bank. B. Waiver of service charges on overdrafts. C. Inadvertent overdrafts of less than $1,000. D. Paying overdrafts of principal shareholders"

B

"9. 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

"Government debentures and asset-backed government bonds are Type 1 securities. A. True B. False"

B

"If over the next year, a bank has 20MM in assets repricing and 42MM in liabilities repricing, the bank is considered: A. Asset sensitive B. Liability sensitive C. Match funded D. Insolvent E. Unprofitable"

B

"In relation to the allowance for loan losses, a bank may not assign a level of estimated credit losses to loans designated "pass," as this designation indicates there is no potential loss in the loan. a) True b) False "

B

"On what date was the OTS integrated into the OCC? A. January 1, 2012 B. July 21, 2011 C. September 30, 2011 D. July 1, 2011"

B

"22. 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 & C

"8. The Asset/Liability Management Committee (ALCO) usually manages the structure of the bank's business and the level of interest rate risk it assumes. Which two items are true relative to the function of this committee? (Choose two.) A. the ALCO committee must meet at least once per month B. ensures that measurement systems adequately reflect the bank's exposure C. representatives must include the bank's President and Chief Financial Officer D. includes representatives from each major section of the bank that assumes interest rate risk"

B & D

" The Electronic Funds Transfer Act (EFTA) is intended to protect individual consumer engaging in EFTs. Identify all that are not considered an account for purposes of the EFTA. A.) Payroll card account B.) Escrow accounts C.) Savings accounts D.) Accounts held in a bona fide trust agreement "

B & D - Refer to the Comptrollers Handbook on the Electronic Funds Transfer Act.

"Choose all that are correct - The Business Operations Test requires FSAs business to consist primarily of: A) Maintaining investment grade securities B) Acquiring the savings of the public C) Effectively managing risk associated with long term assets D) Investing in loans "

B & D - refer to the Qualified Thrift Lender, Comptrollers Handbook.

"30. ABC National Bank's investment portfolio consists of the following: 10-year U.S. Treasury Notes U.S. government agency step-up bonds Fixed-rate mortgage-backed pass through securities (MBS) Which two are true, given a significant and sustained increase in overall market rates? (Choose two.) A. the treasury notes would appreciate B. the treasury notes would become negatively convex C. the weighted average life of the treasury notes would not change D. the coupon rate on the agency bonds would immediately increase E. the prepayment speed on the MBS pass through bonds would decline"

B & E

"21) 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)

"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

"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

"An effective interest rate risk model validation process must address which components? A. information input, processing, and recovery B. information input, processing, and reporting C. information reporting, recovery, and simulation D. information processing, reporting, and duration "

B - Information input, processing, and reporting

"What would cause a bank's net interest margin to decline? A. asset sensitive and rates are rising B. liability sensitive and rates are rising C. asset sensitive and rates are steady D. liability sensitive and rates are declining E. assets and liabilities are matched and rates are steady "

B - Liability sensitive and rates are rising

"The term ""evergreen loan"" refers to: A. A loan to a Christmas tree farmer B. Loans which receive no principal reduction C. A loan to a wholesale nursery D. A loan which is past due for interest"

B - Loans which receive no principal reduction

"24. Which statement is correct: A. MOU, Formal Agreement and civil money penalties are formal administrative actions B. Formal enforcement actions are public C. Board Resolution, Commitment Letter and Capital Directive are informal administrative actions D Formal Agreement and Cease and Desist Orders are enforceable in federal court E. A and B are correct "

B Formal enforcement actions are published monthly by the OCC. An MOU is an informal action. Capital Directive is a formal action. Formal Agreement is not enforceable in federal court. OCC may assess CMPs for noncompliance with a formal agreement. Refer to An Examiner's Guide to Problem Banks, pages 28-32.

"27. 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, C, & D

"41. When assessing liquidity risk management, which three reflect prudent oversight and internal controls? (Choose three.) A. reporting to the board annually B. validating systems periodically C. verifying that duties are properly segregated D. monitoring compliance with established limits"

B, C, & D

"45. 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 administrative policies and procedures"

B, C, & D

"3. 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, C, & E

"Which three loans are required to be on nonaccrual? A. A residential real estate loan is 95 days PD, but the borrower has been making timely payments for five months. B. CRE loan with a LTV of 50% is PD 119 days. The borrower filed for bankruptcy and repayment is uncertain. C. An unsecured commercial loan is 87 days PD and they anticipate payment from an insurance settlement in 30 days. D. A commercial loan is 85 days PD. Collateral is sufficient to cover the loan's principal balance, but the bank expects to charge-off $3M in interest and $400 in accrued late charges. E. A $20M single-payment commercial note secured by machinery and equipment has renewed annually for the last 10 yrs with no principal reduction. The loan is current, but the relationship is rated substandard."

B, D & E

"1. Which three areas should be included in the scope of an examination when looking for suspected fraud? (Choose three.) A. concentrations of credit report B. correspondent/clearing accounts C. investment securities trial balance D. areas or activities dominated by one individual E. other asset, other liability, and other expense accounts"

B, D, & E

"12. National banks are required to develop and implement a security program that equals or exceeds the standards prescribed in 12 CFR 21 - Subpart A, Minimum Security Devices and Procedures. One of the minimum security devices is a vault. What are three other security devices all national banks must have at the main office and every branch? (Choose three.) A. bait money B. an alarm system C. surveillance cameras D. tamper resistant locks E. a lighting system if the vault is visible outside the banking office"

B, D, & E

"17. 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, D, & E

"43. 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 "

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

"21. What are three test measurements of potential price volatility and extension/contraction risk for mortgage derivative products (MDPs)? (Choose three.) A. Option adjusted spread (OAS) should not exceed 100 basis points. B. Weighted average life (WAL) using base prepayment speeds should not exceed 10 years. C. Price change cannot exceed 17% with a +300 basis point immediate shift in the Treasury curve D. Positive convexity should not exceed 10% with a +300 basis point immediate shift in the Treasury curve. E. WAL cannot extend greater than 4 years or contract by more than 6 years given +300 basis point shifts in the Treasury curve. "

B, D, & E

"OCC Bank has a LLL of $750M. Bob Jones, a local farmer, has the following loans from OCC Bank: $500M CRE mortgage; originated 3/1/1995. $25M Demand note secured by $26M in IBM stock; originated 12/1/1999. $100M Personal line of credit secured by $150M in U.S. Treasury Notes; originated 1/5/2000. $250M WC fully advanced line of credit (unsecured); originated 3/31/2000. $250M Livestock loan secured by security interest in dairy cattle; originated 4/1/2000. $250M Livestock loan secured by security interest in pigs; originated 4/2/2000. $188M Amortizing equipment loan secured by farm equipment; originated 3/31/1999. 7) What is the total of the loans which are subject to LLL? A) $1,563M B) $1,463M C) $1,438M D) $938M E) $850M"

B-$1,463M. Only the loan secured by U.S. Government Obligations is exempt from the calculation.

"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. Management fully funds the construction loan bringing the total outstandings to $3,000M. What is the amount of potential directors liability? A) $3,000M B) $1,000M C) $500M D) There is no personal liability. E) Liability is decided by the courts."

B-$1000M. Director liability is defined by the loan that caused the violation of the LLL (1987 Directors Handbook).

"7) 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)(1)) Though the lures were purchased at public auction, the executor can exercise control over the timing and advertisement of the estate auction.

"6) 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))

"5) 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)

"5) 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).

"3) 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).

"5. 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% "

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."

"Define Subsidiary: A. Reporting of assets and liabilities on a net basis in the balance sheet. B. An organization owned entirely, or only part, by a bank. C. An existing condition, situation, or set of circumstances that involves uncertainty as to possible loss that will be resolved when one or more future events occur or fail to occur. D. A bank that owns another organization. "

B. An organization owned entirely, or only part, by a bank.

"An appraisal prepared by a fee appraiser can be addressed to either the bank or the borrower. A. True B. False "

B. False - 12CFR34.45

"In the event of a merger between two national banks where only one of the banks had fiduciary powers prior to the merger, the institution must submit a new application and obtain OCC approval in order to continue their fiduciary services. A.) True B.) False"

B. False - Refer to 12 CFR 5.26. for the answer and 12 CFR 9 for more information pertaining to Fiduciary Activities of National Banks.

"Which conclusion can be drawn from a downward sloping yield curve? A. Market expectations are that interest rates will rise. B. Market expectations are that interest rates will decline. C. The demand for long-term investments will remain stable. D. Yields are higher on long-term investments than short-term investments "

B. Market expectations are that interest rates will decline.

"26. Effective conduct of an examination requires proper planning prior to its start. Planning an exam is best accomplished through pre exam analysis and review to: I. Establish objectives II. Determine examination scope III. Identify key activities IV. Draw overall examination conclusions V. Perform substantive testing A. All of the above. B. I, II and III C. I, II, III and IV D. III, IV and V E. II and III only "

B. Please refer to the Comptroller's Handbook - Examination Planning and Control

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

B. Preventive

"36. 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 "

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

"29. 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. "

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.

"46. 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."

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.

"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

"54. 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 "

B. The types of CPA opinions are discussed in the Comptrollers Handbook - Internal and External Audit. 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.

"A principal shareholder is a person who directly, indirectly or in concert with one or more persons has more than ______ percent of any class of voting shares. A.) 5 B.) 10 C.) 15 D.) 20 "

B.) 10 - Refer to the Comptroller Handbook on Insider Activities as well as 12 CFR 215.2 (Reg. O)

"Under the Small Market Share Exemption, two unaffiliated banks can be exempt from the Management Interlock Prohibition if together they control no more than ______ of the deposits in their communities. A.) 15% B.) 20% C.) 25% D.) 30% "

B.) 20 % - Refer to 12 CFR 26 as well as the Management Interlock Comptroller Licensing Manual

"The supervisory LTV limit on raw land is ________. A.) 60% B.) 65% C.) 70% D.) 75% "

B.) 65% - Refer to 12 CFR 34 Subpart D Appendix A

"Commercial & multi-family construction loans are subject to a SLTV of ______% while construction loans for 1-4 family properties are subject to a SLTV of ________%. A.) 75, 85 B.) 80, 85 C.) 80, 90 D.) 75, 90 "

B.) 80,85 - Refer to 12 CFR 34 Subpart D Appendix A.

"If there is a short term loan to a farmer for $750M to cover operating expenses that is secured by farmland, which is required: A.) Appraisal B.) Evaluation C.) Neither "

B.) Evaluation - Refer to 12 CFR 34.43

"A bank made a $120M loan to a borrower in 2018 to purchase a parcel of land and build 30 storage units. The loan is secured by the real estate, and the bank obtained an evaluation. In 2020, the bank advanced another $125M under a second note to add another 30 storage units on the property. An evaluation was again prepared. In 2022, the bank plans to add another group of storage units to the property under a new $330M note. The bank will have three separate notes whose balances will total about $575M secured by real estate mortgages on the property. Is an appraisal or evaluation needed for the last loan? A.) Appraisal B.) Evaluation C.) Neither"

B.) Evaluation - These transactions are not aggregated for purposes of determining the need for an appraisal/evaluation. They are individual transactions and are each under $250M. Additionally, each subsequent loan provided additional collateral and source of repayment. See 12 CFR 34.43.

