UCE Practice Questions 4
The Securities Information Center (SIC) is designated by the SEC to manage a database of lost, stolen, counterfeit and missing securities. A) True B) False
A) True
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.
17 CFR 240.17Ad-5 states, that when any person makes a written inquiry to a registered Transfer Agent concerning the status of an item presented for transfer during the preceding six months, the Transfer Agent has _____ days to acknowledge receipt of the inquiry.
Answer: 5 business days.
To qualify as an "exempt transfer agent" under 17 CFR 240.17Ad-4, a Transfer Agent must document that they have received less ______items for transfer and processing for _____consecutive months.
Answer: 500 items; 6 consecutive months.
Per 17 CFR 240.17f-2, every person who is a partner, director, officer or employee of a registered Transfer Agent who has regular access to the keeping, handling or processing of securities, monies, or original books and records relating to securities and monies OR has direct supervisory responsibility over those who do, must be __________.
Answer: Fingerprinted.
17 CFR 240.17 Ad-17 requires recordkeeping transfer agent to maintain records, including written procedures which describe the Transfer Agent's methodology, to demonstrate its compliance with the ___________.
Answer: Lost securityholder search requirements.
Per 17 CFR 240.17 Ac2-1, Form ______is used to register or amend registration as a Transfer Agent.
Answer: TA-1
Per 17 CFR 240.17 Ac2-2, Form ______ must be completed annually by all registered Transfer Agent.
Answer: TA-2
To withdraw as a registered Transfer Agent, 17 CFR 240 Ac3-1 requires submission of Form_______.
Answer: TA-W
To maintain their exempt status, these Transfer Agent must recalculate their processing activity ________.
Answer: within 5 business days following the close of each month for the preceding 6 consecutive months.
Any account administered by a national bank is eligible to participate in a Collective Investment Fund (CIF). A) True B) False
B) False; 12 CFR 9.18
To qualify for the small transfer agent exemption, a bank must receive fewer than _____ items for transfer and fewer than ____ items for processing during any six consecutive months. A) 300; 300 B) 400; 400 C) 500; 500 D) 250; 500 E) 300; 500
C) 500; 500 P11TA HB
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
Banks qualified under the small transfer agent exemption are not required to: A) Meet the 3 day turnaround rule for routine items B) File notices about fingerprinting; C) File annual reports D) A&B E) All of the above
D) A&B P12 TA HB
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: Fiduciary asset accounts of a bank are permitted to be commingled with bank assets.
False - Fiduciary assets cannot be commingled with bank assets. See 12 CFR 9.13(b)
True/False: A bank must file a Suspicious Activity Report for employee theft even if employee makes restitution and agrees to resign.
True - A bank must report any known or suspected criminal activity relating to directors, officers, or employees, regardless of the amount involved. See 12 CFR 21.11(c)(1)
True/False: Back-testing of an interest rate risk model involves the comparison of actual outcomes with model forecasts over a specified period.
True - While sometimes used interchangeably with validation, a back-test compares actual results to forecasted results. Model validations typically test the mathematical theory and conceptual soundness of the model itself. See OCC Bulletin 2011-12, pg. 14
Which of the following journal entries would appropriately account for a collection of a bad debt previously charged off? a) DR: Cash | CR: ALLL b) DR: Cash | CR: Provision Expense c) DR: ALLL | CR: Income d) None of the above
a - DR: Cash | CR: ALLL: Writing off debts only affects balance sheet accounts. Income statement accounts have already been adjusted with the provision expense. It should be noted that this is the net accounting entry. To fully account for the recovery, the bank should reinstate the loan and corresponding allowance (DR: Loans | CR: ALLL), then account for the cash received (DR: Cash | CR: Loans). The net realizable value of the loan account remains the same before and after the write off.
