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Home > Regulation & Examinations > Bank Examinations > Risk Management Manual of Examination Policies |
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Risk Management Manual of Examination Policies
Section 16.1 - Report of Examination Instructions General Instructions These instructions apply to all safety and soundness Reports of Examination (ROE) except those targeted reviews of banks included in the Large State Nonmember Bank Onsite Supervision Program.
Use the following reference material in preparing the ROE: Unless otherwise specified, complete Report pages according to Call Report Instructions. Reminder: Changes to definitions, laws and regulations, Call Report treatment, and regulatory policy within the aforementioned references impact the Report. Be aware of the effects of such changes. When significant Report changes have occurred since the previous examination, use footnotes (on the applicable Report pages) to explain the difference(s) between the current Report and the previous Report. Insignificant or minor changes need not be footnoted. Report Comments Report comments should clearly support the corresponding component rating. Comments should focus on an assessment, rather than a simple description, of a policy, practice, or condition. Comments should explain an examiner's reasoning for assigning a particular rating or making a particular recommendation. Use descriptive subheadings, bulleted or numbered lists, tables, and other such devices as needed to promote readability. Other general concepts to follow include: perform a complete analysis that formulates a conclusion; identify and assess risks proactively; and use appropriate tone. Peer Group Information - Written comments may incorporate peer group information for support. Moreover, certain user-defined peer group ratios may be inserted onto the Examination Data and Ratios page. Apparent Criminal Violations - Do not refer to criminal referrals or to apparent criminal violations in the Report's open section. In a Federal criminal case, defense counsel may inspect the Report upon order of the court. Reports and related material will almost certainly be made available to Federal prosecutors, investigators, and the grand jury. For this reason, confine comments in Reports and workpapers to clear-cut statements of fact. Do not include opinions about the probability of indictment, conviction, or related matters. Comment as specifically as possible and identify who reported the matter and how it occurred. (Do not use such language as "it is reported..."; use such language as "President Scott reported..."). "Consolidated" vs. "Institution Only" Complete "Institution Only" schedules only when such schedules are meaningful. "Institution Only" schedules may be meaningful when the following conditions exist: Since no formal "Institution Only" pages exist, develop such schedules on continuation pages. This flexibility allows examiners to portray "Institution Only" data in a format that reflects desired information. In many cases, a simple detail of the institution's investment in each subsidiary may be appropriate. Report Dates The Report uses four different dates: Selection of the Examination as of Date and the Asset Review Date - In selecting these dates, consider the length of time between the two dates as well as any material changes which may have occurred between the two dates. When determining the Examination as of Date, consider the meaningfulness of presentation, as well as work productivity. Use the date selected as the Examination as of Date consistently throughout the Report. Note: When significant changes in the composition of the balance sheet occur between the Examination as of Date and the Asset Review Date, make appropriate comments in the Report. There may be circumstances when a more recent month-end date would better serve as the financial date (rather than the most recent quarter-end). Page Order and Numbering Page order is addressed in the Inventory of Report Pages section. All pages in the open section are sequentially numbered. The Table of Contents lists the titles of all open section pages and the relevant page numbers; continuation pages are not detailed separately. Sequential numbering continues through the confidential section but is not shown in the Table of Contents. Generally, do not number the Officer's Questionnaire. However, if the Officer's Questionnaire is included in the Report, numbering may be appropriate when the Officer's Questionnaire is lengthy. In such instances, the letters OQ should precede the number (for example, OQ.1, OQ.2, OQ.3). Supplemental Pages Supplemental pages (non-mandatory pages in the open section of the Report) are used only to provide additional support for conclusions, recommendations, or ratings on the ECC page. It is important to note that while the Bank of Anytown Report includes all the available supplemental pages, most have been included for format guidance only, not because they were deemed essential support schedules for the Anytown’s ECC page. More precisely, supplemental pages relating to asset quality and earnings are used in the Bank of Anytown to support ECC comments. Rounding Numbers/Dollar Amounts - In financial schedules, round to the nearest thousand and omit 000. In narrative comments, "M" as an abbreviation for thousands is acceptable. Throughout a Report, round consistently, including ECC comments. For example, avoid using $2.5MM, $2,500M, and $2,500,000 interchangeably. In the Items Subject to Adverse Classification and Items Listed for Special Mention pages, round to the nearest thousand and omit 000 in both the heading and the extended criticized amount (refer to the Bank of Anytown). In narrative comments, the numbers and dollar amounts may be rounded and abbreviated; however, it is acceptable, and often essential, to use precise dollar or numerical amounts to promote clarity and avoid confusion. Example: $25M loan secured by a mortgage on an 1,800-square-foot office condominium valued at $31,500 or $17.50 per square foot. Note: When rounding, minor adjustments may be necessary to balance related totals in the Report. Ratios Generally, round percentages to the nearest hundredth of a percent, especially critical or precise percentages such as Prompt Corrective Action capital ratios in problem institutions. Round noncritical or imprecise ratios to the nearest whole number. Note: Avoid being overly precise in narrative comments. Abbreviations ECC and Compliance with Enforcement Actions pages: Spell out the complete word or phrase the first time that an abbreviation is used on the ECC and Compliance with Enforcement Actions pages. Note: Rounding/abbreviating numbers is addressed above under "Rounding." Other Report Pages: A list of standardized abbreviations for use on the other Report pages is provided on the back cover of the Report (shown in Appendix A). Spell out the complete word or phrase the first time any abbreviation not on the back cover is used. Other Report Format Issues Footnotes: For those Report pages that have a section titled "Footnotes,” use this section strictly for footnotes and not for comments. Dollar signs: Use dollar signs in narrative comments but not in tables. Commas: Use commas in amounts of 1,000 or more (for example, 1,540). Negative figures: Enclose all negative figures in parentheses or refer to them as negative numbers in written comments. Reminder: Do not write double negative numbers. Examples:Writing Style and Grammar: Follow the standards in Appendix B regarding grammar, spelling, hyphenation, dates, and capitalization. Other references such as dictionaries, writer’s handbooks, and style guides may also be used. Names: On the first reference to a person in the Report, generally use the complete first name, middle initial, and last name (for example, Senior Vice President John A. Doe). After the initial reference, an abbreviated name may be used (Senior Vice President Doe) if no confusion with other officers is possible. Be consistent throughout the Report. Financial Ratios: Financial ratios are taken from the UBPR and are generally automatically downloaded into the Report through the Genesys program. Choose the quarterly UBPR most appropriate for the examination, with the most current data in the left-hand column. Ratios should generally correspond with the Examination as of Date. If UBPR ratios are not available, perform manual calculations with an appropriate footnote stating that calculations were manually performed. Manually generated ratios should be calculated according to the definitions contained in the UBPR Users Guide.