"OCC Bulletin 2006-46 establishes that banks may not exceed loans for construction & land development in excess of 100% of total capital or total CRE loans in excess of 300% of total capital. A.) True B.) False"

B.) False - The thresholds listed above are not limits but are points at which the institution would be considered to have a CRE concentration and should employ heighted risk management practices. The guidance describes sound risk management practices that enable institutions to pursue CRE lending in a safe and sound manner.

"Which of the following is not one of the basic objectives of a sound investment policy? A.) Minimizing risk. B.) Maximizing return. C.) Providing for adequate liquidity. D.) Meeting pledging requirements. "

B.) Maximizing return. - Rather, generating a favorable return on investments without undue compromise of the other objectives is the true objective. Refer to the Comptroller Handbook on Investment Securities.

"Which is correct? A.) Loans originated in excess to SLTV limits should be aggregated and reported to the board at least quarterly for the life of the loans in order to measure the inherent level of risk from their underwriting. B.) Loans originated in excess to SLTV limits should be aggregated and reported to the board at least quarterly until either principal reduction or equity improvement brings the LTV to within supervisory limits. "

B.) Refer to 12 CFR 34 Subpart D, Appendix A

"Which is correct? A.) The ASC 450-20 reserve addresses the Bank's impaired loans while the ACS 310-10 reserve is the general allocation for non-impaired loans pooled by characteristic type. B.) The ASC 450 reserve is the general allocation for non-impaired loans pooled by characteristic type while the ASC 310-10 reserve addresses the Bank's impaired loans. "

B.) The ASC 450 reserve is the general allocation for non-impaired loans pooled by characteristic type while the ASC 310-10 reserve addresses the Bank's impaired loans.

"The initial loss on a loan should be charged to __________. A.) Non Interest Expenses B.) The allowance C.) Other Expenses D.) The teller kitty "

B.) The allowance - Refer to the Comptroller's Handbook "Allowance for Loan and Lease Losses" adjustments to the allowance section

"Obligations of international and multilateral development banks and organizations as listed in 12 USC 24 are considered _________. A.) Type I Securities B.) Type II Securities C.) Type III Securities D.) Type IV Securities E.) Type V Securities "

B.) Type II Securities - Refer to 12 CFR 1.2

"A bond issued to for a University is likely a __________. A.) Type I Security B.) Type II Security C.) Type III Security D.) Type IV Security "

B.) Type II Security - Refer to 12 CFR 1

Bank A purchases a MBS from bank B on a recourse basis. Which bank carries the risk of mortgage default?

Bank B - Refer to the Examiners Quick Reference guide mortgage banking section as well as the Comptrollers Handbook on Mortgage Banking

"Which of the following is not enforceable in a federal court? A. Cease and Desist order B. Formal Agreement C. Memorandum of Understanding D. Both B & C"

Both B & C

" 32. Which statement is true regarding the board's responsibility to monitor bank operations? A. The board should ensure that it fulfills the monitoring requirements set by management. B. The board may delegate responsibility for monitoring the bank's operations to competent management. C. The board should ensure that management understands and carries out board policies and directives. D. The board should develop and approve daily operating procedures and policies and delegate responsibility to management to ensure implementation."

C

"10. Under which circumstance would a bank have appreciation in its investment portfolio? A. inflation B. business cycle recovery C. declining interest rate environment D. increase in supply of similar bonds E. when book value is greater than market value"

C

"11. John is a commercial loan officer for ABC National Bank. John recently approved a loan, and today he prepared a $75,000 loan proceeds check. John signed the check and delivered it to the borrower. A few hours before delivering the check, John filed the security agreement at the County Clerk's office. What is a true statement about this scenario? A. At least two bank officers should sign all large checks. B. For proper perfection, security agreements must be filed at least three days before loans are funded. C. The bank's loan procedures lack dual control because the loan officer signed the loan proceeds check. D. To mitigate the risk of negotiable instruments, the loan proceeds should be deposited into the borrower's account."

C

"13. XYZ bank is a $250 million bank located in a Metropolitan Statistical Ares (MSA). Which of the following loans must XYZ Bank report for Home Mortgage Disclosure Act (HMDA) purposes? A. A $100,000 six-month loan to finance construction of the borrower's principal residence B. A $150,000 home purchase loan that XYZ Bank obtained through its merger with ABC Bank C. A $25,000 home improvement loan secured by a 2nd lien on the borrower's principal residence D. A $50,000 loan to purchase land, upon which the borrower will later construct a personal residence"

C

"15. Which situation describes a bank where evaluating interest rate risk solely from an earnings perspective may be insufficient? A. A bank has a small volume of mortgage servicing assets. B. A bank prices its loans using only one index (e.g. prime rate). C. The majority of the bank's assets reprice or mature in more than five years. D. A bank's investment portfolio contains a large percentage of short-term U.S. Treasury securities. E. A bank's interest rate risk measurement tools have not been independently validated in over one year."

C

"21) 12USC29 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. Two additional years only B. Three additional years only C. Five additional years only D. There is no limit with OCC approval"

C

"23) YTM differs from the zero coupon rate because: A. It can be used to calculate yields on annuities. B. It is appropriate for cash flows of maturities greater than five years. C. It is single discount rate through maturity. D. It cannot be accurately calculated."

C

"25. 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

"26. 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

"30. 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

"31) What mortgage banking risk arises when national banks or FSAs have long-term fixed-rate cost commitments in facilities and personnel that cannot be reduced in periods of lower production volume? A. Prepayment Risk B. Transaction Risk C. Operational Flexibility Risk D. Credit Risk"

C

"35. 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

"35. Which 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. E. A majority of the bank's deposits are certificates of deposit over $100,000."

C

"37. What is included in money market assets? A. municipal securities B. acceptances and other assets C. fed funds sold with overnight maturity or term maturity within 30 days D. fed funds purchased with an overnight maturity or term maturity within 30 days"

C

"7. Effective Board and senior management oversight of the bank's interest rate risk activities is the cornerstone of an effective risk management process. What is the responsibility of the Board of Directors? A. establish effective internal controls B. develop and implement procedures and practices C. establish and guide the bank's direction and tolerance D. oversee the implementation and maintenance of management information systems"

C

"8) If a material event occurs between Call Reports that results in a lowering of the PCA category, the bank is required to notify its supervisory office within _______ days? a) immediately b) 10 c) 15 d) 30 e) 45"

C

"9. ABC National Bank is considering the purchase of a $1,000,000 collateralized mortgage obligation (CMO). Which tranche should be considered if their goal is to maximize cash-flow certainty? A. Z-tranche B. companion tranche C. planned amortization class (PAC) tranche D. targeted amortization class (TAC) tranche"

C

"The four pillars of a bank's BSA program are: A.) Officer, MIS, Board Supervision and Training. B.) Officer, Training, Board supervision and Internal Controls. C.) Officer, Training, Internal Controls and Independent Testing. D.) Officer, Training, Board Supervision, Independent Testing."

C

"What is the risk rating of a closed end loan 92 days past due? A. Pass B. Special mention C. Substandard D. Doubtful E. Loss "

C

"34. Which two benchmarks are used to measure liquidity risk? (Choose Two.) A. fixed assets to total assets B. average yield on loan portfolio C. non-core funding dependence D. short-term liabilities to total assets E. nonmaturity deposits to long-term assets"

C & D

"When evaluating the quality of interest rate risk management practices, which two are included in the OCC's examination procedures? (Choose two.) A. Determine whether the contingency funding plan has been approved by the Board. B. Determine whether the limits set for net interest income-at-risk exceed OCC guidelines. C. Determine whether the major assumptions used for measuring earnings-at-risk are reasonable. D. Determine whether the major assumptions used for measuring economic value-at-risk are reasonable. "

C & D

"Which are not typically true of a Mutual? A.) Do not issue dividends B.) Tend to have higher capital levels and somewhat lower earnings C.) Have lots of stock holders D.) Can generally increase capital quickly "

C & D - Refer to the National Bank/Federal Saving Association Quick Reference Guide. Download the most recent version (June 2013) here http://occnet.occ/human-resources/training/training-guidance-by-audience/examiners/commissioned/quick-reference-guide.pdf The Quick Reference Guide has a lot of great information!

"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

"What's the minimum amount of stockholders in a Mutual FSAs? A) 15 B) 5 C) 0 D) 20"

C - 0 This was a trick question, as Mutual FSAs do not have stockholders.

"For the quality of IRR management, what is characteristic of a satisfactory rating? A. EAR is measured as well as EVE when significant longer-term or options risk exposure exists. No weaknesses are evident. B. MIS provide timely, accurate, and complete information on IRR to appropriate levels in the bank. No weaknesses are evident. C. MIS are adequate, and provide complete information on IRR to appropriate levels of management. Minor weaknesses may be evident. D. Management demonstrates a thorough understanding of IRR. Management anticipates and responds appropriately to adverse conditions or changes in economic conditions "

C - Management information systems are adequate, and provide complete information on IRR to appropriate levels of management. Minor weaknesses may be evident.

"Although branch managers are not included in Regulation O to be executive officers, by definition, under which of the following condition would a branch manager be considered an executive officer? A. A branch manager who reports directly to the BOD. B. A branch manager who has lending authority of $2MM or more. C. A branch manager who exerts significant influence in policy-making functions. D. A branch manager who has 10 years of experience in that position."

C - Per 12CFR 215, anyone who participates in major policy-making functions of the bank is an executive officer, title or no title.

"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 a Prohibited Basis under the Fair Housing Act? I. Familial status II. Receipt of Public Assistance III. Handicap IV. Color 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 - Fair Housing Act, Section 805

"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

"14. 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, D, & E

"19. What are three factors that should be considered in assessing the credit sensitivity of a bank's liability base? (Choose three.) A. the bank's cost of interest-bearing funds B. the level and trend of non-maturity deposits C. the availability of desired collateral or insurance D. the sophistication and financial savvy of funds providers E. the availability of information on a bank's financial condition and asset quality performance"

C, D, & E

"9) What is the amount of director liability? A) $188M B) $938M C) $250M D) $500M E) There is no violation so no liability exists."

C-$250M. Working in reverse chronological order, this was the loan that caused the violation.

"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 "

C. - 12 CFR 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."

"40. 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 $200M, Tier 1 & ALLL $1,600M, investment portfolio $60MM. How much can the institution invest in this type of security. A. No limit - just prudent judgement B. $160M or 10% of Capital C. $80M or 5% of Capital D. $3MM or 5% of the total investment portfolio. E. The bank cannot invest any amount of its capital in securities based on reliable estimates."

C. 12 CFR 1.3(i) states the limitation as 5 percent of the bank's capital and surplus.

"53. 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."

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.