Which of the following 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
Which of the following might a bank do in order to provide funds to satisfy liquidity needs? Choose all that apply. a) Liquidate investment securities b) Increase liabilities of a term nature c) Purchase treasury stock d) Increase holdings of non-liquid assets
a, b - See Rating Credit Risk Handbook, pg. 41
Which of the following matters may bankers not appeal? a) Examination ratings b) Adequacy of the allowance for loan and lease loss methodology c) Formal enforcement-related actions d) Violations of law
c - formal enforcement-related actions. In addition to official enforcement decisions, remarks in an ROE and other communications about POTENTIAL formal enforcement actions made prior to a review committee decision are preliminary and therefore may not be appealed. See OCC Bulletin 2013-15
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
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
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
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
The investment officer at First National Bank would like to add a municipal bond to the bank's investment portfolio. She believes that the bond is investment grade due to its Moody rating of Baa1. Which of the following OCC Bulletins should she consult for additional due diligence requirements? a) OCC Bulletin 2014-36 b) OCC Bulletin 2011-19 c) OCC Bulletin 2012-24 d) OCC Bulletin 2012-18
d - The depth of the due diligence should be a function of the security's credit quality, the complexity of the structure, and the size of the investment. See OCC Bulletin 2012-18: "Alternatives to the Use of External Credit Ratings"
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 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 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
True/False: A bank's total outstanding loans and extensions of credit to one borrower may not ever exceed 15 percent of the bank's capital and surplus.
False - See 12 CFR 32.3
True/False When grading loans, 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.
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/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: 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
Which of the following are required to allow the OCC to extend an examination frequency to 18 months? Choose all that apply. I. Bank is well capitalized and has total assets of less than $500 million II. Bank has composite and management ratings of 1 or 2 III. Bank is not subject to a formal enforcement proceeding IV. No person acquired control of the bank during the preceding 12-month period in which a full-scope exam would have been required
I, II, III, and IV. All of the preceding are required in order to extend the frequency to 18 months. See Bank Supervision Process Handbook, pg 11
Which of the following 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
Which of the following is not a requirement when issuing preferred stock? I. Approval by the OCC and a majority of stockholders II. Amending of the articles of association to reflect issuance if necessary III. Be "well-capitalized" per PCA IV. Bank must ensure par value of preferred stock is paid in before issuance is valid
III - Be "well-capitalized" per PCA. An exception is available to newly organized banks that have not issued common stock. In addition to the three requirements listed above, the bank should provide a signed document specifying the amount of issue to the OCC for certification and approval. See 12 USC 2 §51a
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
Which of the following is true of a standby letter of credit? Choose two. a) Represents an obligation of the bank to a third party, contingent upon the failure of the bank's customer, to perform under the terms of the contract b) Drafts will be drawn when the underlying transactions is consummated as intended c) Beneficiary will be paid when the terms of the letter are met and the required documents are submitted to the paying bank d) Drafts will be drawn only when the underlying event fails to occur as intended
a, d - Answer choices b and c apply to commercial letters of credit. The primary difference between the two is that a standby letter of credit is only contingent. It is used when the bank's customer defaults or is nonperforming on the intended contract, similar to a guarantee. See Trade Finance Handbook, pg. 8-11 and Call Report Glossary, pg. A-53 and 54
Which of the following auditing, reporting, and audit committee requirements apply to all national banks with $500 million or more in total assets? I. An independent public accountant (IPA) must audit financial statements II. An audit committee composed entirely of outside directors, independent of bank management III. IPAs may or may not make their work papers available to OCC examiners upon request IV. A separate attestation by an IPA on the effectiveness of management's assertions over internal controls a. I only b. I and II only c. I, II, and IV only d. I, II, III, and IV
a- I only: IPAs must make work papers available upon request. Only institutions with total assets of at least $1 billion are required to maintain an audit committee comprised entirely of outside directors (majority for $500MM-$1B) and obtain a separate IPA attestation. See 12 CFR 363.
True/False A national bank director must be a U.S. citizen.
True. All directors must be United States citizens. See 12 USC Chapter 2, §72
True/False: As a best practice, bank management should track the aggregate level of exceptions as it relates to credit quality.
True: When viewed individually, underwriting exceptions may not appear to increase risk significantly; however, when aggregated, even well mitigated exceptions can increase portfolio risk significantly. See LPM Handbook, pg 26
North Bank, N.A. has historically had well-developed funds management practices and access to funding sources on favorable terms. The last Canary report indicated more than sufficient on-hand liquidity. Based on these facts, what is the most likely component rating? a) "1" b) "2" c) "3" d) "4"
a - "1" A rating of "1" indicates strong liquidity levels and well-developed duns management practices. The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs. See Bank Supervision Process Handbook, pg 52.