Note: Use the EDR (International) page, in lieu of the standard EDR page, in the core section of the Report. Place International Report Pages immediately after the Items Subject to Adverse Classification and Items Listed for Special Mention pages. Examination Conclusions and Comments (ECC)
The ECC page should convey all significant examination conclusions, recommendations, and management responses to the primary readership of the Report – the Board of Directors and institution management. This page will always include an assessment and support for each CAMELS component. This schedule should also serve as a guide for corrective action of all significant examination recommendations. Completion of this schedule is the final step in the examination process. A full understanding of the institution's overall condition is a prerequisite to its preparation. In general, duplication of comments should be minimized between the ECC page and other schedules included within the Report, especially the RMA page. However, some duplication is anticipated within the ECC page as certain types of examination issues, like an underfunded ALLL, can materially impact multiple component rating assessments. Comment Length and Content Comments should be of sufficient length to support the conclusions reached and recommendations presented. For example, the ECC page commentary for a stable 1-rated component would be fairly concise, while the length of commentary would be progressively more detailed for 2- through 5-rated components. Page Structure and Order
Uniform Financial Institutions Rating System – As formatted by Genesys, the top of the first page includes a grid to display the component and composite ratings for the current and two prior examinations. Since definitions of all five composite ratings are printed on the inside of the Report front cover, it is unnecessary to include the definition here. Definitions of the component ratings are publicly available in the FDIC Statement of Policy on The Uniform Financial Institution Rating System, and can be provided separately to management upon request. Previous examination dates should correspond to those noted elsewhere in the Report. Identify State examinations with "S" following the date; designate other agency examinations with appropriate abbreviations. Condition Summary The first narrative comments (after the composite and component ratings grid) will be a summary of the overall condition of the bank, briefly addressing the composite and each component area. While this comment should be concise (often, two or three sentences will be sufficient), it is recognized that examinations of institutions presenting more than normal risk may necessitate somewhat more extensive narrative. However, in such cases, the focus should remain on a summary of the bank’s condition; bullet points or other summarization techniques can be an effective means of concisely yet informatively summarizing the key conclusions. Compliance with Enforcement Actions Include a summary of outstanding formal or informal action derived from the detailed analysis presented on the Compliance with Enforcement Actions page. In the case of an Order to Cease and Desist, the summary should also discuss the unsafe or unsound practices cited in the "Notice of Charges" which precipitated the enforcement action. Close with the examiner's opinion as to whether each of the practices or conditions has been discontinued or still exists. When applicable, this summary should be the first comment after the summary comment. However, the exact order should depend on its relative importance. Reminder: Only the FDIC's Board of Directors is authorized to make a finding of "unsafe or unsound banking practices." Therefore, do not use the statutory words "unsafe or unsound" in comments concerning management's practices. However, certain factual events allow examiners to note that an institution is in an unsafe and unsound condition. Synonyms and other descriptive terms such as "undesirable, unacceptable, or objectionable" are permissible when commenting on unsafe and unsound practices. Prompt Corrective Action - Present a summary of Prompt Corrective Action (PCA) provisions derived from the detailed analysis presented on the Compliance with Enforcement Actions page. CAMELS Components Each CAMELS component must be addressed on the ECC page. Address in order of priority and risk, although some latitude is allowed to facilitate clear and effective communication. After each component heading, indicate the rating assigned (e.g. Capital – 1). The narrative for each component must include an assessment and support of the rating assigned. If applicable, examiner recommendations and management responses would also be detailed here. When examination recommendations are included, rationale should be provided. Refer to the Basic Examination Concepts and Guidelines section of the DSC Risk Management Manual of Examination Policies (Manual) for rating definitions and specific items to consider when evaluating each component. Also refer to other related sections of the Manual when analyzing component areas. The length and level of comment detail should be consistent with the rating assigned; that is, generally brief comments for 1- and 2-rated components and progressively more detailed for 3-, 4-, and 5-rated components. As the commentary expands to properly discuss the 3-, 4-, or 5-rated components, it is especially important that examiners use effective organization and presentation techniques, so that examination findings and recommendations are communicated clearly. Subheadings and bullet points are encouraged to improve readability. Spacing and modified text attributes (bold, italics, etc.) should be used to draw attention to management responses, as appropriate. In particularly lengthy comments on a CAMELS component, it may be helpful to begin the narrative with a concise summary or bullet points of the major issues to be covered under that component. Disposition of Assets Classified Loss When appropriate, this would be discussed within the Asset Quality segment of the ECC page. Note: Except in formal cases under Section 8 of the FDI Act, make a request for the institution to charge off a portion of loans