" A loan to a corporation will be deemed to have been made to an insider if the corporation is a "related interest" of the insider. i.e. the insider owns at least _____% of voting shares or has the power to exercise controlling influence over the company. A.) 5 B.) 10 C.) 25 D.) 51"

C.) 25 - Refer to 12 CFR 31, App. B

"A loan to a corporation will be deemed to have been made to an insider if the corporation is a "related interest" of the insider. i.e. the insider owns at least _____% of voting shares or has the power to exercise controlling influence over the company. A.) 5 B.) 10 C.) 25 D.) 51 "

C.) 25 - Refer to 12 CFR 31, App. B

"34. 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. "

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.

"21. A collection of programs and routines associated with a computer that facilitates the programming and operation of the computer is best described as: A. Hardware B. Source Documents C. Software D. Disk Drive/Tape Drive E. None of the above"

C. FFIEC Information Systems Handbook, Pg 454, defines software as "a collection of programs which govern the operation of a computer system and makes the hardware run."

"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

"An advantage of the use of hot sites as a backup alternative is: A. The costs associated with hot sites are low. B. Hot sites can be used for an extended period of time. C. Hot sites can be made ready for operation within a short period of time. D. They do not require that equipment and systems software be compatible with the primary site. "

C. Hot sites can be made ready for operation within a short period of time

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

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.

"35) 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.

"Loans to an insider greater than _________ of capital require prior board approval. A.) $5,000 or 5% B.) $10,000 or 5% C.) $25,000 or 5% D.) $50,000 or 10% E.) $100,000 or 10% "

C.) (The greater of) $25,000 or 5% (aggregated balances) - Refer to 12 CFR 215.4

"A $300MM bank must reserve what percentage for transaction accounts between the following amounts: $0 - $12.4MM, Greater than $12.4MM - $79.5MM, Greater than $79.5MM A.) 0%, 10%, 5% B.) 3%, 5%, 10% C.) 0%, 3%, 10% D.) 0%, 5%, 10% "

C.) 0%, 3%, 10% - Refer to 12 CFR 204.4

"Commercial loans may total up to _______% of total assets in a Federal Savings Association. A.) 7.5% B.) 10% C.) 20% D.) 25% "

C.) 20% - Provided that amounts in excess of 10% of total assets may be used only for small business loans. Exceptions for certain loans to insured financial institutions, brokers and dealers are allowed. Refer to 12 CFR 160.

"Up to what limit can a thrift lend on nonresidential real property loans? A.) 75% of total capital B.) 150% of total capital C.) 400% of total capital D.) Thrifts are not allowed to make nonresidential real property loans. "

C.) 400% of total capital - 12 CFR 160.30

"Which is not a time when the bank should calculate their investment limits? A.) Last day of the preceding quarter end. B.) The date of a change in the capital category. C.) First day of a new quarter. D.) As frequently as the OCC determines necessary for institutions where there is a safety and soundness need for it to be done more often than quarterly. "

C.) First day of a new quarter. Refer to 12 CFR 1.4

"The OCC identifies banks with significant CRE concentration risk as bank's that have construction & land/land development loans of 100% of Total Risk Based Capital (TRBC), total CRE loans of 300% of TRBC and bank's who's portfolio __________. A.) Contains predominately non owner occupied properties. B.) Contains more than 75% of TRBC in condo loans. C.) Has increased by 50% or more during the prior 36 months. D.) Has increased by 35% or more during the prior 24 months. "

C.) Has increased by 50% or more during the prior 36 months. - Refer to OCC Bulletin 2006-46

"If credit is denied based on information obtained from a credit reporting agency the bank must________. A.) Mail a copy of the credit report to the customer within 15 business days. B.) Note the denial in a log of adverse credit decisions and submit to the CFPB annually. C.) Inform the customer that information in the report was used in the credit decision. D.) Provide credit counseling. "

C.) Inform the customer that information in the report was used in the credit decision. - Refer to the Comptrollers Handbook, Fair Credit Reporting edition.

"1. 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

"12) ABC National Bank frequently makes loans to a subsidiary, First Bank of Connor. In determining if these transactions are restricted or exempted by 12USC371c, what do you need to know? A. Nothing - the transactions are exempt because the affiliate is a bank. B. Nothing- they're not affiliates. C. The amount of common stock and surplus at ABC NB. D. The percentage of voting stock that ABC owns in FNB Connor. E. The amount of common stock and surplus at FNB Connor."

D

"17) 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

"18) Technology management should be considered in which of the following risk assessments? A. Operational B. Compliance C. Strategic D. All of the above"

D

"19) 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

"20) 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

"24) What values are used to calculate noncore funding dependence? A. Non-core liabilities, short-term assets, and deposits B. Total liabilities, short-term investments, and long term assets C. Total liabilities, short-term investments, and deposits D. Non-core liabilities, short-term investments, and long term assets"

D

"27) 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

"38) There are four phases in the interest rate cycle: anticipatory, expansionary, recessionary, and stable growth. What phase(s) is/are linked to rising interest rates? A. Recessionary only B. Expansionary only C. Anticipatory and recessionary D. Anticipatory and expansionary"

D

"4. 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

"44) 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

"Which is not part of 12 USC 1464 (Section 5(c) of "Home Owners' Loan Act") A. Authorizes FSAs to make an investment in, purchase, sell, participate in, or otherwise deal in all loans and investments within certain limits. B. Calls for safe, sound standards and portfolio diversification. C. Limits loan/investment by category D. Allows FSAs to lend above the limits set in 12CFR32, if the loan qualifies for first time home buyer."

D

"4) The 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).

"2) 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 (12 CFR 9.5)

"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 USGA C. 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. D. A $1,200,000 loan to purchase CRE that is not dependent on the sale of, or rental income derived from, the subject real estate as the PSOR. "

D - 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.

"A borrower's ability to repay a loan is best measured by: A. net income B. profitability ratios C. leverage ratios D. cash flow"

D - Cash Flow

"Which of the following business entities may not file for an exempt status under the BSA? A. Bars/restaurants B. Retail businesses C. Government agencies D. Commodity brokers/dealers"

D - Commodity brokers/dealers

"What is the 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

"ABC National Bank is a local, family owned bank. Its asset size is $150MM, with growth primarily centered in loans. With the recent increase in rates, the bank's net interest margin has increased. What would cause this increase? 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 "

D - The bank is asset sensitive

"ABC Bank has structured its balance sheet so that it is significantly liability sensitive. In recent months, the Federal Reserve has taken steps to stimulate the economy. Given the bank's balance sheet and the Federal Reserve's actions, what can you expect? A. earnings will not change as a result of the Fed's actions. B. earnings will increase because the Fed's actions will result in increasing interest rates. C. earnings will decrease because the Fed's actions will result in increasing interest rates. D. earnings will increase because the Fed's actions will result in decreasing interest rates."

D - The bank's earnings will increase because the Fed's actions will result in decreasing interest rates.

"Which represents a use of bank funds? A. acquiring deposits B. increasing the ALLL C. issuing additional capital D. increasing investment securities E. reducing commercial loan balances"

D - increasing investment securities

"When assessing a bank's economic exposure to interest rate risk, what is considered? A. risk to reported earnings B. price risk C. net interest income at risk D. risk to market value of portfolio equity"

D - risk to market value of portfolio equity

"Retail funding consists of what types of deposits? A. those that a bank receives through third parties B. those that a bank receives from governmental units C. those that a bank receives from other financial institutions D. those that a bank receives from consumers and small businesses "

D - those that a bank receives from consumers and small businesses

"41. 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 "

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.

"35. 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. "

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.

"4. 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."

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.

"23. 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 "

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.

"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

"42. 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."

D. OCC Bulletin 98-20 states that failure to understand and adequately manage risks inherent in investment activities constitutes an unsafe and unsound practice. If a practice is unsafe and unsound, it is exposing the bank to increased risks. The Director's Book discusses 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.

"22. 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"

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).

"45. 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 "

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

"27. 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. The size of the board of directors has no impact on the management rating assigned.

"What is the maximum limit of loans to all insiders of the bank? A.) $5 million or 50% of Capital plus the allowance, whichever is lower. B.) $10 million or 100% of Capital plus the allowance, whichever is higher. C.) 50% of Capital plus the allowance. D.) 100% of Capital plus the allowance. "

D.) 100% of Capital plus the allowance. - Refer to 12 CFR 215.4

"What is the maximum limit of loans to all insiders of the bank? A.) $5 million or 50% of Capital plus the allowance, whichever is lower. B.) $10 million or 100% of Capital plus the allowance, whichever is higher. C.) 50% of Capital plus the allowance. D.) 100% of Capital plus the allowance. "

D.) 100% of Capital plus the allowance. - Refer to 12 CFR 215.4

"For loans secured by warehouse receipts covering readily marketable staples, a bank's exposure to one borrower may not exceed ______ percent of capital. A.) 10% B.) 15% C.) 20% D.) 35% "

D.) 35% - Refer to 12 CFR 32.3

"A bank's interest rate risk model should _________. A.) Have an independent data entry function B.) Have non-maturity deposits repricing immediately C.) Be adjusted by management until it displays the level of risk they believe is in the bank D.) Be subject to independent validation"

D.) Be subject to independent validation. Refer to OCC Bulletin 2011-12 for more information regarding interest rate risk models.

"Which is not a responsibility of the Board regarding interest rate risk? A.) Establish/guide the bank's strategic direction and tolerance. B.) Monitor the Bank's performance and overall IRR profile. C.) Ensure adequate resources are devoted to IRR management. D.) Choosing each of the bank's individual investments. E.) All are the responsibility of the Board. "

D.) Choosing each of the bank's individual investments. - Refer to the Comptroller Handbook on Interest Rate Risk.

"An effective internal controls systems should provide for all of the following except: A.) An organizational structure with clear lines of authority for monitoring adherence to established policies. B.) Timely and accurate financial and operational reports. C.) Adequate procedure to safeguard assets. D.) Ensure controls allow at least one member of senior management full access to systems, codes and overrides. "

D.) Ensure controls allow at least one member of senior management full access to systems, codes and overrides. - Refer to 12 CFR 30 Appendix A.

"Unplanned overdrafts are to be reported as past due if the account ______. A.) Is overdrawn at the end of the reporting cycle. B.) Is overdrawn 15 days or more C.) Is overdrawn 20 days or more D.) Is overdrawn 30 days or more"

D.) Is overdrawn 30 days or more - Refer to the Call Report Instructions, schedule RC-N definition (5).

"What must a bank do prior to issuing a dividend that would cause the bank's capital ratios to be considered "Undercapitalized" per Prompt Corrective Action? A.) Obtain unanimous approval of the Board of Directors. B.) Obtain permission from the supervisory office. C.) Both A and B. D.) They may not issue the dividend. "

D.) They may not issue the dividend. - Refer to 12 CFR 5.65

"24) 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

"XYZ National Bank is a composite 2 rated bank with the following capital ratios: Tier 1 Leverage 3.21% Tier 1 RBC 3.95% Total RBC 7.78% Under Part 6-Prompt Corrective Action (PCA), what is the bank's capital category? A. well-capitalized B. undercapitalized C. adequately capitalized D. critically undercapitalized E. significantly undercapitalized"

E - sig capitalized (updated 9/17/16)

True or False - All banks exceeding the annually published asset threshold must collect Home Mortgage Disclosure Act (HMDA) data.

