NACCA/AARMR Training School Panel

1. “Safety and Soundness Financial Analysis” NACCA/AARMR Training School Panel The State of New York Banking Department Marlene Delamothe- Bourne

2. New York safety and soundness examinations employs the FILMS rating system in determining whether institutions are operating in a safe and sound manner.

3. FILMS Component F - FINANCIAL CONDITION I - INTERNAL CONTROL AND AUDITING L - LEGAL AND REGULATORY REPORTING M- MANAGEMENT S - SYSTEM TECHNOLOGY

4. Analysis of Financial Condition Factors Analyzed • Liquidity • Funding Lines/Warehouse Facilities • Capital/Net Worth • Income/Revenue • Expenses/Operating Cost • Reserves/Extraordinary Losses

5. Analysis of Financial Condition - Continued • Bond Requirements • Liabilities/ Other Borrowings • Tax Liabilities • Fines/Penalties • Quality and Type of Assets • Off balance sheet - contingencies

6. Analysis of Liquidity • Liquidity must be analyzed from a short-term and long term perspective • Available cash/cash reserves • Liquid nature of assets • Marketability of Loans Held for Sale, Securities • Market value of assets – discounted • Ability to meet operating expenses and current liabilities

7. Analysis of Liquidity - Continued • Ability to meet funding obligations • Resources available to meet repurchase claims, long-term debt obligation, penalties and contingencies

8. FUNDING AND WAREHOUSE LINES Factors Analyzed • Capacity • Line Availability • Usage • Adequacy • Lending Volume • Nationwide • Outstanding Commitment – Interest Rate Locks • Unfunded Refinanced Loans or Purchase Money

9. FUNDING AND WAREHOUSE LINES • Repurchased Claims (buy-backs) • Non-regulated lending activity • Table Funding • Parent purchasing Loans • Brokering Loans • Funding Cycle • Age of loans on warehouse lines • Sale and Repayment time line • Investor underwriting guidelines

10. FUNDING AND WAREHOUSE LINES • Risk Management • Agreements • Covenants, triggers, collateral • Monitoring Reports • Compliance with covenants • Usage and availability • Signatories

11. FUNDING AND WAREHOUSE LINES Procedures • Direct confirmation from line provider • Review warehouse Line; Master Note; Repurchase and/or Security Agreement • Restrictions, Covenants • Review entity’s compliance with covenants • Aging Report • Usage Report • Lender and Line Provider

12. FUNDING AND WAREHOUSE LINES • Commitment Report • Pipeline Report • Closed but unfunded Loan Report • Loan Repurchase (buy-backs) Report • Indemnifications

13. Capital and Net Worth • Level and Trend • Retained Earnings • Dividends • Capital distribution • Revenues and Expenses • Net Income/Loss • Borrowings • Capital Infusion • Market Volatility • Company Stock • Hedges • Securities (investment, available for sale, derivatives) • Loans Held for Sale

14. Capital and Net Worth Procedures • Review Financial Statement • Balance Sheet, Cash flow, Income Statement • Analyze variances • Review Budget and Business Plan

15. Revenue and Expenses • Level and Trend • Earnings/Income • Fees, Interest Income Risk Management • Analysis of Expenses • Cost Cutting – Overhead • Expenditure benefit analysis • Replacement of loss revenue (source)

16. Other Factors in Financial Analysis • Regulatory Action • Fines/Penalties • Consumer Restitution • Quality and Type of Assets • marketability • Contingencies • Pending Litigation, Outstanding Claims