classified Doubtful only when State law or policy requires. Follow guidance contained in the Securities and Derivatives section of the Manual when securities are adversely classified Doubtful or Loss. Other asset categories against which valuation reserves are not normally maintained require a judgment regarding a recommendation for charge-off. Note: Comments should not include recommendations regarding acquisition or disposition of specific assets. Specialty Examinations Concurrent specialty examinations submitted under separate cover (Information Technology (IT), Municipal/Government Securities Dealers, Transfer Agent, or Trust) – Unless the following exception applies, do not reference these examinations on the ECC page. Exception: Material weaknesses disclosed in these separate, concurrent, specialty examinations may be summarized on the ECC page, or, in such cases, the reader should at minimum be instructed to refer to the separate specialty examination Report. Such summaries or references should generally be made as the last topic prior to the “Meetings with Management and the Board of Directors” discussion, unless the significance of the findings warrants higher priority. Concurrent specialty examinations included as part of the safety and soundness Report (IT and/or trust) – Findings of the IT review will be discussed on the Information Technology Assessment page. Comments and conclusions concerning trust activities of institutions eligible for embedded Report treatment will be included on the Fiduciary Activities Assessment page. Although no narrative on the ECC page is generally necessary concerning these examinations, brief comments may be included when significant issues exist. Bank Secrecy Act (BSA) Significant deficiencies in the BSA program, or significant violations of BSA-related laws or regulations, should be discussed on the ECC page. BSA issues of lesser significance may, as appropriate, be discussed in Question #5 of the RMA page. Meetings with Management and the Board of Directors If a meeting with the institution's Board of Directors is held, make a concise presentation of the topics discussed and management's commitments or responses. Discussion of specific management actions, commitments, or responses contained in preceding comments need not be repeated. However, include enough detail to make the comment informative and to create a record of management's commitments. Include the date of the meeting and a listing of attendees. If no meeting with the Board of Directors is held, summarize the meeting held with senior management at the close of the examination. Generally, this comment should be included after CAMELS commentary. Board of Directors Reminder to Review and Sign the Report of Examination This comment, which should be under a separate heading, is the last narrative item on the ECC page. The comment should remind the Directorate of its responsibility to review the entire ROE and remind the Board that each Director must sign the Signatures of Directors/Trustees page. Examiner’s Signature and Reviewing Official’s Signature and Title The examiner's signature (signatures if joint) and the reviewing official’s signature and title should be the last items on the ECC page. Compliance with Enforcement Actions
Use this schedule to factually present an institution's adherence to formal and informal administrative actions and to Prompt Corrective Action provisions. When to Include Include the schedule when an institution has one of the following outstanding actions:
Continuing Condition Create a separate page entitled “Compliance with Ongoing Conditions” for ORDERs Granting Approval for Deposit Insurance. This page will follow the Compliance with Enforcement Actions page (if formal or informal actions are in place) or the ECC page. Continuing conditions other than the ORDER Granting Approval for Deposit Insurance should not be included on the Compliance with Enforcement Action page. For example, application for, or compliance with, Part 362 powers should be addressed under Question #5 of the RMA page. Informal Action Prompt Corrective Action When applicable, address restrictions or requirements imposed through Prompt Corrective Action here as well as the institution's adherence to such restrictions or requirements. Page Structure Begin with a brief statement leading into the action’s provisions. Detail the type of, parties to, and effective date of the action. At the first examination after the issuance of a formal or informal administrative action, the action should generally appear verbatim on this page. If the action is lengthy and no court action is contemplated, it may be paraphrased if Regional Office practices permit. Follow each provision with an examiner assessment. Address each provision of the action, whether or not time limits have expired, documenting in each instance, in a factual manner and without statement of opinion, the steps taken by the institution to comply with the action. State if no steps to comply have been taken. Never use conclusory language such as, "The institution is in compliance/partial compliance/substantial compliance/noncompliance with this provision." Note: Use bold print, indentation, or similar techniques to differentiate between the action’s provisions and the examiner’s assessments. At subsequent examinations, provisions may be paraphrased or summarized. Address only those points of the action that the institution had not complied with at the previous examination, requirements of a continuing nature, and those on which the time limits had not previously expired. When all provisions have been satisfied, and the only remaining provisions are those of a continuing nature having no expiration date, remarks may be limited to a short paragraph concerning the continuing requirements of the action. Note: In all cases, carry forward a summary of the institution's adherence to any outstanding formal actions to the ECC page. Prompt Corrective Action When an institution is subject to Prompt Corrective Action (PCA), summarize the applicable provisions of PCA. Follow each provision with an "examiner assessment.” Carry forward a summary of the institution's adherence with PCA requirements/restrictions to the ECC page.