False - Banks not located in an MSA are not required to collect the information. Refer to the Comptroller's Handbook on the Home Mortgage Disclosure Act.

"10) 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 scenerio 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.

"59. What types of reviews are required for trust accounts for which the bank exercises investment discretion? A. Initial post-acceptance review. B. Annual review. C. Pre-acceptance review. D. Both B and C, but not A. E. A, B, and C."

E. 12 CFR 9.4 states that for a fiduciary account where the bank exercises investment discretion, the bank must complete a review before accepting the account, a prompt review of assets upon acceptance of the account, and a review of account assets each calendar year.

"48. 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"

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 $570M.

"14. 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.

"49. The bank under your examination 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."

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.

"Which is not a requirement of a bank's appraisal review process? A.) Determine the reasonableness of valuation methods. B.) Determine the reasonableness of assumptions. C.) Determine the reasonableness of data sources used. D.) Determine whether appraisal deficiencies must/can be resolved to support a value and if a new appraisal is required. E.) All are expected. "

E.) All are expected of a bank's appraisal review process. - Refer to OCC Bulletin 2010-42 Sound Practices for Appraisals and Evaluations.

"Which is not considered a U.S. Government Security? A.) Government National Mortgage Association (GNMA) obligations B.) Federal National Mortgage Association (FNMA) obligations C.) Federal Home Loan Mortgage Corporation (FHLMC) obligations D.) Student Loan Marketing Association (SLMA) obligations E.) All of the above are considered U.S. Government Securities "

E.) All of the Above are considered U.S. Government Securities - Refer to the Comptrollers handbook on Investment Securities.

"Credit Risks associated with CRE lending includes_____. A.) Construction issues B.) Market conditions C.) Regulatory Changes D.) Interest rates E.) All of the above "

E.) All of the above - Refer to the Commercial Real Estate Lending Handbook.

"Which are most useful in determining potential conflicts of interest from self-dealing? A.) A list of insider and related interest as defined by 12 CFR 9.12 B.) A list of fiduciary conflicts that management is aware of C.) A list of approved brokers and the policy and basis for selecting those brokers D.) A copy of the most recent audit and compliance reports E.) All of the above "

E.) All of the above - Refer to the Comptrollers Handbook on Conflicts of interest.

"What is a Thrift's limit for mortgage backed securities ? A.) 200% of capital B.) 250% of capital C.) 300% of capital D.) 400% of capital E.) No limit "

E.) No limit - Refer to 12 CFR 160

"Which is not considered an effective process for administering access rights? A.) Assigning users and devices only the access required to perform their required function. B.) Updating access rights based on personnel or systems changes. C.) Reviewing periodically users' access rights at an appropriate frequency based on the risk to the application or system. D.) Designing appropriate acceptable-use policies and require users to agree to them in writing. E.) Require users to provide their supervisor with their login information."

E.) Require users to provide their supervisor with their login information. - Refer to the FFIEC Information Security Handbook.

"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

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

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

"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)

"All banks must have a designated Compliance Officer appointed by the board of directors. A.) True B.) False "

False - In the Compliance Management System edition of the Comptroller's Handbook it states..."a compliance officer or committee should be appointed with specific responsibilities and authorities." See the handbook for more information. http://el.occ/publications/publications-by-type/comptrollers-handbook/cms.pdf

"A trustee may not enter into a transaction posing an impermissible conflict of interest. A.) True B.) False "

False - It can be entered into as long as the transaction is in the best interest of the beneficiary, consent from all beneficiaries is obtained and the bank fully discloses the facts about the conflict. Refer to the Asset Management-Conflicts of Interest Handbook.

"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: Upon the acceptance of a fiduciary account, a national bank shall conduct a post-acceptance review of all assets of the account to evaluate whether they are appropriate, regardless of whether the bank has investment discretion or not.

False - Only accounts in which the bank has investment discretion must be reviewed during the initial post-acceptance review. This also applies to annual reviews. See 12 CFR 9.6 and Investment Management Services Handbook, pg. 136

True of False - All bank directors are considered Executive Officers for the purposes of Reg O.

False - Refer to 12 CFR 215.2

True or false: The OCC considers single-factor authentication as the only control mechanism to be adequate for high-risk internet banking transactions.

False - Refer to OCC Bulletin 2005-35 "Authentication in an Internet Banking Environment" for additional information.

"True of False - All non-investment grade securities should be classified substandard. "

False - Refer to OCC Bulletin 2013-28 for additional information.

A bank's total outstanding loans and extensions of credit to one borrower may never exceed 15 percent of the bank's capital and surplus. (T/F)

False - See 12 CFR 32.3

"True/False When grading loans, a rating of Special Mention is typically used as a compromise between a Pass and Substandard grade. "

False - Special mention is NOT to be used as a compromise between Pass and Substandard. Special mention loans indicate that there are potential weakness, compared to well-defined weaknesses inherent in substandard loans. See Rating Credit Risk Handbook, pg. 16

"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)

True or False: A Business purpose credit card is not subject to Reg. Z.

False - When a credit card is involved, generally exempt credit is subject to the requirements that govern the issuance of credit cards. - Refer to the Comptroller's Handbook, Truth in Lending edition, Subpart A.

"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 "

False, 7th percentile means you are doing significantly worse.

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

False- FAS -115 is the primary guidance.

12) 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.

30) 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.

40) 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.

49) 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.

29) 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 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

41) 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

17) 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 ©

Choose the correct descriptor - Generally speaking, FSAs will have (Higher or Lower) risk based capital ratios than a bank.

Higher due to their concentrations in lower risk weighted assets, including qualifying 1-4 family mortgage

"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 w/ TA of less than $3 billion 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 above are required in order to extend the frequency to 18 months. See Bank Supervision Process Handbook, pg 10

"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 is 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. NBs should charge off overdraft balances within 60 days, unless the borrower is under a repayment plan IV. NBs should charge off overdraft 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 loan categories are considered classified assets? Choose all that apply. I. Pass II. Special Mention III. Substandard IV. Doubtful "

III and IV. Classified assets do not include pass and special mention exposures. While special mention loans are criticized, they do not meet the definition of classified. See Rating Credit Risk Handbook, pg 17

"9) 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"

No (12 CFR 9.10(a)).

If a bank makes a $250,000 loan for a 1-4 family residence is a certified appraisal required?

No - Loans greater than $400,000 require an appraisal from a state certified or licensed appraiser. Refer to 12 CFR 34.43.

Are bank's allowed to own Privately Placed Securities?

No, however some banks have purchased privately placed securities and recorded them as loans. Lending statutes will apply in these situations. Refer to the Comptrollers Handbook on Private Placements for more information.

"2) 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).

"3) 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."

No. 12 CFR 34.43 requires FIRREA appraisals for all residential RE loans in excess of $400M.

25) 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."

"2) 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).

47) 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.

"6) 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? (Y/N) "

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.

"OCC Bulletin ####-##: Allowance for Loan and Lease Losses (ALLL): Guidance and Frequently Asked Questions (FAQs) on the ALLL OCC Bulletin ####-##: Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices: Interagency Guidance on CRE Concentration Risk Management "

OCC Bulletin 2006-47 for the ALLL and OCC Bulletin 2006-46 for Concentration Risk Management.

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

TRUE

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

TRUE

7) 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? 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 60 days after the date of the decision letter and 60 days after the completion of the first examination following the appeal.

TRUE

"Regardless of the prior method for determining a loan's impairment, once foreclosure is probable, impairment should be based on ______ what? A - market value B - Collateral Value C - Discounted CF"

The fair value of the collateral - Refer to the Comptrollers Handbook for the Allowance for Loan and Leases Losses as well as accounting guidelines.

"Officer compensation for the sale of credit life insurance may not exceed_______ of their annual salary. A) Twenty Five B) Five percent C) Three percent D) Ten percent "

Total annual compensation may not exceed the greater of five percent of the recipient's annual salary or five percent of the average salary of all loan officers participating in the plan. Refer to 12 CFR 2.4

"True/False: A bank must file a Suspicious Activity Report for employee theft even if the 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 or False - A Bank must display their CRA Public Notice in the lobby of each branch.

True - Refer to 12 CFR 25.44

True or False - A national bank may deal in ARM loans without regard to any State law limitations on those activities.

True - Refer to 12 CFR 34.21 for additional information

True or False - A National Bank must give notice to the OCC prior to moving their main office to another authorized branch location within the same city. If they wish to move to a location that is not currently a branch they must submit an application and obtain prior approval from the OCC.

True - Refer to 12 CFR 5.4

True or False: Bank's issuing subordinated debt must notify the OCC after issuance if the debt is to be counted as Tier 2 Capital.

True - Refer to 12 CFR 5.47

True of false - A bank can own Residential Real Estate for use by bank officers or employees.

True - Refer to 12 CFR 7.1 for specific details.

True or False - National Banks may assist their customers or the public in preparing their tax returns either gratuitously or for a fee.

True - Refer to 12 CFR 7.1008

A borrower purchased a single family residence (located in a flood zone) to be used as a rental property. The bank escrowed for taxes and insurance. Does the bank need to escrow for flood insurance as well? (Y/N)

Y - 12 CFR §22.5 states that if a bank requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increase, extended, or renewed on or after October 1, 1996, the bank shall also require the escrow of all premiums and fees for any flood insurance required under §22.3. Furthermore, the Comptroller's Handbook for the Flood Disaster Protection Act (FDPA) clarifies that the determining factor in applying the escrow requirement is not the purpose of the loan, but the purpose of the building

"3) 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.

"North Bank, N.A. has 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 for liquidity? 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.

"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)

"ABC Manufacturing depreciates fixed assets over 20 years, with the exception of furniture and equipment, which they depreciate over ten years. Use the following depreciation schedule: Fixed Asset Type Cost Salvage Value Land $250,000 - Plant $1,300,000 - Furniture & Equipment $600,000 $150,000 Assuming all assets were in service for the full year, what is depreciation for year two on a straight-line basis? a) $110,000 b) $120,000 c) $122,500 d) $125,000 e) $137,500"

a - $110,000: The depreciation for year two would be ($1,300,000/20) + (($600,000-$150,000)/10) = $110,000. While land is a fixed asset, it is not depreciable. In addition, since the assets were in service for the full year, a full year of depreciation is applicable. However, had the asset been in service for less than a year, the depreciation amount would have differed.

"Use the following income statement information: 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"

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

"Use the following call report information ($000's): T1 Capital $27,399 Total Equity Capital $30,232 T2 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 Allowable 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

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

a - $340,750 [(135,000*.65-53,000) + (360,000*.85) = $340,750]. The SLTV for raw land and improved commercial property is 65% and 85%, respectively. When a loan is cross-collateralized with two or more properties or a collateral pool, the maximum SLTV should be calculated after subtracting any senior liens. See page 13 of the CRE Handbook.