Which of the following liquidity ratings indicates that management has reliable access to sufficient sources of funds on favorable terms? a) "1" b) "2" c) "3" d) "4"
a - "1" A rating of "1" indicates strong liquidity levels and well-developed funds management practices. The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs. See Bank Supervision Process Handbook, Appendix A, pg. 53
For executive officers and directors, permissible inadvertent overdrafts cannot exceed $___ or remain outstanding longer than ___ days. a) $1,000; 5 business days b) $5,000; 5 business days c) $1,000; 5 calendar days d) Inadvertent overdrafts are not permitted
a - $1,000; 5 business days. In addition, the fee should be the same as those for other customers of the bank in similar circumstances. See 12 CFR 215.4(e)
Use the following call report information ($000's): Tier 1 Capital $27,399 Total Equity Capital $30,232 Tier 2 Capital $ 948 Allowance $ 1,056 What is the bank's total risk-based capital? a) $28,347 b) $28,455 c) $30,232 d) $31,288
a - $28,347. $27,399 + $948 = $28,347. Total risk-based capital is comprised of Tier 1 and Tier 2 capital. In addition, any deductions for total risk-based capital should be removed, if applicable. See Call Report Instructions, pg. RC-R-10a
Which of the following maximum interest rates are available to service members upon request? a) 6% b) 7% c) 8% d) 9%
a - 6%. Per the Servicemember's Civil Relief Act, an obligation that is incurred before entering military service shall not bear interest at a rate in excess of 6 percent. See 50 USC Appendix, §527(a)(1)
Which of the following supervisory loan-to-value limits apply to raw land? a) 65% b) 75% c) 80% d) 85%
a - 65% SLTV. The supervisory LTV for raw land is 65%. The other limits apply to land development, construction, and improved property. See 12 CFR 34, Subpt. D, App. A
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 - Call Report. 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 bankruptcy chapters results in liquidation of the borrower's assets? a) Chapter 7 b) Chapter 9 c) Chapter 11 d) Chapter 13
a - Chapter 7. Chapter 7 involves the collection and selling of assets. Chapters 9, 11, and 13 are reorganizations. See 11 USC 7
A reservist with the National Guard received military service orders dated 6/24/2013 with a reporting date to active service of 8/12/2013. When applying the appropriate interest rate reduction, which date should the bank use? a) The date of the military orders b) The date 30 days after the reservist received the orders c) The date the reservist notifies the bank d) The date the reservist enters active duty
a - See 50 USC Appendix §516(a)
Which of the following real estate loans would require flood insurance? Assume the property is located in a special flood hazard area unless otherwise noted. a) A purchase loan for a four-walled barn with an original principal balance of $4,500 and repayment term of 18 months b) A purchase loan for a permanently affixed mobile home not located in a SFHA c) A purchase loan for a four-walled barn with an original principal balance of $3,000 and repayment term of 9 months d) An acquisition and development loan to acquire raw land that will be developed into buildable lots
a - See FDPA Handbook, pg 35; Exemptions
Which of the following assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the institution's position at some future date? a) Special Mention b) Substandard c) Doubtful d) Loss
a - Special Mention. Special mention assets are not adversely classified but pose elevated risk. See Rating Credit Risk Handbook, pg 16
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
On the UBPR, which of the following criteria is used to define all commercial bank peer groups? a) Asset size b) Number of banking offices c) Asset mix d) Location
a - asset size. The UBPR breaks banks into 15 peer groups and a De Novo group. All banks are grouped by assets, which are then further stratified between number of banking offices and locations for smaller asset sizes. For peer group purposes, banks with assets of more than $300 million are not segregated by the number of offices or location. While the de novo is grouped by years, they are subject to a $750MM asset limitation. See UBPR User's Guide, Pg. II-2
Per deposit regulations, which of the following must banks use to compute interest on deposits? a) Average daily balance or daily balance of the account b) Highest balance of the account c) Lowest balance of the account d) Highest daily balance of the account e) Any of the above methods as long as it is properly disclosed to the consumer
a - average daily or daily balance. The Truth in Savings Act states that interest should be calculated by using the daily balance or average daily balance method for computation. See 12 CFR 1030.7(a)(1)
First National bank has five directors, of which two are directors of a manufacturing company. Together with their wives, the two directors constitute the only directors of the company. Which of the following is true of the manufacturing company? a) The company is not an affiliate of the bank because it is not in the same line of business b) The company is not an affiliate of the bank because the directors do not compose a majority of the board of the bank c) The company is an affiliate because the directors obviously control the company d) The company is an affiliate because there are interlocking directors