This page is used to concisely detail risk management deficiencies, recommendations, and related management responses that do not rise to the level of significance to be detailed on the ECC page, but are material enough to include within the Report. Significance can be determined by how relevant each deficiency and recommendation is in relation to supporting/justifying the CAMELS component ratings assigned. General Each question can be answered three ways: "Yes," "No," or "Generally, yes." In 1- and 2-rated institutions, it is expected that most answers will either be "Yes" or "Generally, yes." "Yes" answers require no further narrative. "Generally, yes" answers may be appropriate when risk management weaknesses are identified or apparent violations are cited that do not rise to the level of significance to be addressed on the ECC page. Comments regarding these items should be concise and include management’s response. "No" answers will primarily be supported by commentary on the ECC page, not with commentary on the RMA page. (The RMA page comment would simply highlight the weakness and refer the reader to the ECC page.) Note that in some cases, coverage of related matters will be split between the ECC and RMA pages. Example: A bank’s Loan Policy is inadequate for several primary reasons. In addition, a number of less significant policy-related weaknesses are identified that, alone, would not justify considering the Policy inadequate. In this scenario, an appropriate RMA Question #2 response is detailed below. No. As indicated on the Examination Comments and Conclusions (ECC) page, underwriting and credit administration relating to acquisition and development lending are deficient. Additionally, the Loan Policy could be strengthened by:Risk Management Questions Note: The listings shown under each question are for illustrative purposes only and are not all-inclusive. 1. Are risk management processes adequate in relation to economic conditions and asset concentrations? Consider the following as appropriate: Note: The level of risk management process formality should be consistent with the existing and projected size and complexity of the institution. For example, written policies relating to economic conditions may not be necessary in a stable 1- or 2-rated community bank. 2. Are risk management policies and practices for the credit function adequate? Consider the following as appropriate: Additional guidance regarding this area is found in the Loans section of the Manual. 3. Are risk management policies and practices for asset/liability management and the investment function adequate? Consider the following in relation to the institution’s existing and projected risk profile (as appropriate): Additional guidance regarding this area is found in Sections 3.3, 5.0-4, and 7.0-4 of the Manual. 4. Are risk management processes adequate in relation to, and consistent with, the institution’s business plan, competitive conditions, and proposed new activities or products? Consider the following as appropriate: Additional guidance regarding this area is found in Sections 4.2, 5.0-4, and 12.0 of the Manual. 5. Are internal controls, audit procedures, and compliance with laws and regulations adequate (includes compliance with the Bank Secrecy Act [BSA] and related regulations)? Consider the following as appropriate: When apparent violations are cited, the RMA page should only briefly address the topic. Primary commentary regarding the apparent violations should be kept on the Violations of Laws and Regulations page, and secondarily, the ECC page, as appropriate. Note: BSA comments are not required here if there are no BSA concerns. If there are minor deficiencies or if the program can be enhanced by implementing certain recommendations, then they should be discussed on this page. A BSA scope comment should be included on the Confidential – Supervisory Section page in all cases. Additional guidance regarding this area is found in Sections 4.3, 4.5, 4.6, and 8.0 of the Manual. 6. Is board supervision adequate, and are controls over insider transactions, conflicts of interest, and parent/affiliate relationships acceptable? Consider the following as appropriate: Additional guidance regarding this area is found in Sections 4.2, 4.4, and 11.0 of the Manual.
This page is used to communicate details regarding apparent violations (violations) of laws or regulations, as well as contraventions of Statements of Policy. Include this schedule when any such violations or contraventions are cited. General Comments on the Violations of Laws and Regulations page may, but need not automatically, be carried forward in summary form to the RMA or, if more significant, ECC page. The materiality of the violation, bank management’s response to the violation, and the examiner's intentions regarding civil money penalties and/or enforcement actions can help determine whether ECC page comments are appropriate. Because of possible administrative or judicial review, all violations are considered "apparent" violations. Generally, list violations in order of importance, with consideration given to the substance of the violation and its severity. Format of Violation and Contravention of Statement of Policy Write-Ups Headings - A descriptive heading should precede each scheduled violation or group of violations. Citation of Violation - When scheduling violations of Federal or State law, it is generally necessary to cite the specific section or subsection of the regulation deemed to have been violated (for example, Section 328.2 or Section 329.1(e)). Conversely, any reference to a general regulation dealing with a particular subject is cited by part number (for example, Part 329). Also describe the specific requirements of the section cited. This can be accomplished either by directly quoting the section, or, if lengthy, by paraphrasing. Comments should be as precise as circumstances warrant. Description of Violation - Describe the specific activity(ies), transaction(s), or circumstances giving rise to the apparent violation. For example, "The following loans are in apparent violation of this section because they were extended without the prior approval of the full Board of Directors. Detailed descriptions and extensive remarks on violations involving certain assets, such as adversely classified loans, may be unnecessary when other schedules are referenced. Reference the appropriate Report page if any asset illegally held is subject to adverse classification or Special Mention. Management Comments and Corrective Action - Include management's comments and commitments, or lack thereof. This should include both management’s explanation for why the violation occurred, and any commitments for corrective action planned. Clearly indicate any promise of restitution by offending individuals. Director Approval - To reflect Director responsibility and possible liability, it can be useful to include the names of Directors who approved assets held in nonconformance with applicable State and Federal laws and regulations or similar apparently illegal transactions. While this is not necessary in all violation write-ups, it is essential when they may result in the imposition of civil money penalties. In such cases, show the date Director approval was granted, and include the names of dissenting Directors. Follow this procedure even if approval consisted merely of ratifying a group of loans identified only by numbers. Generally, also include Director approval information when the apparent violation(s) involves insider transactions, whether or not civil money penalties may be recommended. Summary of Technical Violations - When several technical violations exist, examiners may