"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 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

" Each bank must provide the standard CRA public notice in the lobby of its main office and each of its branches. a) True b) False "

a - A bank shall provide in the public lobby of its main office and each of its branches the appropriate public notice set forth in appendix B of this part. See 12 CFR 25.44

"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 - A member of a reserve component is entitled to protections beginning on the date of the member's receipt of the order. See 50 USC Appendix §516(a)

"Which of the following bankruptcy chapters allows for a liquidation of 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

"How should bank management treat income earned from a property held as Other Real Estate Owned (OREO)? a) Credit noninterest income b) Credit OREO expense c) Debit outstanding loan balance d) Debit property book value "

a - Credit noninterest income. Any gain on the sale of OREO or any rental income received on OREO should be reported as Other noninterest income. See Call Report Instructions (updated June 2015), pg. RI-12b: Item 5.l.

"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 because income statement accounts have already been adjusted with the provision expense. It should be noted that this is a 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 assets would be considered the most liquid? a) Fed funds sold b) Pledged U.S. government securities c) Bank-owned life insurance d) Residential mortgage loans "

a - Fed funds sold. Generally, the U.S. securities would be next in line; however, the pledging of assets will limit the liquidity position of the asset. See Liquidity Handbook, pg. 10

"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.

"Which of the following would qualify as a principal shareholder for insider lending purposes? 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, Principal shareholder means a person (other than an insured bank) that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company. Shares owned or controlled by a member of an individual's immediate family are considered to be held by the individual. See 12 CFR 215.2(m)(1)

"While reviewing the composition of earnings, you notice the bank derives significant interest income from high yielding investments. Yields are much higher than peer averages. Based solely on this information, what is the most likely conclusion? a) The level of risk in the portfolio may be excessive b) No concern; Earnings are strong because of the high yields c) High yields indicate a concentration in Treasuries d) The bank does a better job of managing its investment portfolio than the peer"

a - Risk may be excessive. More information would be needed to determine if this was actually the case.

"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 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 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 typically a characteristic of federal savings associations (FSAs) earnings? a) FSAs tend to have less diverse sources of earnings b) FSAs rely heavily 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

"In reviewing a bank's investment portfolio, which of the following should be used as the basis for computing any investment limitations? a) Par value b) Book value c) Purchase price d) Market value "

a - The amount compared to capital should be the aggregate par value. See 12 CFR 1.3

"Which of the following is true of a bank in a "positive" gap position? a) The bank is exposed to repricing risk b) The bank is not exposed to options risk c) The bank will have positive net interest income d) The bank is free of exposure to negative changes in interest rates "

a - The bank is exposed to repricing risk. A bank will have a positive gap when more assets reprice or mature than liabilities. Because the bank has more assets than liabilities subject to repricing, the bank is said to be "asset sensitive" for that time band. An asset- sensitive bank is generally expected to benefit from rising interest rates because its assets are expected to reprice more quickly than its liabilities. See IRR Handbook page48.

"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

"Excluding bank-provided reports, which of the following resources would best help to determine the maturity structure of a bank's investment securities? a) Call Report b) Canary c) QCALC d) UBPR"

a - The best report is generally the call report. While both the Canary and UBPR take into account loans and securities greater than 5 years when calculating ratios, they do not specifically separate out securities from loans. The QCALC does not have a maturity schedule. See call report schedule RC-B for detailed classification of securities maturities.

"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

"In year one, First National Bank reported a net interest margin of 4.00% compared to 5.25% the subsequent year. Market interest rates experienced significant increases during the second year. Which of the following would most likely explain the increase in the net interest margin? a) The deposits are primarily non-interest bearing b) The loans are primarily fixed-rate and long-term c) The investments are primarily callable agency bonds d) The overhead expenses decreased during the 2nd year"

a - The non-interest bearing nature of the bank's deposits is the most likely reason for an increase in the NIM as the bank would be able to benefit from high-yielding assets. In comparison, fixed-rate loans would not allow the bank to benefit. The callable agency bonds would likely remain at the bank, as it would allow the issuer to pay a lesser interest rate than in the market. Overhead expenses are not used to calculate the NIM, as they are non-interest expenses.

"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) Five years c) Seven years d) Ten years "

a - Three years. Banks should document the establishment and termination of fiduciary accounts and maintain records for three years after termination. See 12 CFR 9.8(b)

"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. Duration is a measure of the average (cash flows weighted) term to maturity of a security. Modified duration measures the sensitivity of a securities' price to interest rate changes. The greater the number, the more sensitive the bond or security's price is to interest rate changes.

"Banks must include with the call report a report of all extensions of credit to executive officers since the previous call report. a) True b) False "

a - True. See call report instructions Page RC-M 1.

"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. The Average Personnel Expense per Employee means the average salary (including benefits) per employee per year expressed in thousands of dollars. See UBPR User's Guide (May 18 2015 version)--Noninterest Income, Expenses and Yield Page--#7 on page 2.

"A national bank may appeal the asset quality rating as presented in its most recent final ROE 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 $500 million"

a - True. The matter is appealable when the rating has been finalized in the ROE. See OCC Bulletin 2013-15

"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)

"A borrower requesting a loan at FNB informed the bank that a current appraisal already existed. The banker obtained the appraisal from the borrower and agreed with the value as a basis for the bank's collateral position. Is this a violation of the appraisal regulations? a) Yes b) No"

a - Yes, this is a violation of the appraisal regulations. A bank may not obtain an appraisal from the borrower. However, the bank may request the appraisal directly from the other financial services institution. See OCC Bulletin 2010-42: Section VI, pg. 10

"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).

"The OCC's assessment schedule includes a surcharge for banks that require increased supervisory resources. For a composite "3" rated bank, this surcharge is: a) a 50 percent higher assessment fee b) a 100 percent higher assessment fee c) an amount determined by the bank's district office d) an additional $2,500 no matter what the size of the bank "

a - a 50% higher assessment fee. Banks with a composite rating of "3" and "4" receive a higher assessment fee. To determine the appropriate assessment fee, the semiannual assessment fee is multiplied by 1.5 and 2.0, respectively. See 12 CFR 8.2(d)(1).

"On the UBPR, which of the following criteria is used to define all commercial bank peer group? 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

"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.

"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)

"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 might a bank do in order 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 Liquidity Handbook

"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 capital characteristics typically apply to mutual FSAs? Choose two. a) They do not issue dividends b) They build capital almost exclusively through stock offerings c) They have very limited means to increase capital quickly d) They tend to have lower capital levels"

a, c - While they do not issue dividends and have limited means to increase capital quickly, mutual FSAs build capital through retained earnings and tend to have higher capital levels. See Quick Reference Guide, pg. 131

"Which of the following areas must be reviewed during each community bank supervisory cycle regardless of the bank's consumer compliance rating? Choose all that apply. a) Bank Secrecy Act b) Truth in Lending Act c) Flood Disaster Protection Act d) Home Mortgage Disclosure Act e) Servicemembers Civil Relief Act"

a, c, and e - In addition to the aforementioned, other required compliance activities include fair lending activities. See Supervisory Memorandum 2013-04

"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 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 two strategies might a bank employ to reduce funding and liquidity risks? a) Reduce assets that require term funding, such as loans b) Increase assets that require term funding, such as loans c) Replace credit insensitive funding with credit sensitive liabilities d) Replace credit sensitive liabilities with credit insensitive funding"

a, d - Increasing assets that require term funding and replacing credit insensitive funding with credit sensitive liabilities would increase liquidity risk.

"Which of the following activities are permissible for national banks? Choose three. a) Establish and operate a messenger service b) Invest in a locally owned casino if it is providing jobs for its community c) Maintain and operate a facility that sells lottery tickets on bank premises d) Assist its customers in preparing their tax returns, either gratuitously or for a fee e) Maintain and operate a postal substation on banking premises and receive income from it"

a, d, and e. See 12 CFR 7.1008, 12 CFR 7.1010, and 12 CFR 7.1012. A national bank can also acts as payroll issuer under 12 CFR 7.011.

"15) 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)

"Which of the following ratings would consider a bank to be in a generally strong compliance position? a) "1" b) "2" c) "3" d) "4" "

b - "2" An institution rated 2 is in a generally strong compliance position. See Bank Supervision Process, pg. 73.

"Use the following quarterly bank call report balance sheet information (in $000's): Average Assets $168,682 ALLL $1,650 Gross RWA (before deductions) $115,000 Total Equity Capital $19,303 Total RWA $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 - $1,438. 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

"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 national bank or Federal savings association shall provide the OCC with written notice that an adjustment to the national bank's or Federal savings association's capital category may have occurred no later than 15 calendar days following the date that any material event has occurred that would cause the national bank or Federal savings association to be placed in a lower capital category. 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. 371c applies specifically to legal restrictions as it relates to transactions with an affiliate. See 12 USC 371c.

"Within how many days must a creditor notify an applicant of an action taken? a) 15 days after receiving a completed application concerning the creditor's decision b) 30 days after taking adverse action on an incomplete application c) 60 days after taking adverse action on an existing account d) 60 days after notifying the applicant of a counteroffer if the applicant does not expressly accept of use the credit offered"

b - 30 days after taking adverse action on an incomplete application. Answer choices a, b and c should all take place within 30 days. A bank should notify an applicant of action taken within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. See 12 CFR 1002.9 (a).

" Which one of the following capital limits applies to the aggregate holding 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 and surplus. 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

"How often is the legal lending limit calculated? a) Monthly b) Quarterly c) Semiannually d) Annually "

b - A national bank or savings association determines its lending limit using the last day of the preceding calendar quarter or the date on which there is a change in the PCA capital category, whichever is more recent. See 12 CFR 32.4(a)

"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

"A bank has just placed one of three loans from ABC Corporation on nonaccrual. Which of the following would generally result in placing all loans to the corporation on nonaccrual? a) All loans are classified b) All loans have same source of repayment c) All loans are guaranteed by the same individual d) The corporation declares bankruptcy"

b - All loans have same source of repayment.