b - An affiliate is defined as any company in which a majority of its directors or trustees constitute a majority of the persons holding any office within the member bank or any company that controls the member bank. See 12 USC 371c (b)(1)(C)(ii)
Use the following quarterly bank call report balance sheet information (in $000's): Total Assets: $56,720 Commons Stock: $750 Average Assets: $55,600 Surplus: $800 Subordinated Debt (qualifies as capital): $350 Undivided Profits: $1,785 What is the bank's Tier One Leverage capital ratio? a) 6.63% b) 6.00% c) 6.50% d) 5.88%
b - Common stock 750 + surplus 800 + undivided profits 1785 / Average Assets 55600. Qualifying subordinated debt is a component of Tier II capital. See UBPR Instructions, pg
Which of the following funding would not be considered wholesale funding? a) Brokered deposits b) Large CDs obtained through local businesses c) Repurchase agreements d) Federal Home Loan Bank advances
b - Examples of alternative funding sources include federal funds lines, repurchase agreements (repos), correspondent bank lines, Federal Home Loan Bank (FHLB) advances, Internet deposits, deposit-sharing arrangements, and brokered deposits. See Liquidity Handbook for more info
The OCC can initiate a variety of informal and formal actions against national banks. Which of the following actions are public documents? a) Board Resolutions b) Formal Agreements c) Commitment Letters d) Memoranda of Understanding
b - Formal Agreements. While Formal Agreements are issued pursuant to the OCC's Cease and Desist Order authority, they are considered less severe than C&Ds. See Bank Enforcement Actions document, http://el.occ/publications/publications-by-type/internal/enforcement-action-guidance.html
Which of the following indicates a moderate quantity of price risk? I. Bank is active in mortgage banking with servicing assets material to capital II. Bank does not participate in hedging activities III. Bank has a modest amount of OREO, but is concentrated in types that are not expected to realize significant negative value changes IV. Originating and distributing loans into the capital markets is a key business line for the bank a) II only b) I and III c) I, III, and IV d) I, II, III, and IV
b - I and III. In general, price risk is the highest in trading and hedging activities. Price risk also arises from activities whose value changes are reflected in the income statement. See Community Bank Supervision Handbook, Appendix A, pg 146.
Which of the following bulletins 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) The distribution of cash or other assets must be a part of the reduction plan
b, c - A reduction to permanent capital requires approval by the OCC and at least 2/3 of the owning shareholders voting consent. While a distribution of cash or other assets is authorized under an approved reduction plan, this is not the only option (e.g. Treasury stock). See 12 USC 59 or Capital and Dividends Licensing Manual, pg. 7
Use the following quarterly bank call report balance sheet information (in $000's) Average Assets: $168,682 ALLL: $1,650 Gross Risk-Weighted Assets (before deductions): $115,000 Total Equity Capital: $19,303 Total Risk-Weighted Assets: $110,787 For tier 2 capital purposes, what is the allowable portion of the bank's allowance for loan and lease losses? a) $1,385 b) $1,438 c) $1,650 d) $2,109
b - $1,483. The amount of the ALLL allowed cannot exceed 1.25 percent of the bank's gross risk-weighted assets. Gross RWA is reported in Schedule RC-R, item 59 and refers to RWA before deductions for any excess ALLL. See Call Report Instructions, Schedule RC-R, pg RC-R-10
If a material event occurs between Call Reports that results in a lowering of the PCA category, within how many days is the bank required to notify the OCC? a) 10 days b) 15 days c) 30 days d) 45 days
b - 15 days. A written notice that an adjustment to the capital category may have occurred is required. See 12 CFR 6.3(c)
Which one of the following capital limits apply to the aggregate amount of securities purchased primarily on the basis of reliable estimates? a) 3 percent b) 5 percent c) 10 percent d) 15 percent
b - 5 percent. Banks may treat debt securities as investments if they believe, based on reasonable estimates, that the obligor will be able to satisfy its obligations. The aggregate par value of these securities may not exceed 5 percent of capital. See 12 CFR 1.3(i)(1) and (2)
Generally, an account receivable turnover ratio of 7.0 means the average collection period would be: a) 42 days b) 52 days c) 60 days d) 84 days
b - 52 days: Receivables days on hand estimates how long it takes an entity to collect on its receivables based on a year. Since the entity collected all of their receivables 7 times throughout the year, the collection period was approximately 52 days (365 days/7.0=52). See Asset- Based Lending Handbook, pg. 11
In the event a bank is undercapitalized, how many days does the bank have to file a written capital restoration plan? a) 30 days b) 45 days c) 60 days d) 90 days
b - A national bank shall file the plan with the OCC within 45 days of the date that the bank receives notice or is deemed to have notice that the bank is undercapitalized. See 12 CFR 6.5 (a)