summarize the individual violations, listing names or other identifying characteristics of each violation. Provide details to management. Also retain them in the examination workpapers. Legal Lending Limit Violations Generally, courts have held that only the loan(s) that cause a borrower's debt to exceed the legal limit is illegal. Therefore, consider only the advance(s) that cause the excess over the legal limit a violation. However, the State law or practice regarding this matter should prevail. Uncorrectable vs. Repeat Violations Refrain from continuing to cite violations that "cannot be corrected.” For example, violations of the prior approval requirements of Regulation O are not correctable and should not continue to be cited at subsequent examinations. However, do cite repeat violations (those that could have been corrected but were not). Civil Money Penalties Except in the most serious situations, do not refer to the FDIC's power to impose Civil Money Penalties (CMPs) or to the maximum dollar amount of CMPs that may be imposed. If repetition or noncorrection of the violations is noted at subsequent examinations, examiners may comment that violations are potentially subject to CMPs, even though no such present recommendation is contemplated. Note: When CMPs are recommended, home mailing addresses of all Directors and any other individuals involved in the violation should be included in the Confidential-Supervisory Section. Contraventions of FDIC Statements of Policy: List contraventions of Statements of Policy (includes joint interagency statements) after cited violations under the subheading "Contraventions of Statements of Policy." Violations of Part 325 vs. Contraventions of FDIC Statements of Policy Reference: Violations of Laws and Regulations section of the Manual
With the release of the IT-MERIT and IT General Work Program, all financial institutions are classified according to their technology risk profile (I, II, III, or IV). Furthermore, all institutions receive, at a minimum, an IT composite rating. For embedded IT examinations, the ITA page should convey assigned IT composite and/or component rating(s), as well as all significant IT examination conclusions, recommendations, and management responses. When to Include In general, IT findings are embedded within the risk management ROE, using the ITA page, unless a separate cover IT ROE is required. A separate cover Report is required for: Assigning and Disclosing Ratings The following table summarizes outstanding guidance regarding assigning and disclosing ratings under the Uniform Rating System for Information Technology (URSIT).
Page Structure and Order
The ITA page, as formatted by Genesys, includes a grid at the top of the first page to display the component and composite ratings for the current and two prior IT examinations. Ratings for the current examination should be assigned and disclosed based on the guidance summarized in the above table. Prior examination ratings shown should reflect ratings disclosed at those examinations. For example, even if the current examination only requires a composite rating, if a prior examination disclosed a full URSIT rating, the full rating should be shown for that prior examination. Below the grid, the examiner should include the appropriate composite rating paragraph, as taken from the Uniform Rating System for Information Technology. Required Comments Scope of Examination – Include a brief statement outlining the IT examination scope/areas reviewed. This should include the scope of review covering the bank’s efforts to comply with Interagency Guidelines Establishing Standards for Safeguarding Customer Information (Appendix B to Part 364 of the FDIC Rules and Regulations. It is not necessary to include a detailed description of the bank’s IT functions. Supporting Comments – Comments should be prepared on an “exception only” basis as much as possible; however, they should support the ratings assigned and recommendations presented, and document management’s responses to recommendations. Address issues in order of priority and risk. Significant issues should be brought forward to the ECC page. Use descriptive subheadings, bulleted or numbered lists, and other such devices as needed to promote readability. For example, component ratings paragraphs would be appropriate when full URSIT ratings are assigned. Management Discussions – Identify bank officials with whom IT operations and examination findings were discussed.
For embedded trust examinations, the FAA page should convey trust composite and component ratings, as well as all significant trust examination conclusions, recommendations, and management responses. Embedded trust Reports also include a Trust Supervisory Section, discussed later in these Report of Examination Instructions. When to Include Trust departments with $50 million or less in total trust assets, with a composite rating of 1 or 2, that meet the criteria below, are eligible for the Trust MERIT (T-MERIT) program and using the embedded FAA page to report examination findings. The only exception is that a full trust Report is required for examinations that are not conducted concurrently with safety and soundness examinations, regardless of whether T-MERIT guidelines are used. The additional criteria that must be met are: Citing an apparent violation does not preclude using the FAA page, since violation(s) could be included on the Violations of Laws and Regulations page. Also, assigning contingent liabilities, potential losses, or estimated losses, or using the Accounts and Matters Subject to Comment or Criticism page does not preclude using this page. Comments on these issues can be made either on the FAA page or on a blank Report page as necessary. To allow flexibility, Regional Directors may authorize using the embedded trust pages for departments with $50 million or less in total trust assets, but that do not otherwise qualify for the T-MERIT program. Refer to your region’s guidance for additional information. Note: If a trust department meets the T-MERIT guidelines but is excluded from the program by the Field Supervisor (FS) or Supervisory Examiner (SE), the reason(s) for exclusion should be discussed in the Pre-Examination Planning memo (if known before the examination starts), and on the Trust Supervisory Section page. Page Structure and Order
The FAA page includes a grid at the top of the first page to display the component and composite ratings for the current and two prior trust examinations. Below the grid, the examiner should include the appropriate composite rating paragraph, as taken from the Uniform Interagency Trust Rating System (UITRS). Required Comments Scope of Examination – Include a brief statement outlining the trust examination scope/areas reviewed. Supporting Comments – Comments should be prepared on an “exception only” basis as much as possible; however, they should support the ratings assigned and recommendations presented, and document management’s responses to recommendations. Address issues in order of priority and risk. Significant issues should be brought forward to the ECC page. Use descriptive subheadings, bulleted or numbered lists, and other such devices as needed to promote readability. Management Discussions – Identify bank officials with whom trust operations and examination findings were discussed. Examiners will continue to have management complete the Trust Officer’s Questionnaire and the Statement of Trust Department Assets and Liabilities, which should be retained in the examination workpapers. Significant issues concerning trust matters should be brought forward to the Examination Conclusions and Comments page of the safety and soundness Report.