"First National bank has 5 directors, of which 2 are directors of a manufacturing company. The two directors constitute the only directors of the company. Which of the following is true of the manufacturing company? a) It is not an affiliate, it is not in the same line of business b) It is not an affiliate, the directors do not compose a majority of the board of the bank c) It is an affiliate, the directors obviously control the company d) It is an affiliate, 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 such office within the member bank or any company that controls the member bank. See 12 USC 371c (b)(1)(C)(ii)

"Which of the following would cause a bank's net interest margin to decline? a) Asset sensitive and rates are rising b) Liability sensitive and rates are rising c) Asset sensitive and rates are steady d) Liability sensitive and rates are declining "

b - Asset-sensitive banks generally benefit from a rising rate environment, while liability-sensitive banks are generally affected adversely. See IRR Handbook, pg. 8

"Which of the following is the risk arising from a shift in the relationship of the rates in different financial markets or instruments (e.g. a change in the spread between the 3-month Treasury and the 3-month LIBOR)? a) Credit Risk b) Basis Risk c) Yield Curve Risk d) Option Risk"

b - Basis risk. Basis 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. Basis risk can also be said to include changes in the relationship between managed rates, or rates established by the bank, and external rates. See Interest Rate Risk Handbook, pg. 8

"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 III-57

"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

"Which of the following 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

"A shared national credit is defined as any loan and/or formal commitment extended to a borrower, which in the original amount aggregates $100 million of more and; 1) is shared by two or more institutions under a formal lending agreement or; 2) is sold to one or more institutions, with the purchasing institution assuming its pro-rata share of the credit risk. a) True b) False"

b - False. A shared national credit is shared by three or more institutions and is sold to two or more institutions. See OCC Policies & Procedures Manual 5100-2 (REV)

"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. By its nature, carryover debt suggests a well defined weakness; it's important; however, for the bank to understand which part of an operating line is true carryover debt. Examiners should not automatically classify carryover debt and should carefully examine all relevant data to ensure an accurate rating. See Agriculture Lending Handbook, pg. 25

"Unlike most formal actions, civil money penalties are not public. a) True b) False "

b - False. Civil money penalties are formal enforcement actions, and thus are public. See PPM 5310-3 (Revised 9/9/11) Page 15.

"When a revolving working capital loan becomes "evergreen" or a permanent working capital loan, the loan exhibits inherent credit weaknesses and should be classified. a) True b) False "

b - False. In the case of some permanent working capital, the debt portion that can't be repaid may be refinanced or amortized in a term loan. Examiners should evaluate the validity of a term loan, the collateral securing the loan, and the ability of the borrower to repay the debt, among other considerations, before classifying a working capital loan. See Accounts Receivable and Inventory Financing Handbook, pg. 8-9.

"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

"Without regard to special exemptions, extensions of credit to executive officers are limited to the higher of 2.5 percent of unimpaired capital and surplus or $25,000. a) True b) False "

b - False. This is statement is partially true. For the purpose other than financing children's education or primary residence, aggregate amount of extensions of credit to executive officer is limited to the higher of 2.5 percent of the bank's unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000. See 12 CFR 215.5(c)(4).

"National banks and federal savings associations are subject to the same rules regarding whether directors are required to own an equity interest in the financial institutions. a) True b) False "

b - False. Unlike national banks, FSAs are not subject to the same rules. Directors of an FSA are not required to own an equity interest, unless required by the bylaws. See Page 10 of the Quick Reference Guide, 12 CFR 7.2005, and 12CFR 152.7.

"As long as borrowings of a bank insider are below 5 percent of capital, advance majority approval of the board, with the borrower abstaining, is not required. a) True b) False "

b - False. While this statement is partially true, in no event may an insider's aggregate loans exceed $500 thousand without prior approval by the board, with the borrower abstaining from the vote. See 12 CFR 215.4(b)

"A national bank may never invest an amount greater than its capital stock in banking premises, directly or indirectly, without prior OCC approval. a) True b) False "

b - False: In general, the limit is 100% of capital without obtaining prior OCC approval. If the bank has a composite rating of 1 or 2, the bank can make an aggregate investment in banking premises up to 150% of capital without OCC's prior approval provided that the bank is well capitalized and will continue to be well capitalized after the investment. However, the bank shall notify the OCC in writing within 30 days after the investment is made. See 12 CFR 5.37.

"Which 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 is considered an insider for the purposes of Reg 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.

"FNB originated a loan for the purpose of buying margin stock. What is the maximum loan value for a loan secured by margin stock? a) Market value limited to 25% b) Market value limited to 50% c) Market value limited to 100% d) Market value limited to 110% "

b - Market value limited to 50%. When a bank (other than brokers or dealers) extends credit to a borrower for buying or carrying margin stock, and that stock secures the loan, the maximum loan value of the margin stock is 50% of its current market value. See 12 CFR 221.7

"FNB placed an equipment loan on nonaccrual status, as there was doubt as to the full collectability of principal and interest. May the bank apply a portion of payments made on this loan to interest income? a) Yes b) No "

b - No. Per the call report instructions, payments (when doubt exists to collectability) received on nonaccrual loans must be applied to reduce principal to the extent necessary to eliminate such doubt. See call report instructions (last updated June 2015), pg. A-60.

"A bank has unimpaired capital and surplus of $7. 3 million. Director John 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 are greater than the higher of $25M or 5%. See 12 CFR 215.4(b)

"In reviewing a report of large certificates of deposits, you notice Director Brown's rate is consistently 75 basis points higher than any others on the list are. Is this a violation of Regulation O? a) Yes b) No"

b - No. Reg O does not address deposits. However, banks shall not pay a rate of interest on director deposits greater than that paid to other depositors on similar deposits. See 12 USC 376

"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. We must assume that the mortgage company only deals in activities that FNB can engage in directly. 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

"Maintaining a strong password is an example of what type of control? a) Detective b) Preventive c) Corrective d) Recovery "

b - Preventive.

"Which of the following risk areas are not included on the Canary report? a) Credit Risk b) Price Risk c) Liquidity Risk d) Interest Rate Risk "

b - Price Risk. Financial risk measures and benchmarks have been established for credit, interest rate, and liquidity risks. The financial measures are leading indicators of risk taking that are designed to be concise and intuitive. See PPM 5000-34, pg 13

"How often must management report supervisory loan-to-value exceptions to the board of directors? a) Monthly b) Quarterly c) Annually d) There is no frequency requirement "

b - Quarterly. Aggregate amounts of loans in excess of supervisory loan to value limits should be reported at least quarterly to the institution's board of directors. See Appendix A to Subpart D of 12CFR 34—Interagency Guidelines for Real Estate Lending.

"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 "

b - Receipt of Public Assistance. The Fair Housing Act prohibits discrimination based on race or color, national origin, religion, sex, familial status, and handicap. See Fair Lending Handbook page 4.

"Which of the following is the process of identifying, measuring, and analyzing risks? a) Control environment b) Risk assessment c) Accounting, information, and communication systems d) Control activities"

b - Risk assessment. See Internal Control Handbook, pg. 5-6.

"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 CRE 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 3 months of rent in advance"

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

"As a condition of preliminary approval of a newly chartered national bank, the OCC and the FDIC normally require banks to have an annual independent external audit for a period of three years after they open. In which of the circumstances may the OCC waive the external audit requirements? a) The new bank makes a formal request to be exempt b) The new bank is sponsored by an independent organizing group that is experienced in banking c) The financial statements are included in the audited consolidated statements of the parent holding company d) Adequate internal audit coverage will be maintained at the bank level"

b - The OCC may waive the requirement if the new bank's financial statements are included in the audited consolidated statements of the parent holding company, the sponsoring holding company is an existing holding company that has operated for three years or more under FRB supervision and has no special supervisory concerns, and adequate internal audit coverage will be maintained at the bank level. If ANY of these requirements are not met at any point in the three-year period, the OCC may waive the exemption. See Internal and External Audits Handbook, pg. 42

"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

"Part 363 - "Annual independent audits and report requirements" applies to banks with $500MM or more in consolidated total assets. As of what reporting period is this determination made? a) Beginning of calendar year the bank reaches $500MM b) Beginning of fiscal year the bank reaches $500MM c) Beginning of the quarter the bank reaches $500MM d) Exact date the bank reaches $500MM"

b - This part applies to any insured depository institution with respect to any fiscal year in which its consolidated total assets as of the beginning of such fiscal year are $500 million or more. See 12 CFR 363.1(a).

"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 types of investments 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 capital limits apply to extensions of credit to an executive officer of the bank? Assume special limitations do not apply. a) No capital limit b) 2.5 percent c) 5 percent d) 10 percent "

b - Unlike other insiders, in which the general limit is 5 percent, restrictions are more stringent on executive officers at 2.5 percent. However, extensions to executive officers cannot exceed $100,000. This does not apply to certain special limitations such as loans to finance children's education or a primary residence. See 12 CFR 215.4 and 215.5.

"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

"CNB has purchased a credit-impaired loan from a national bank down the street. The former bank had the loan placed on nonaccrual because the debtor was not meeting its obligations under the loan's contractual terms. Which is the best accounting treatment for CNB? 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 are loans that are purchased with known credit deterioration or impairment. These loans may be placed on accrual if the bank can reasonably estimate the timing and amount of cash flows to be collected from the pool of loans. See Bank Accounting Advisory Series (BAAS) Topic 2B, Question 29.

"Over the last year, a small community bank's efficiency ratio increased substantially. An increasing efficiency ratio indicates that management is becoming more efficient at controlling overhead expenses. a) True b) False "

b - false. An increasing efficiency ratio indicates that overhead expenses are increasing. See UBPR User's Guide

"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 more than repricing risk. It includes 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.

"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 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

"Which of the following summarizes OCC expectations for banks regarding capital adequacy and provides guidance on capital planning? a) OCC Bulletin 2011-21 b) OCC Bulletin 2012-16 c) OCC Bulletin 2010-13 d) OCC Bulletin 2012-18 "

b) OCC Bulletin 2012-16

" 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) When a distribution of cash or other assets will be 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, that 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

"First National Bank is experiencing an increase in net loan losses; however, management feels the allowance for loan losses is adequate and does not require new provisions. What is happening to the allowance for loan losses? Choose two. a) The total ALLL is increasing b) The total ALLL is decreasing c) The ALLL is increasing as a percentage of total loans d) The ALLL is decreasing as a percentage of total loans"

b, d - The dollar volume of the ALLL is decreasing, as well as the ALLL as a percentage of loans. While the decline in the ALLL and the loan balance is the same amount, the proportion of the decreasing ALLL is not equal in comparison to the loan balances.

"Which of the following bankruptcy chapters results in a reorganization of a corporation's assets? a) Chapter 7 b) Chapter 11 c) Chapter 12 d) Chapter 13 "

b--Chapter 11. Chapter 11 is a reorganization of business assets, while chapter 13 is reorganization for individuals. Chapter 7 is liquidation bankruptcy. Bankruptcy chapters are found in Title 11 of United States Codes.

"5) 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

"38) _______ 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 8

"39) 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

"28) 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.

"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: Caps and floors are embedded options that help to control interest rate fluctuations on variable instruments. See Interest Rate Risk Handbook

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

b: Generally, FSAs must dispose of REO at the earliest time that prudent judgment dictates within 5 years (unless a longer period of time is approved by the OCC). However, during the holding period of REO, the property can be held through a subsidiary as an equity investment in real estate; however, the subsidiary is not includable for capital purposes (deducted from assets and capital). While national bank and FSA regulations do not share the same OREO requirements, the intent of the regulations is similar. See Quick Reference Guide, pg. 62

"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: 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

"14) Which of the following asset types are not included in the 20% risk category. (Choose 2) 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%)

"Country National Bank has a legal lending limit of $45,000. The Chairman of the board would like a loan in the amount of $65,000 to fund his children's education at a private university. What is the maximum loan amount the bank can extend? a) $15,000 b) $25,000 c) $45,000 d) $65,000"

c - $45,000. 12 CFR 215.5 states that a bank is authorized to extend credit to an executive office in any amount to finance the education of his/her children; however, in accordance with 12 CFR 215.4(c), a bank may not extend credit to an insider in an amount greater than that of the legal lending limit for the bank. In this example, the amount of the loan is limited to the LLL.

