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

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safety and soundness financial analysis
“Safety and Soundness

Financial Analysis”

NACCA/AARMR Training School Panel

The State of New York Banking Department

Marlene Delamothe- Bourne

slide2

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

films component
FILMS Component

F - FINANCIAL CONDITION

I - INTERNAL CONTROL AND AUDITING

L - LEGAL AND REGULATORY REPORTING

M- MANAGEMENT

S - SYSTEM TECHNOLOGY

analysis of financial condition
Analysis of Financial Condition

Factors Analyzed

  • Liquidity
  • Funding Lines/Warehouse Facilities
  • Capital/Net Worth
  • Income/Revenue
  • Expenses/Operating Cost
  • Reserves/Extraordinary Losses
analysis of financial condition continued
Analysis of Financial Condition - Continued
  • Bond Requirements
  • Liabilities/ Other Borrowings
  • Tax Liabilities
  • Fines/Penalties
  • Quality and Type of Assets
  • Off balance sheet - contingencies
analysis of liquidity
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
analysis of liquidity continued
Analysis of Liquidity - Continued
  • Ability to meet funding obligations
  • Resources available to meet repurchase claims, long-term debt obligation, penalties and contingencies
funding and warehouse lines
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
funding and warehouse lines9
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
funding and warehouse lines10
FUNDING AND WAREHOUSE LINES
  • Risk Management
    • Agreements
      • Covenants, triggers, collateral
    • Monitoring Reports
      • Compliance with covenants
      • Usage and availability
    • Signatories
funding and warehouse lines11
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
funding and warehouse lines12
FUNDING AND WAREHOUSE LINES
  • Commitment Report
  • Pipeline Report
  • Closed but unfunded Loan Report
  • Loan Repurchase (buy-backs) Report
  • Indemnifications
capital and net worth
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
capital and net worth14
Capital and Net Worth

Procedures

  • Review Financial Statement
    • Balance Sheet, Cash flow, Income Statement
    • Analyze variances
  • Review Budget and Business Plan
revenue and expenses
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)
other factors in financial analysis
Other Factors in Financial Analysis
  • Regulatory Action
      • Fines/Penalties
      • Consumer Restitution
  • Quality and Type of Assets
      • marketability
  • Contingencies
      • Pending Litigation, Outstanding Claims