Examination Procedures eic note: Each state must provide a response to the following questions. The Eic may compile individual responses into a single response

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  The strategic plan and its underlying assumptions, projected asset growth dividend plans, asset quality, income, liquidity, funds management, deposit structure, parent company relationship, contingent liabilities, expansion plans, competition, economic conditions, etc. (Coordinate with the examiner(s) completing the Management and Internal Control Evaluation Module);
  
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  Interviews with institution management regarding the strategic planning process;
  
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  Management's risk monitoring procedures; and
  
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  The availability of additional capital sources. (Consider funding provided by insiders, external sources, or additional debt at the parent level.)
  
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  The adequacy of loan loss reserves, especially in institutions that hold loans long-term.
  

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  substantiate the effectiveness of internal controls related to capital;
  
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  recommend corrective action related to capital when warranted;
  
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  verify the implementation of corrective action commitments related to capital; and
  
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  determine compliance with policies and procedures related to capital issues.
  

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  Review the level of the provision for loan and lease losses and the adequacy of the allowance for loan and lease losses.
  
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  Review whether the institution is relying on core earnings or income from non-recurring events.
  
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  Determine if dividends are excessive compared to current earnings. (Consider applicable state and federal guidance).
  

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  The level and trend of adversely classified assets;
  
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  The adequacy of the allowance for loan and lease losses;
  
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  The volume of charged off loans and recoveries;
  
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  The balance sheet structure and liquidity needs;
  
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  The level and type of concentrations;
  
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  The volume of unrealized gains or losses on available-for-sale securities;
  
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  The degree of interest rate risk exposure assumed by the institution;
  
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  The reasonableness of booked future tax benefits;
  
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  The accounting treatment and valuation of intangible assets;
  
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  The extent of contingent liabilities associated with trust or other activities;
  
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  The extent of any other liabilities not shown on the institution's books, including contingent liabilities;
  
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  The letters from the institution's attorney as to the existence of pending litigation against the institution and its subsidiaries and the potential and estimated loss exposure (This information should be disclosed on the Officer's Questionnaire or First Day Letter);
  
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  The volume and risk characteristics of new business initiatives, and higher risk investment or lending strategies, e.g., subprime lending, electronic banking;
  
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  Compliance with state and federal capital level requirements if applicable;
  
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  The level of operational and reputational risk as it may affect capital.
  
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  The level, trend, and quality of assets as they influence capital preservation.
  

Examination Procedures

Y

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  Provide authority and responsibility to an individual(s) or committee for establishing and maintaining an effective IRR management program which identifies, measures, monitors, and controls IRR;
  

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  Identify the types of instruments and activities that may be used to manage IRR exposure;
  
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  Provide for a measurement system that is commensurate with the size and complexity of the institution;
  
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  Establish earnings and capital exposure limitations commensurate with the risk tolerance; and
  

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  Provide responsibility for authorizing policy exceptions.
  

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  Development of IRR policies and practices;
  
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  Development or choice of IRR measurement systems;
  
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  Assumptions used by the IRR measurement system; and
  
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  Technical expertise of staff relative to the complexity of products used and the complexity of the IRR measurement system.
  

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  Analyze IRR levels and trends and measure effects on earnings and capital;
  
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  Identify material risk exposures and sources;
  
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  Evaluate key assumptions, including interest rate forecasts, deposit behavior, and loan prepayments;
  
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  Assist management in pricing decisions; and
  
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  Verify compliance with risk limits and policy guidelines, including exception reporting.
  

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  Major shift in the maturity (repricing) characteristics of the investment portfolio, loans, borrowings, or deposit accounts;
  
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  Increased holdings of financial instruments such as mortgage securities, callable securities, fixed-rate residential loans, and structured notes;
  
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  Fundamental change in liability mix between core deposits and other funding sources; and/or
  
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  Unexpected change in level or trend of securities appreciation and depreciation.
  

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  Correlation with market interest rate fluctuations;
  
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  Management strategies to minimize the effect on earnings and capital;
  
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  Ability of earnings to absorb reductions in net interest margin resulting from market volatility; and
  
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  Increased reliance on rate sensitive noninterest income activities (e.g., mortgage banking activities).
  

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  Sufficient staff to operate measurement systems, including back-up personnel;
  
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  Technical expertise consistent with the institution's complexity, risk profile, and measurement system; and
  
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  Adequate training and staff development.
  

Examination Procedures

Y

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  Is the program adequate?
  
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  Is the program appropriately designed?
  

Examination Procedures

Y

N

Examination Procedures

Y

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  Does the institution timely provide requested information?
  
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  Is the institution forthcoming with information?
  
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  Does the institution display a willingness to quickly and effectively correct violations?
  
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  Does the institution display a willingness to quickly and effectively modify policies and procedures based on the findings of examinations and investigations?
  
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  Is the institution in compliance with regulatory enforcement actions?
  
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  Is the institution complaint with outstanding enforcement actions? If it is not, for how long has the enforcement action been outstanding?