"Currently, ABC Company's inventory is $900 thousand. The bank 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 a pre-tax yield equal to 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 must purchase forced-place insurance. See 12 CFR 22.7 and Flood Handbook, pgs. 8-9

"For a Federal Savings Association to meet the standard under the "Qualified Thrift Lender" (QTL) test, what percentage of portfolio assets must be held in "Qualified Thrift Investments" (QTIs)? a) 25 percent b) 50 percent c) 65 percent d) 80 percent"

c - 65% An FSA is required to be a QTL under the Home Owners' Loan Act (HOLA) QTL Test - 12 USC 1467a(m) - or the Internal Revenue Service tax code Domestic Building and Loan Association Test (DBLA Test) - 26 USC 7701(a)(19) and 26 CFR 301.7701-13A. Under the QTL test, an FSA must hold 65% of its portfolio assets as Qualified Thrift Investments (QTI). There are 2 categories of QTIs: Assets that are includable w/o limit and assets that are limited to 20% of portfolio assets. See Quick Reference Guide, pg. 25

"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

"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 located in a state may charge interest at the maximum rate permitted to any state-chartered or licensed lending institution by the law of that state. See 12 CFR 7.4001(b)

"Which is reflective of an AQ rating of "2"? a) AQ or credit administration practices are less than satisfactory b) The levels of risk and problem assets are significant and inadequately controlled c) The level & severity of classifications & 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

"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: A major distinction between an adverse and disclaimer opinion is that an adverse opinion indicates there is a substantial issue with the financial statements, while a disclaimer indicates that management has restricted the scope of the audit firm and they are unable to render an opinion. See Audit Handbook, pg. 40

"When a banker refers to a farmer or rancher's ""carryover,"" the banker means: a) Livestock not sold for slaughter b) A positive cash flow after harvest c) Unpaid operating debts after sale of inventory d) None of the above "

c - Agricultural Lending Handbook, pg 12

"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 - Any vacancy in the board shall be filled by appointment by the remaining directors, and any director so appointed shall hold his place until the next election. See 12 CFR 7.2007(b) or 12 USC 74.

"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 is not a requirement when issuing preferred stock? a) Approval by the OCC and a majority of stockholders b) Amending of the articles of association to reflect issuance if necessary c) Be "well-capitalized" per PCA d) Bank must ensure par value of preferred stock is paid in before issuance is valid"

c - Be "well-capitalized" per PCA. There is not a stated requirement that a bank must be well-capitalized to issue preferred stock. 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

"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

"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

"Assuming no suspect was identified on the date of incident detection, when must a bank file a suspicious activity report with FinCEN? 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 exceptions.

"Which of the following is an indicator of low risk when quantifying liquidity risk? I. Funding sources are abundant and provide cost advantage II. Liquidity needs increasing, but sources of market alternatives are declining III. Parent company support is strong IV. Funding is widely diversified, with little or no reliance on wholesale funding a) I and II only b) II only c) I, III, and IV only d) I, II, III, and IV"

c - I, III, and IV only. See Liquidity RAS of Community Bank Supervision Handbook, pg 143

"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 of the following 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.

"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 that have been charged off but are still enforceable. Per 12CFR32.3(c) Loans not subject to the lending limits include, (2) Bankers' acceptances, (6) loans secured by segregated deposit accounts. In addition, intra-day overdrafts are not considered loans or extensions of credit for legal lending limit purposes. See 12 CFR 32.2 (q)(iv).

"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. Closed-end retail loans that are past due 120 days or more should be classified as loss and charged off. Loans with non-real 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

"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 - Member banks must keep these reports for three years, not two. See 12 CFR 215.22(d) or Insider Activities Handbook, pg. 42

"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 the 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 should 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 one 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

"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: Net interest income $3,015 Personnel expense $1,236 Noninterest income $1,315 Total overhead expense $2,320 NI $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

"In terms of authentication, which of the following is not reflective of a shared secret system (i.e., something the user knows)? a) Passwords b) Pass phrases c) Token passwords d) Current transaction knowledge "

c - Token passwords are something the user has. Passwords, pass phrases, and current transaction knowledge (e.g., the account balance on the last statement mailed to the user) are all forms of shared secret systems. See FFIEC IT Booklet "Information Security," pg. 22

"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

"Per BSA regulations, which of the following would require a record including the nature or purpose of the loan? a) Residential real estate loan i/a/o $250,000 b) Commercial real estate loan i/a/o $723,000 c) Credit line secured by accounts receivable i/a/o $17,000 d) Residential real estate loan i/a/o $532,000"

c - credit line secured by AR i/a/o $17,000. A record of each extension of credit in an amount in excess of $10,000, except an extension of credit secured by an interest in real property, which should include the name and address of borrower, the amount, the nature or purpose, and the date. See 31 CFR 1010.410.

"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. See Insider Activities Handbook, pg. 11

"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"

c - new rules say undercapitalized - T1RBC min is 6%

"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) Fair market 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

"Which two are common measurements of current and potential funding levels? a) Net loans/time deposits b) Total assets/total equity capital c) Net short-term liabilities/assets d) Total equity capital/total deposits e) Short-term assets/short-term liabilities "

c and e - Net Short-term Liabilities/Assets ratio= (Short-term Liabilities - Short-term Assets)/ Total Assets, which indicates the degree of exposure assumed by funding assets with short-term liabilities (also referred to as rollover risk). The ST assets/ST liabilities ratio (current ratio) is a measure of the bank's ability to fund short-term debt. See PPM 5000-34 REV August 7, 2011 (Canary User's Guide), pg. 24

"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 - See Rating Credit Risk Handbook, pg 17.

"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

"26) 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.

"Use the following balance sheet information ($000's): Tier 1 Capital $52,218 Allowable ALLL $5,400 Tier 2 Capital $6,210 Excess ALLL $506 What is the bank's general legal lending limit? a) $7,909 b) $8,643 c) $8,719 d) $8,840"

d - $8,840. (52,218+6,210+506)*15% = $8,840. The general legal lending limit is calculated at 15 percent of capital and surplus. For this regulation, capital and surplus is defined as tier 1, tier 2 capital, and any excess allowance for loan and lease loss that was not includable in tier 2 capital. See 12 CFR 32.2(c)

"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

"The board of First National Bank has eight members, with the Chairman owning 175 shares. How many votes does the Chairman have in electing members to the board? a) 0 b) 175 c) 500 d) 1,400"

d - 1,400. When electing directors, a shareholder shall have as many votes as the number of directors to be elected multiplied by the number of the shareholder's shares. See 12 CFR 7.2006

"A concentration of credit consists of direct, indirect, or contingent obligations exceeding what percent of the bank's capital? a) 5 percent b) 10 percent c) 15 percent d) 25 percent "

d - 25 percent. See Concentrations of Credit Handbook, pg. 6

"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

"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

"In general, RESPA coverage is applicable to all loans secured by a first lien on residential real property. Which of the following transactions is exempt from coverage? a) Loans secured by a first lien upon which a 1-4 family structure is located b) Loans secured by a first lien upon which a manufactured home is located c) Loans secured by a first lien upon which a 1-4 family structure is to be constructed using loan proceeds d) Loans secured by a first lien on 25 acres or more upon which a dwelling is located"

d - A loan on property of 25 acres or more (whether or not a dwelling is located on the property) is exempt from RESPA requirements. See 12 CFR 1024 and the Real Estate Settlement Procedures Handbook, pg 3 for more info.

"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

"In regards to earnings, which statement is false? a) Earnings may be rated "4" even if the bank is not generating losses b) Budgets and MIS are considered in the earnings component rating, 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 factors"

d - An earnings rating of "1" does not indicate that there are no increasing risk factors; however, it does indicate that earnings are strong. See Bank Supervision Process Handbook

"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 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

"YTD net profits totaled $100M for First National Bank. Retained earnings for the past 2 years were negative at $75M and $10M, respectively. Which is correct with respect to the planned current year 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 OCC e) There are no restraints on dividends of less than $85M"

d - Dividends exceeding $15M require OCC approval. OCC approval is required if the total of dividends declared exceed the total of net profits of the current year combined with the retained earnings of the preceding two years. See 12 USC 60(b)

"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 Rev Page 23).

"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 maintaining 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 should be included in an effective risk management process for vendor management? I. Plans that outline the 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 3rd party activities & 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 - I, II, III, and IV. See OCC Bulletin 2013-29: "Third-Party Relationships," pg. 1

"Which is correct in regards to a NB's board of directors? I. The # of directors must be at least 5, but not over 25 II. Original executed oaths of directors must be filed w/ 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. While a bank's board may have more than 25 members, the bank must notify 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 is not an attribute of a marketable security? a) Registration under the Securities Act of 1933 b) Can be sold with reasonable promptness at a price that corresponds reasonably to its fair value c) Is offered and sold pursuant to SEC Rule 144A and rated investment grade or the credit equivalent d) Can be purchased at a negotiated price without sustaining a loss"

d - Marketable securities can be sold at a loss. All of the others are attributes of a marketable security. See 12 CFR 1.2(f)

"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)

"In accordance with retail guidance, which of the following is returning a delinquent, open-end account to current status without collecting the total amount of principal, interest, and fees that are contractually due? a) Extension b) Renewal c) Rewrite d) Re-aging "

d - Re-aging. See OCC Bulletin 2000-20

"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 HTM investment portfolio to gain additional liquidity. Which statement is true? a) They tainted the HTM investment portfolio and may never again have a HTM portfolio b) They tainted the HTM investment portfolio and all remaining securities in the existing portfolio must be liquidated c) They can continue to operate a HTM portfolio because selling from the HTM portfolio for liquidity purposes is one of the ""safe harbor"" exemptions d) They tainted the HTM investment portfolio and all remaining securities in the existing portfolio must be transferred to the 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.

"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) $200M commercial loan secured by rental property b) $1.1MM 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) $1.2MM 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 audit opinions are issued when financial statements present fairly, in all material respects, the financial position of the bank in conformity with GAAP? a) Adverse b) Disclaimer c) Qualified d) Unqualified"

d - Unqualified. See Internal and External Audits Handbook, pg 40

"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 shall not be considered as an affiliates when reviewing restrictions on transactions with affiliates. When there is common directorship, that organization would be an affiliate. See 12 USC 371c(b)(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

"4) 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.