In relation to hotel lending, which of the following is calculated by dividing the room revenue by the number of rooms occupied for a given period? a) Occupancy Rate b) Average Daily Rate c) Revenue per Available Room (RevPAR) d) Vacancy Rate
b - ADR. Once ADR has been calculated, RevPAR can be determined by multiplying the ADR by the occupancy rate. See Commercial Real Estate Lending Handbook, pg 46
Use the following call report information (in $000's) for CY-0: CY-0 NI: $2,000 Commons Stock: $750 CY-1 RE: $2,150 Surplus: $800 CY-2 RE: $975 Undivided Profits:$9,750 Assuming this institution has never declared dividends, what is the maximum current-year dividend the bank can declare without receiving prior approval from the OCC? a) $1,550 b) $2,000 c) $5,125 d) $9,750
c - $2,000+$2,150+$975 = $5,125. Per 12 USC 60, a national bank must obtain prior approval from the OCC to pay dividends that would exceed its net profits for the current year combined with retained net profits of the prior two years. See Capital Accounts and Dividends Handbook, pg. 11
Currently, ABC Company's inventory is $900 thousand. The company reported average inventory at $1,235 thousand and cost of goods sold at $2,173 thousand. What is the inventory turnover ratio? a) 0.41 b) 0.57 c) 1.76 d) 2.41
c - 1.76 times: COGS of $2,173 divided by Average Inventory of $1,235 = 1.76 times. Inventory turnover measures how many times a business is able to turn inventory during the year and is calculated as COGS/Avg Inv. A high rate is desirable. See Asset-Based Lending Handbook, pg. 10
FNB Small Town purchased a $950 thousand state tax-exempt municipal bond with a yield of 4.5 percent. What is the tax equivalent yield if the bank's state marginal tax rate is 8 percent? a) 2.50 percent b) 4.17 percent c) 4.89 percent d) 5.62 percent
c - 4.89 percent = 4.5%/(1-8%): Tax-equivalent yields provide a comparison between taxable securities and tax-exempt securities. A taxable security would need to have at least the same pre-tax yield as a muni's tax-equivalent yield to be comparable. The tax-equivalent yield (TEY) is calculated as follows: TEY = Muni yield/(1-tax rate)
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
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
Which of the following is not a minimum appraisal standard? a) Conform to generally accepted appraisal standards (USPAP) b) Be written and contain sufficient information and analysis to support decision c) Contain all three approaches to value d) Be performed by a state certified or licensed appraiser
c - Contain all three approaches to value. The appraisal should use the best approach to value for the individual property. See 12 CFR 34.44 and OCC Bulletin 2010-42, Section VIII
Which of the following rating classifications is described as having a weakness that makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable? a) Special Mention b) Substandard c) Doubtful d) Loss
c - Doubtful. Generally, a doubtful asset has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Because of the high probability of loss, nonaccrual accounting treatment is required for doubtful assets. See Rating Credit Risk Handbook, pg 17
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 sells the loan, the purchaser should retain the HUD-1 for the rest of the five-year period. See 12 CFR 1024.10(e)
When must a bank file a suspicious activity report, assuming no suspect was identified on the date of incident detection? a) Immediately b) Within 30 days of initial detection c) Within 60 days of initial detection d) Within 90 days of initial detection
c - Generally, SARs should be filed with FinCEN within 30 days of detection of the incident. Filing can be extended to 60 days if no suspect has been identified; however, in no case should the filing be delayed more than 60 days. See 31 CFR 1020.320(b)(3)
American National Bank has decided to close one of its branch locations due to branch expenses. Which of the following is true regarding the former banking premises? I. The holding period for OREO begins on the date the bank ceases to use the former premises without relocating II. The bank may hold the property three years III. The bank may hold the property as long as it desires, as long as the bank requests an extension IV. The bank may hold the property no more than ten years, even with an extension A. I only B. I and II C. I, II, and IV D. I, II, III, and IV
c - I, II, and IV only. A national bank must dispose of OREO at the earliest time prudent judgment dictates, but the holding period must be no longer than five years. In addition, the OCC may grant multiple extensions, as long as those extensions, in the aggregate, do not exceed an additional five years. See Other Real Estate Owned Handbook, pg 4
A bank's customer identification program must contain account-opening procedures detailing the identifying information to be obtained from each customer. At a minimum, which of the following information must the bank obtain before opening an account for US persons? I. Customer name II. Date of birth, for an individual III. Employer, for an individual IV. Address a) I and II only b) II only c) I, II, and IV only d) I, II, III, and IV
c - I, II, and IV only. In addition to customer name, date of birth, and address, the bank should also obtain the identification number for the individual or corporation. See 31 CFR 1020.220 for further guidance on CIP as there may be exemptions.
