UCE (Economic Finance) CAPITAL AND
EARNING STUDY GUIDE LATEST
UPDATED.
NI adjusted Sub S to AA shows what?
1. If a bank elects to operate as a Sub chapter S, they are treated as a pass-
through entity and not taxed at a federal level (the shareholders pay this tax
through dividends).
2. may be taxed at state level
3. need to adjust NI to better compare to other banks that aren’t Sub S.
What does NII (Te) to AA show?
1. annualized
2. (total int income + tax benefits of TE income - total int exp)/AA
3. typically represents bank's largest revenue component.
How do you calculate the NIM and what does it show?
1. (total int income + tax benefits - total int expense) / average EARNING
assets
2. ANNUALIZED
3. indicates how well management employed earning asset base
4. more useful than NII ratio for measuring profitability of primary activities
because focuses strictly on earning assets.
Non-interest income to AA
1. annualized
2. determine if nonrecurring items and if materially contributes to earnings
3. largely of a fee nature
4. can be used to diversify earnings stream.
Non interest expense to AA (overhead)
,1. annualized
2. expenses related to salaries, benefits, premises and fixed assets, ect.
also want to look at nonrecurring items
3. consider unwarranted and unjust compensation of insiders (appendix A
364)
PLLL to AA
1. annualized
2. any material changes in volume of PLLL should be investigated
realized gain/loss on securities to AA
1. annualized
2. shoes net realized gains or losses on AFS or HTM securities
3. determine if bank regularly engages in sale of securities
what are reasons that management would sell securities that are NOT part
of normal operations?
1. restructure portfolio
2. maintain or change duration
3. maintain or change diversification
4. take advantage of some tax benefits.
How should income tax allocation to BHC be handled?
1. should enter into written, comprehensive tax allocation agreement
approved by Boards.
2. cash transfers paid by the bank to the BHC should NOT:
2a. exceed the amount the bank would have paid if taxes filed separately.
2b. payments to BHC shall not be required until those payments are actually
due to the taxing authority.
relatively high dividends may be acceptable if?
1. growth is low
2. profits high
3. capital strong.
, What are extraordinary items?
1. material events that are unusual and infrequent (both conditions must exist)
2. unusual - highly abnormal or clearly unrelated to ordinary bank activities
3. infrequent - not resonantly expected to recur in foreseeable future.
How should loan origination fees and direct loan origination cost be
recognized
should be recognized over the life of the loan as an adjustment to yeild (fees
- increae, cost - decrease)
most loan commitment feeds should be defered, T or F?
true
what can an inordinarily high ROA suggest?
that the bank is in engaged in higher risk acitivites
What can occuer if TDRs are not regonized and poor items are not placed
on nonaccrual properly?
earnings can be overstated.
What is a profit plan?
overall forecast of the income statement based on management's decisions,
intentions, and estimation of economic conditions.
Part 364 Appendix A: management's analysis of earnings should include:
1. Managements analysis of earnings should:
o Compare recent earnings trends to historical performance and peer
o Evaluate adequacy of earnings
o Assess the source, volatility, and sustainability of earnings (nonrecurring)
o Take steps to ensure earnings are sufficient to maintain adequate capital
and reserves
o Provide periodic earnings reports with adequate info to the Board to assess
earnings performance
2. Forecast and assumptions should be consistent with what is known about the
EARNING STUDY GUIDE LATEST
UPDATED.
NI adjusted Sub S to AA shows what?
1. If a bank elects to operate as a Sub chapter S, they are treated as a pass-
through entity and not taxed at a federal level (the shareholders pay this tax
through dividends).
2. may be taxed at state level
3. need to adjust NI to better compare to other banks that aren’t Sub S.
What does NII (Te) to AA show?
1. annualized
2. (total int income + tax benefits of TE income - total int exp)/AA
3. typically represents bank's largest revenue component.
How do you calculate the NIM and what does it show?
1. (total int income + tax benefits - total int expense) / average EARNING
assets
2. ANNUALIZED
3. indicates how well management employed earning asset base
4. more useful than NII ratio for measuring profitability of primary activities
because focuses strictly on earning assets.
Non-interest income to AA
1. annualized
2. determine if nonrecurring items and if materially contributes to earnings
3. largely of a fee nature
4. can be used to diversify earnings stream.
Non interest expense to AA (overhead)
,1. annualized
2. expenses related to salaries, benefits, premises and fixed assets, ect.
also want to look at nonrecurring items
3. consider unwarranted and unjust compensation of insiders (appendix A
364)
PLLL to AA
1. annualized
2. any material changes in volume of PLLL should be investigated
realized gain/loss on securities to AA
1. annualized
2. shoes net realized gains or losses on AFS or HTM securities
3. determine if bank regularly engages in sale of securities
what are reasons that management would sell securities that are NOT part
of normal operations?
1. restructure portfolio
2. maintain or change duration
3. maintain or change diversification
4. take advantage of some tax benefits.
How should income tax allocation to BHC be handled?
1. should enter into written, comprehensive tax allocation agreement
approved by Boards.
2. cash transfers paid by the bank to the BHC should NOT:
2a. exceed the amount the bank would have paid if taxes filed separately.
2b. payments to BHC shall not be required until those payments are actually
due to the taxing authority.
relatively high dividends may be acceptable if?
1. growth is low
2. profits high
3. capital strong.
, What are extraordinary items?
1. material events that are unusual and infrequent (both conditions must exist)
2. unusual - highly abnormal or clearly unrelated to ordinary bank activities
3. infrequent - not resonantly expected to recur in foreseeable future.
How should loan origination fees and direct loan origination cost be
recognized
should be recognized over the life of the loan as an adjustment to yeild (fees
- increae, cost - decrease)
most loan commitment feeds should be defered, T or F?
true
what can an inordinarily high ROA suggest?
that the bank is in engaged in higher risk acitivites
What can occuer if TDRs are not regonized and poor items are not placed
on nonaccrual properly?
earnings can be overstated.
What is a profit plan?
overall forecast of the income statement based on management's decisions,
intentions, and estimation of economic conditions.
Part 364 Appendix A: management's analysis of earnings should include:
1. Managements analysis of earnings should:
o Compare recent earnings trends to historical performance and peer
o Evaluate adequacy of earnings
o Assess the source, volatility, and sustainability of earnings (nonrecurring)
o Take steps to ensure earnings are sufficient to maintain adequate capital
and reserves
o Provide periodic earnings reports with adequate info to the Board to assess
earnings performance
2. Forecast and assumptions should be consistent with what is known about the