"8.) 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. 12 CFR 9.9 states trust departments must have external audits, but CPA not required. "

"9.) 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. An increase in volume of small DDA's would not require a higher level of liquidity. "

"15.) ABC Bank showed the following for June 30: % of $000 Avg Assets Peer % Demand Deposits 2,571 5.67 19.20 Savings and Now Accts 4,318 9.53 15.43 MMDA Savings 7,460 16.46 29.99 Time Deposits <250M 12,852 28.36 14.31 Time Deposits>250M 6,852 15.12 2.81 Brokered Deposits 1,858 4.10 0.04 FFP 907 2.00 2.12 Other Borrowings 435 0.96 0.24 Average Assets 45,320 What are the bank's core deposits? A. $27,201 B. $34,053 C. $34,960 D. $35,935 "

A

"16. Which of the following is the correct accounting category for ""overdrafts""? A. Loans B. Other Assets C. Due from Banks D. Fixed Assets "

A

"16.) 12 USC 92a provides the authority of the Comptroller of the Currency to grant trust powers. A. True B. False "

A

"2.) 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

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

A

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

A

"5.) 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

"8. A national bank has repossessed a low mileage 1992 Geo. The outstanding loan balance was $3000. The bank has accepted a written offer of $800. What is the appropriate book value to be recorded? A. $800 B. $2200 C. $3000 D. $3800 "

A

"8.) 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

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

A - 12 CFR 215.5(d)(4)

"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 - 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.

"13. 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 - 12 USC 56

"Under the Truth in Savings Act, 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. "

A. 12 CFR 230.7(a)

"1.) 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 - Market value of the collateral covers loan

"Two full service national banks are owned by the same holding company. Both banks have composite ratings of "2". Bank A has $500MM in assets. Bank B has $345MM in assets. Bank B will pay 12% lower assessment fees. A. True B. False "

A - True OCC Bulletin 2005-40. Nonlead national banks within any company should multiply their calculated general assessment by 0.88 to recognize the 12 percent discount. The 12 percent discount does not apply to the independent trust bank assessment or the independent credit card bank assessment.

"4.) 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. 12 CFR 215.3

"4) Which three reports are used to monitor and manage interest rate risk? (Choose Three.) A. gap report B. budget variance report C. duration analysis report D. simulation model report E. contingency funding report "

A, C, & D

"11.) 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. 12 CFR 1.110

"8.) 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. 12 CFR 1; 98-20

" 8.) The computation of risk based capital ratios qualifies 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. 12 CFR 3

"10.) 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. 12 CFR 3 Appendix A CS+Surplus+UP/ RWA

"3.) 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. 12 CFR 32.5

"6.) 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. 12 CFR 34.45

"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 PCA category is now 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. 12 CFR 6.3(c)(1).

"1.) 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. 12 CFR 7.2005; 12USC 72

" 17.) Who is responsible for approval of trust accounts accepted by a bank? A. The Board of Directors B. The Trust Committee C. The Trust officer assigned to the account D. Both B and C. "

A. 12 CFR 9.4.

"6.) 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. CPA's operate under a professional code of ethics. Independence would be impaired by an unsecured loan with favorable terms.

"14.) Anytown National Bank provides safe deposit services to its customers. What is the bank expected to do to protect a customer's property? A. The bank must provide the same care that would be taken by a reasonably prudent and careful person engaged in the same business B. The bank must provide a place that is secure from theft, flood, and other natural disasters C. The bank must provide a dual locking box where the customer has a key and the bank maintains a second key and both are required for entry D. The safe deposit boxes must be located in a secure area with restricted access for bank personnel not associated with this function. "

A. Consigned Items Handbook June 1996

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

A. 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. Insider Activities Handbook page 2

"16.) 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. Internal Controls Handbook January 2001

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

A. OCC Bulletin 2002- 44

"14.) A shared national credit is any loan or loan commitment with an original amount of $100MM 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. The amount must be $15MM, not $20MM D. The amount does not matter if the other criteria are met "

A. PPM 5100 -2

"16.) Delta, gamma, vega or kappa, theta and rho are the primary measures of: A. options risk B. yield curve risk C. repricing risk D. basis risk "

A. Risk Management of Financial Derivatives Handbook, January 1997 page 20.

"3.) The internal auditor has noted large variations in Other Real Estate Owned (OREO) expenses. It appears the entries have been made by an employee with known financial problems. What would the auditor be expected to do? A. Conduct a special audit of the OREO area focusing on internal controls, expense account items, and a reconciliation of such transactions. B. Note transactions and request the employee be removed from present duties C. Speak with the employee regarding suspicions D. Immediately report suspicions to the Board of Directors without further investigation. "

A. Too early to remove the employee or discuss it with him/her or report to the Board. Verify facts first.

"1) A "step-up" bond is an agency bond that allows the issuer to either call the bond or pay a different rate of interest to the bondholder at certain dates. A. True B. False"

A. True

" 22.) 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

"10.) 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

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

B

"18. 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

"23. 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

"3.) 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

"9.) 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

"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

"Fiduciary assets are permitted to be commingled with bank assets. A. True B. False"

B - False per 12CFR9.13(b)

"A bank has a loan to a business secured by accounts receivable and inventory. The business is defunct and management cannot locate the borrower or the collateral. The loan is now 150 days past due. Which statement is true? A. The loan is doubtful until the bank can establish the value of the accounts receivable and inventory. B. The loan is a loss and should be charged off. C. The loan should be rated substandard until the borrower is found. D. The loan should be placed on non-accrual. "

B - The loan is a loss and should be charged off.

"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 Call Report Instructions - Glossary - Deposits

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

B. $1,305MM

" 18.) 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. 12 CFR 3 Appendix A CS+Surplus+UP/ATA

"3.) 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. 12 USC 21

"14.) XYZ Bank has the following funds in its deposit base: $100M State of Colorado, Treasury Department $300M City of Denver, Department of Motor Vehicles $200M State of Colorado, Department of Parks and Recreation $100M State of Colorado, Treasury Department $125M City of Denver, Department of Sanitation, M. Smith $ 75M City of Denver, Department of Motor Vehicles What amount of its own investments would the bank likely pledge against these accounts? A. $300M B. $125M C. $500M D. $900M "

B. 12 USC 265. Aggregate deposits over $250M

"10.) XYZ Bank's Gap report showed: 30-day 60 day 90 day 180 day 360 day Rate sensitive Assets $15MM $4MM $7MM $8MM $5MM Cumulative 15MM 19MM 26MM 34MM 39MM Rate sensitive Liabilities $12MM $8MM $17MM $12MM $6MM Cumulative 12MM 20MM 37MM 49MM 55MM what is bank's cumulative gap ratio at the 90 day interval? A. 0.41 B. 0.70 C. 1.42 D. 1.52"

B. 26/37

"18.) 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. Appointed by the remaining directors - 12 USC 74.

"15.) 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. Internal Controls Handbook January 2001

"5.) 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. Real Estate Lending

"12. 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

"17.) 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

"4.) 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

"6.) The bank made an equipment loan and advanced funds in the form of an operating loan. Both loans have been placed on nonaccrual status and a portion of the equipment loan has been charged off. The loan balances are classified and doubt as to full collectibility of principal and interest exists. Can interest be recognized? A. yes B. no C. it depends D. cannot be determined "

C

"10. 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 - 12 CFR 215.12

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

C . (200+1900+1900-300+60) x .15

"9.) 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. 12 CFR 1

"18.) 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. ($1635/3) x 4 divided by $177,727M

"2) What is the investment limit per issuer as a percentage of capital for a Type V security? A. 10% B. 20% C. 25% D. 100% E. Unlimited "

C. - 25%

"10.) 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. 12 CFR 1.21

"5.) 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. 12 CFR 215.4 (a) and (b)

"1.) 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. 12 CFR 363.5 (a)

"2.) 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. 12 USC 73

"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. 12 USC 90

"10.) XYZ Bank's Gap report showed: 30-day 60 day 90 day 180 day 360 day Rate sensitive Assets $15MM $4MM $7MM $8MM $5MM Cumulative 15MM 19MM 26MM 34MM 39MM Rate sensitive Liabilities $12MM $8MM $17MM $12MM $6MM Cumulative 12MM 20MM 37MM 49MM 55MM How would you describe XYZ Bank's position? A. Highly rate sensitive B. Asset sensitive C. Liability sensitive D. Balanced. "

C. Although liability sensitive, GAP report doesn't display a significant mismatch.

"12.) 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. 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

"13.) 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. Longest period before any portion can reprice.

"13.) 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. OCC Bulletin 98-6; Red book. There is no secondary market.

"4.) 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. Positive notification is not limited to a particular timeframe. It requires a customer to confirm specific information by returning a notice to the auditor.

"2.) 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. Workpapers should provide a clear audit trail.

"15. Business Resumption Planning is most effective if prepared by the: A. IT department B. senior management C. audit committee D. team from throughout the bank "

D

"17. 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

"4. Which of the following documents management's efforts to dispose of property held as OREO? I Records of inquiries by interested persons II Records of offers by potential buyers III Board of Directors minutes indicating discussion of the property IV Evidence of advertising the property for sale A. I only B. III only C. II and III only D. All of the above "

D

"5) The Dodd-Frank Act implements changes that: I. Introduce more stringent regulatory capital requirements. II. Reform the regulation of credit rating agencies. III. Require registration of advisers to certain private funds. IV. Effect significant changes in the securitization market. A. II only B. I and III C. I, II, and III D. I, II, III and IV"

D

"7.) 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

"9. Which of the following would an examiner MOST LIKELY accept as support for management's assigned book value on repossessed assets? I. Insurance policies II. Sales contracts III. Independent written appraisals IV. Manufacturer's Blue Books or catalogs A. I only B. I and II only C. I, II and IV D. II, III, and IV "

D

"IT audits can be performed: A. Daily B. Weekly C. Annually D. All of the above "

D

"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

"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

"Which of the following are components of Tier 1 capital? A. Surplus B. Undivided Profits C. Non-cumulative perpetual preferred D. All of the above are in tier 1 capital. "

D - All of the above are in tier 1 capital.

"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. Environmental controls are a method of physical controls.

"3) The following data is from the March 31, 2005 UBPR of ABC National Bank: Net Income: 277M Interest Income: 2,760M Total Assets: 92,354M Average Assets: 90,819M What is the bank's Return on Average Assets? A. .31 B. 2.26 C. 1.20 D. 1.22 E. 1.06 "

D. 1.22 (NI/Average Assets)

"9.) 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. 12 CFR 3

"19.) 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. 12 CFR 32.2(f)(2)

"4.) 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. 12 CFR 4 and 12 USC 1831

"7.) 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. Bank should know qualifications before they hire and present an engagement letter.

"12.) 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. Examiners Guide to Investment Products and Practices (Red book) glossary

"7.) 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. FAS 115

"5.) 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. The internal auditor's standards and training may not meet the requirements of the accounting industry.

"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 in is inconsistent with management's articulated balance sheet strategies E. All of the above "

E

"19. You need to read a letter the ADC wrote to your bank in April 2018. Where is the best place to get a copy of this letter? A. In EV. B. Ask the bank to send you a copy. C. In the permanent files maintained by the Field Office. D. Request a copy from the district office. "

a