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)
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
Generally, which of the following is the most important consideration in determining the value of collateral when then credit is secured by inventory? a) Ratio between sales and inventory b) Original cost of the inventory c) Ready market value of inventory d) Book value of the inventory e) All of the above
c - Ready market value of the inventory. Management should obtain appropriate values for inventory collateral. In the event of default, the value the bank could liquidate/sale inventory may vary greatly from the original cost or book value of the inventory. See Accounts Receivable and Inventory Financing Handbook
Which of the following would not be included in other real estate owned? a) Real estate acquired in full or partial satisfaction of debt b) Real estate formerly used for bank premises that will no longer be used c) Real estate acquired with plans for future expansion d) Real estate acquired for future expansion that will no longer be used for expansion
c - Real estate acquired and intended for future expansion would be treated as bank premises, NOT OREO. See 12 CFR 5.37 and 34.81
Generally, which of the following is 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
Which of the following is not exempt from obtaining an appraisal/evaluation? a) Lien on real estate taken by the lender in an abundance of caution b) A loan that is not secured by real estate, even if the proceeds of the loan are used to acquire real property c) Real estate transactions with a transaction value equal to or less than $250,000 d) Operating leases that are not the economic equivalent of the purchase or sale of the leased property
c - While an appraisal is not explicitly required, institutions should obtain an evaluation consistent with safe and sound banking practices. See OCC 2010-42: "Interagency Appraisal and Evaluation Guidelines" Appendix A, pg. 17
Which of the following 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
American National has a general legal lending limit of $12,411 thousand. A customer has requested a loan for $19,750 thousand. The bank has a current inspection valuing the cattle at $9,870 thousand. Assuming the customer has no other debts, what is the maximum amount the bank can lend to the customer? a) $9,870 b) $12,411 c) $19,750 d) $20,685 e) $20,993
d - $20,685 : Special lending limits exist for loans secured by documents covering livestock; however, extensions to one borrower may not exceed 25 percent of capital (15% general plus 10% additional). In addition, the market value of the collateral must be at least 115% of the credit amount over the 15% general limit. See 12 CFR 32.3(b)(3) The math: We can determine that the bank's capital is $82,740 ($12,411/0.15); therefore, the maximum the bank can lend is $20,685 ($82,740*0.25). While the bank has the collateral value to lend $20,993 (e), the bank is limited to the 25% threshold.
Which situation presents an increased quantity of interest rate risk? a) a low ratio of long-term assets to total assets b) a small volume of assets with embedded options c) a stable net interest margin over the last three years d) a large holding of fixed-rate residential real estate loans e) a high ratio of non-maturity deposits to long-term assets
d - All choices indicated less interest rate risk than a large holding of fixed-rate residential real estate loans. A large holding of fixed-rate mortgages indicates that management will be unable to price these products in the short term, increasing IRR. Depending on the rate environment, these loans also may be subject to prepayment. See Director's Toolkit book "Detecting Red Flags in Board Reports", pg 26
When an individual loan is considered impaired, management must measure the extent of the impairment. What measurement method(s) may the bank base the impairment on? a) The present value of the loan's future cash flows b) The observed market value of the loan c) If a collateral dependent loan, the collateral value less the costs to sell d) All of the above
d - All of the above are appropriate. ASC 310-10-35-22 (formerly FAS 114) allows the use of (a); however, additionally allows (b) and (c) as "practical expedients." See Allowance for Loan and Lease Losses Handbook, pg 6
Which of the following should be included in an effective risk management process for vendor management? I. Plans that outline the bank's strategy, identify inherent risks, and detail how the bank selects, assesses, and oversees third parties II. Contingency plans for terminating the relationship in an effective manner III. Ongoing monitoring of third party activities and performance IV. Proper due diligence in selecting a third party a) I and II only b) II only c) I, III, and IV only d) I, II, III, and IV
d - All of the above. See OCC Bulletin 2013-29: "Third-Party Relationships," pg. 1
Which of the following is a collateral valuation method used to limit the amount of funds the lender will advance the borrower? a) Blanket assignment b) Factoring c) Trade cycle analysis d) Borrowing base