The EDR page is included in all examination Reports. The page includes various data and ratios to supplement the examiner’s evaluation of capital, asset quality, earnings, and liquidity. Summary of Items Subject to Adverse Classification Asset and contingent liability classification information is entered through Genesys.
The other real estate figure on the Comparative Statements of Financial Condition page is net of general valuation reserves, and adverse classifications are gross of general valuation reserves. As such, total other real estate classifications may be greater than the amount of other real estate presented on the Comparative Statements of Financial Condition page. Contingent Liabilities Contingent liabilities subject to adverse classification consist only of Category I contingent liabilities. The standard ratios included on the page are derived from both examination results and quarterly data obtained from Call Reports and the UBPR. When Call Report data is used, ratio calculations are consistent with definitions contained in the UBPR User’s Guide. All of the standard data and ratios on the EDR page is automatically calculated and populated by Genesys.
All data and financial condition ratios in the Asset Quality and top portion of the Capital sections of the page are based on results from the current and prior two examinations (if applicable). For the last three standard ratios under Capital, and all data in the Earnings and Liquidity sections, the left-most column will tie to the Examination as of Date of the current examination. The information displayed in the adjacent three columns is user-defined. When selecting the period and type of information displayed in these columns (whether institution or peer), select the data that is most supportive of ECC page conclusions regarding the level and trend of the institution’s capital, earnings, and liquidity. One user-defined ratio can be added within each component section of the page. Any ratio can be added so long as it provides support to related ECC page comments. Ratios for prior examinations or periods that are not readily available can be completed as NA (Not Available), or if relevant, may be calculated based on current methodology.
This schedule presents a snapshot of the institution's balance sheet. It is not intended for financial analysis. Use the institution's Report of Condition, UBPR, and other sources for balance sheet analysis. General Prepare this schedule according to Call Report Instructions. As Call Report Instructions change, additional Call Report line items, other than those listed below, may need to be included in the various asset and liability categories. Show all asset categories net of specific and general valuation reserves, except Total Loans and Leases, which has a separate line item for general valuation reserves. Dates Left Column - In the left column, place the date for which financial data is used for examination financial review (the Examination as of Date). Generally, it will be the most recent quarter-end; however, month-end or another date may be more appropriate when circumstances dictate. Right Column - The right column should usually detail information for the year-end prior to the financial review date shown in the left column. However, when desired, substitute a different date, such as the “as of” date of the prior examination. If using a date other than the previous examination date, ensure that information for the prior date follows Call Report guidelines. At the first examination of a new institution, you may use the right column to display a projected balance sheet structure. If this information is not useful, leave the right column blank. Footnote when the institution opened for business. Assets Allocated Transfer Risk Allowance - If the institution has an Allocated Transfer Risk Allowance, include it in the Allowance for Loan and Lease Losses and footnote it. Total Earning Assets – This figure is consistent with the definition in the UBPR. Other Assets - The following items, which have their own line items in Call Report Schedule RC, are included in Other Assets in this schedule: Liabilities Other Borrowed Money – Includes demand notes issued to the United States Treasury, mortgage indebtedness, obligations under capitalized leases, and Federal Home Loan Bank Advances Other Liabilities - The line item "Bank's liability on acceptances executed and outstanding," which is listed in Call Report Schedule RC, should be included in "Other Liabilities." Equity Capital Perpetual Preferred Stock - Include any related surplus. Common Equity Capital - Common Equity Capital equals the sum of common stock, surplus, undivided profits and capital reserves, and cumulative foreign currency translation adjustments less net unrealized losses on marketable equity securities and net worth certificates. Other Equity Capital – Refer to Call Report Instructions. Off-Balance Sheet Items Off-Balance Sheet Items here correspond to those listed on Call Report Schedule RC-L, although Schedule RC-L includes further breakdowns. If additional categories are needed, space is available below Other Off-Balance Sheet Items. Include only Category I contingent liabilities (contingencies which give rise to accompanying increases in assets if the contingencies convert into actual liabilities). Consequently, do not include contingent liabilities such as pending litigation. Category II contingent liabilities (those that are not expected to result in an increase in assets if converted to actual liabilities such as pending litigation) would be detailed and discussed under the financial aspect most significantly impacted (for example, capital, management, earnings, or liquidity). If more than one financial aspect is impacted, then the other aspects should briefly reference the contingencies and cross-reference as needed. Footnotes Use this section strictly for footnotes, not comments.