d - Borrowing base. A borrowing base is used in accounts receivable/inventory financing and specifies the maximum amount that can be borrowed in terms of collateral type, eligibility, and advance rates. See Accounts Receivable and Inventory Financing Handbook
In reviewing the bank's retail credit portfolio, an examiner notices that a 1-4 family residential mortgage is 103 days past due. Based on the aforementioned, the loan should be graded as which of the following? a) Special mention b) Substandard c) Loss d) Cannot be determined based on the facts
d - Cannot be determined based on the facts. Generally, open- and closed-end retail loans past due 90 cumulative days should be classified Substandard. However, there is an exception as it relates to 1-4 family residential real estate loans. If the credit is properly secured with an LTV equal to or less than 60 percent, they're not classified solely on delinquency status. One would need to consider other salient facts. See OCC Bulletin 2000-20: Uniform Retail Credit Classification
Which of the following is the risk to current or anticipated earnings or capital arising from an obligor's failure to meet the terms of any contract with the bank or otherwise perform as agreed? a) Price Risk b) Liquidity Risk c) Basis Risk d) Credit Risk
d - Credit Risk. Credit risk is found in all activities in which settlement or repayment depends on counterparty, issuer, or borrow performance. See Community Bank Supervision Handbook, Appendix A, pg 130.
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
Which of the following is correct in regards to a national bank's board of directors? I. The number of directors must be at least 5, but no more than 25 II. Original executed oaths of directors must be filed with the OCC III. Each director must own an aggregate value of $1,000 in stock IV. The president of a national bank must be a member of the board of directors a) I and II only b) II only c) I, II, and IV only d) I, II, III, and IV
d - I, II, III, and IV. A bank's board may have more than 25 members, after notifying the OCC as to why the reason for the increase occurred. The value of stock (or qualifying equity interest) may be based on the par value, shareholder's equity value, or fair market value. See 12 CFR 7 for more information. Specific documentation can be found in 12 CFR 7.2024, 2008, 2005, and 2012, respectively.
In general, Community Reinvestment Act examinations occur every three years. Which of the following cycle extensions apply to banks having assets less than $250 million? a) Small banks do not receive any extensions b) Once every 60 months for banks with a previous rating of "Outstanding" c) Once every 48 months for banks with a previous rating of "Satisfactory" d) B and C
d - In addition to the cycles noted above, supervisory agencies have discretion in frequency when the small bank received a "less than satisfactory" rating at the previous examination. See the Gramm-Leach-Bliley Act of 1999, Title VII, Subtitle B, Sec. 809
Which of the following prohibited bases applies to the Equal Credit Opportunity Act, but not the Fair Housing Act? a) Race or color b) Religion c) National origin d) Marital status
d - Marital status. Marital status is a prohibited basis under ECOA, but not FHA. FHA includes familial status, which is defined as persons under the age of 18 living with a guardian, pregnant women, and persons securing custody of children under 18. See 12 CFR 1002.2(z) for ECOA and 24 CFR 100.20 for FHA
Which of the following thresholds would require advance majority approval of the board of directors, with the borrower abstaining? a) The higher of $10M or the bank's legal lending limit b) The higher of $25M or 2.5% of capital, when the loan is for "personal" purposes c) The higher of $100M or 5% of capital, regardless of purpose d) The higher of $25M or 5% of capital or in any case, $500M
d - Prior approval is required if the aggregate of extensions of credit to the insider and related interests exceeds the higher of $25M or 5% of the member's bank's unimpaired capital or surplus, or in any case, $500M. See 12 CFR 215.4 (b)
Which of the following is considered capital and surplus for the purposing of legal lending limits? a) Common stock and paid-in surplus b) Total bank equity c) Total risk-based capital d) Tier 1 capital, tier 2 capital, and any excess allowance not includable in tier 2 capital
d - T1+T2+Excess ALLL. See 12 CFR 32.2
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 is not exempt from the restrictions on transactions with affiliates? a) An affiliate engaged solely in holding bank premises of the member bank b) An affiliate engaged solely in holding fully guaranteed obligations of the U.S. government c) Where the affiliate relationship arises out of a bona fide debt previously contracted d) Where the affiliate relationship exists as a result of common directors
d - Where the affiliate relationship exists as a result of common directors. Choices a, b, and c are not considered affiliates when reviewing restrictions on transactions with affiliates. When there is common directorship, that organization would be an affiliate. See 12 USC 371c(b)(1) and (2)