The purpose of this schedule is primarily for past-due and nonaccrual loan analysis. This schedule is not intended for loan composition analysis. Review the institution's internal records, Call Report, and UBPR to gain a thorough understanding of the composition of the loan portfolio. General Complete this schedule according to Call Report Instructions. Percentages - Round percentages to the nearest whole percent in the loan portfolio section and to the nearest hundredth percent in the past-due and nonaccrual section. Dates - The examiner has the flexibility to use either the same or different dates for the loan portfolio category section and the past-due and nonaccrual section. The loan category date will usually be the Examination as of Date; the past-due/nonaccrual date should normally correspond with the asset review date. Note: To obtain technically correct past-due and nonaccrual ratios, both dates should be the same. However, when the asset review date is different from the Examination as of Date, loan category breakdowns as of the Examination as of Date are acceptable, even though technical precision is not obtained. If significant loan portfolio changes have occurred since the Examination as of Date, prepare the loan portfolio section as of the asset review date. Loan Portfolio Breakdown All Other Loans and Leases - This item includes overdrafts. Note: Gross loans and leases per the Call Report may actually be total loans and leases (gross loans and leases less unearned income). Call Report Instructions encourage but do not require institutions to Report loan categories net of unearned income. Using total loans is acceptable when total and gross figures are not substantially different and/or if unearned income is difficult to separate from loan categories. Past-Due and Nonaccrual Loans and Leases The two past-due columns and the nonaccrual column correspond to information in Call Report Schedule RC-N. Refer to the instructions for Schedule RC-N and the Glossary of the Call Report Instructions under "nonaccrual status." Note: The two past-due columns are only for loans that are past due and still accruing interest. The nonaccrual column may contain current as well as past-due loans. Total Past Due and Accruing - This column is the sum of the previous two columns within each category. Percent of Category Columns - The "Percent of Category" column calculates the ratio of past-due and accruing loans to the respective loan category. The "Nonaccrual Percent of Category" column calculates the ratio of nonaccrual loans to the respective loan category. Note: The totals for these two columns is not the addition of the ratios above. The column totals are the total past due and accruing and nonaccrual dollar amounts as a percent of gross loans and leases. The total past due and accruing ratio plus the total nonaccrual ratio equals the Past Due and Nonaccrual Loans and Leases/Gross Loans and Leases ratio shown on the Examination Data and Ratios Page. Note: The percent of categories columns should not add to 100 percent unless the entire loan portfolio is past-due or on nonaccrual. Restructured Loans and Leases Memorandum: Restructured Loans and Leases - Include restructured loans here only if they are past due and accruing or on nonaccrual. These restructured loans are included in the above past-due and nonaccrual totals. Footnote restructured loans that are not past due and accruing or on nonaccrual. Restructured loans and leases are also known as renegotiated troubled debt per FAS 15. These loans have been granted concessionary terms (for example, reduction in interest, reduction in principal, extension of maturity date) primarily because of deterioration in the borrower's financial position. The following loans are not considered renegotiated troubled debt:
Footnote Use this area to clarify items in the above sections. Do not use it to detail loan categories. A continuation page may be used if it is pertinent to break down loan categories (that is, construction, commercial real estate, 1- to 4-family residential).
The purpose of this schedule is primarily for analyzing the general composition of a bank’s investment portfolio, as well as any appreciation or depreciation in securities. Review the institution's internal records, Call Report, and UBPR to gain a thorough understanding of the composition and quality of the investment portfolio. General Complete this schedule in accordance with the Call Report Instructions for Schedule RC-B and the Supervisory Policy Statement on Securities Activities. Rounding - Round percentages to the nearest hundredth of a percent. Trading Account Assets - Do not include trading account assets, other than as a footnote. Sub-Investment Quality/Investment Quality This schedule allows for both investment quality and sub-investment quality securities to be detailed for States and Political Subdivisions, Mortgage-backed Securities, Other Debt Securities, and Equity Securities. When applicable, schedule sub-investment quality securities immediately below the appropriate line item. For instance, if an institution has a sub-investment quality other debt security (other domestic debt), add a line item titled "Sub-investment Quality Other Domestic Debt Securities” directly below Other Domestic Debt Securities. The manually-created "Sub-investment" line items will not appear unless a sub-investment quality security exists. Fair Value and Estimated Fair Value "Fair Value" is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. When the pricing of all issues within one class is impractical, enter the book value of the class of security involved in the column headed "Fair Value.” Footnote such instances as "estimated at book value.” This treatment is appropriate when the institution faces no problems in its securities account or is not otherwise burdened with serious asset, liquidity, or capital problems. Otherwise, obtain market value or the best estimate thereof. Footnote any estimations. Asset-Backed Securities Asset-backed securities are securities backed by assets other than 1- to 4-family residential properties. (For example, securities backed by credit card receivables, home equity lines, automobile loans, other consumer loans or commercial and industrial loans). Footnote, if appropriate, the type of assets securitized if other than those previously listed. Footnote Use the footnote section to clarify any line items on the schedule. When applicable, include the following items here:
The purpose of this schedule is to provide a detail of adversely classified items, and to communicate the rationale for adverse classifications via write-up, when necessary. General The page heading includes the interagency definitions of Substandard, Doubtful, and Loss. All types of assets are subject to adverse classification. Asset Classification Write-Ups Asset classification write-ups are prepared to support the examiner’s conclusions and recommendations to the Board of Directors, senior management, and regulatory authorities (including support for enforcement actions). Generally, classification write-ups are not necessary when the Asset Quality component is rated 1 or 2. However, when it is rated 3 or worse, a sufficient number of write-ups should be prepared to clearly support the ratings assigned, to demonstrate the bank’s inferior asset quality, management’s deficient credit underwriting or credit administration practices, or to support the examiner’s recommendations for improvement in these areas. Write-ups may be “tiered” as deemed appropriate. For example, “full scope” write-ups, addressing all seven elements discussed below, may be accorded for loans over a certain size or to support a specific conclusion(s) or recommendation(s) in the Report; less comprehensive write-ups may be accorded the next tier; “bullet” write-ups for the following tier; and name and amount for the remaining items. Homogenous loans may be grouped together and a total extended, if appropriate. The examiner-in-charge has discretion as to the level of detail necessary to support conclusions and satisfactorily convey examination findings. Notwithstanding the Asset Quality rating, write-ups of selected assets should be seriously considered when any of the following circumstances are present: Report Presentation