Upon foreclosure or physical possession, whichever is earlier, OREO should be recorded at a) the fair value of the property, capitalizing any estimated cost to sell b) the fair value of the property c) the outstanding loan amount upon foreclosure d) the fair value of the property, less the estimated cost to sell
d - the fair value of the property, less the estimated cost to sell - OREO Handbook, page 6
In regards to transactions with affiliates, which of the following would not be considered a "low-quality" asset? a) A loan that is nonaccrual b) A loan that is more than 30 days past due c) A pass loan whose terms have been renegotiated due to financial deterioration d) A loan classified as substandard e) All of the above are "low-quality" assets
e - all of the above. Banks may not purchase a low-quality asset from affiliates unless the bank committed to purchase the asset, pursuant to an independent credit evaluation, before the time the asset was acquired by the affiliate. See 12 USC 371c, 12 CFR 223, or Related Organizations Handbook, pg. 8
Which of the following circumstances would require a loan write-up? I. When the loan adversely rated exceeds the greater of $100 thousand or 2 percent of capital in a "3" rated bank II. When the loan adversely rated exceeds the greater of $150 thousand or 5 percent of capital in a "1" rated bank III. When an insider loan is adversely rated in a "3" rated bank IV. A special mention or classified Shared National Credit in a "1" rated bank a) II only b) I and III c) II and III d) I, II, III, and IV
b - I and III. Write-ups are strongly recommended when the special mention or classified loan is Shared National Credit, when the amount adversely rated exceeds the greater of $150M or 5% of capital, when management disagrees with the classification, when an insider loan is adversely rated, or when a violation of law is involved. They are MANDATORY when a bank is, or may be, rated "3", "4", or "5" AND when any one of the last three items in the recommended list apply. The threshold decreases to $100M or 2% of capital for these banks. See Rating Credit Risk Handbook, pg. 41
Which of the following is considered an insider for the purposes of Regulation O? I. A shareholder owning 8 percent of the bank's voting securities II. A shareholder owning 21 percent of the bank's voting securities III. An EVP that does not have authority to participate in major policy making functions IV. Any employee of the bank a) I and II only b) II only c) I, III, and IV only d) I, II, III, and IV
b - II only. See Insider Activities Handbook, pg 9
Under the direct appeal process, within how many days is the Ombudsman required to issue a response? a) 30 b) 45 c) 60 d) 90 e) 120
b - In the absence of any extenuating circumstances, the Ombudsman will issue a written response to the appeal within 45 days. See OCC Bulletin 2013-15.
A bank has unimpaired capital and surplus of $7. 3 million. Director X has $300 thousand in extensions of credit and requests a loan for another $50 thousand. Is prior approval of a majority of the board legally required? a) Yes b) No
b - No. Prior approval is only required when the aggregate extensions of credit to an insider is greater than the higher of $25M or 5%. See 12 CFR 215.4(b)
Is it appropriate for a senior trust officer to be a member of the bank's fiduciary audit committee? a) Yes b) No
b - No. The fiduciary audit committee must not include any officers or affiliates who participate significantly in the administration of the bank's fiduciary activities. The committee must also have a majority of members who aren't members of another committee that has powers to manage and control fiduciary activities. See 12 CFR 9.9 (c)
Which of the following 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
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 investment types is limited to 10 percent of capital and surplus when the purchase is based on adequate evidence of ability to perform? a) Type I b) Type II c) Type IV d) Type V
b - Type II. Type II and Type III investments are limited to 10 percent of capital and surplus when the value is based on adequate evidence of the maker's ability to perform. See Investment Handbook and 12 CFR 1.
Which of the following 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
A "cap" or "floor" is an example of _________. a) Prepayment risk b) An embedded option c) A put option d) A call option e) A warrant
b - an embedded option: Caps and floors are embedded options that help to control interest rate fluctuation on variable instruments. See Interest Rate Risk Handbook
Which of the following documents is required to establish a testamentary trust? a) Declaration of trust b) Will c) Contract d) All of the above
b - will: Testamentary trusts are established by a will and takes effect after successfully passing through the probate process upon the testator's death. See Personal Fiduciary Services Handbook, pg. 16