In all cases, adverse classification dollar totals will be set forth in the table at the top of the EDR page. If no classification write-ups are prepared, the examiner may omit preparation of the Items Subject to Adverse Classification page. In that case, appropriate lists of classifications should be left with bank management, and a copy of this listing, signed by an executive officer, should be retained in the examination workpapers. Alternatively, when no write-ups are prepared, the examiner may use the Items Subject to Adverse Classification page to alphabetically list classified assets, by type or individual asset as appropriate. Whether or not write-ups are prepared, examiners may aggregate homogenous classifications by type and dollar amount, with a comment as to number and basis for classification (for example, 302 Consumer Installment Loans adversely classified based on the Uniform Retail Credit Classification and Account Management Policy). The order for presentation of asset categories should follow the table at the top of the EDR page. Use appropriate subheadings and subtotal each asset category containing adversely classified items. Loan Write-ups When complete, “full-scope” loan write-ups are prepared, the narrative should generally address the following elements: Identification – Indicate the name and occupation or type of business of the borrower. Identify cosigners, endorsers, and guarantors. In the case of business loans, make it clear whether the borrower is a corporation, partnership, or sole proprietorship. Description – Concisely describe the make-up of the debt as to the type of loan, amount, origin, and terms. State the history, purpose, and source of repayment. Collateral – Describe and evaluate any collateral, indicating its marketability and/or condition. When relevant, identify the appraiser. Also state if the appraisal or estimate of value is independent or in-house. Financial Data – If necessary, present current balance sheet information along with operating figures. Exercise judgment as to whether a statement should be detailed in its entirety. When the statement is relevant to the classification, it is generally more effective to summarize weaknesses with the entire statement presented. If the statement does not significantly support or detract from the loan, a brief summary of the statement should be sufficient. Summarization of the Problem – Explicitly point out reasons for the adverse classification. Where portions of the line are accorded different classifications or are not subject to adverse classification, state the reasons for the different treatments. Management's Intentions – Include any corrective program contemplated by management. Responsibility – Immediately following each loan write-up, identify the originating officer, servicing officer, and the examiner who reviewed the loan. Also consider the following when preparing write-ups: Miscellaneous
The purpose of this schedule is to provide a detail of assets listed for Special Mention, and to communicate the rationale for the criticism via write-up. General The page heading includes the interagency definition for Special Mention items. Do not include smaller items unless those loans are part of a large grouping listed for related reasons. Write-Ups Each item listed for Special Mention should be supported by a write-up. However, items that exhibit similar deficient characteristics may be grouped together under a single write-up. The narrative, which generally need not be lengthy, should focus on weaknesses in management’s administration, documentation, servicing, and/or collection activities, and on how these deficiencies can reasonably be expected to lead to increased credit risk if not remedied.
The purpose of this migration schedule is to illustrate loan classification changes between examinations. From the analysis, the examiner will be better able to cite specific areas of change and the causes of these changes. In particular, the schedule may illustrate deterioration in the loan portfolio through the migration of loans previously adversely classified Substandard to more severe classification categories. When to Complete General Generally, the previous FDIC examination should be the starting point for preparing the schedule. The FDIC does not usually have access to State or other regulatory examination classification workpapers, which makes it virtually impossible to use non-FDIC examinations as the starting point. However, where it is possible to analyze changes from the previous non-FDIC examination, the examiner may do so. Generally, do not include adversely classified consumer loans and overdrafts. If overdrafts or consumer loans are included, they should be footnoted. Examiners also have discretion to exclude other loan balances of small dollar amounts if not material to the schedule. Examiners should footnote what is excluded. Reminder: Reductions pertain only to loans adversely classified at the previous examinations. Additional Line Items The examiner may add line items when necessary. For example, other line items under "Additions" may include "Previously Classified ORE" when loans made to facilitate the sale of ORE did not originally meet FAS 66 requirements but now do meet those requirements. Payments vs. Recoveries When not significant, recoveries on loans charged-off since the previous examination may be handled by: (a) including recoveries in "Payments" and deducting them from the line item "Charged-off," or (b) making no adjustment. However, when recoveries are significant, examiners should add a line item called "Recoveries" rather than include recoveries in the line item "Payments.” The amount included in the line item "Recoveries" would also be deducted from the line item "Charged-off." Further Advances - Loans Not Adversely Classified Previously Circumstances when this line item may be used include: Note: Include current balances of loans outstanding at the previous examination which are now adversely classified and are less than the balances noted at the previous examination in the line item "Not Adversely Classified Previously." (That is, do not report the loan balance outstanding at the previous examination.) For practical purposes, do not research the payment and advance history on a loan that was not adversely classified previously. The amount listed in "Further Advances - Loans Not Adversely Classified Previously" should be the difference between the current balance and the previous examination balance, if the current balance is greater than the previous examination balance. Further Advances - Loans Adversely Classified Previously Circumstances when this line item may be used include: Credits Newly Extended Include loans to borrowers who were not indebted to the institution at the previous examination. Note: The aforementioned examples are not all-inclusive. Purpose Assets with Credit Data or Collateral Documentation Exceptions
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