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Reports of Examination and Visitation Introduction

Section 600.1

not specifically covered in the comment section. These would include, but are not necessarily limited

to:

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· Subsequent events, litigation and other legal

matters.
Bank premises and equipment.
Other real estate owned.
Other assets.
Other liabilities.
Employee benefits.
Insurance coverage.
Related organization.
Regulatory reports.
Outside service centers.
Consigned items and other nonledger control

accounts. A subheading should be inserted for commenting on a particular area. Comments regarding other matters should be on significant items which have or could have a detrimental effect on the bank. Comments and schedules included only as information for the OCC should be contained in Pan D of the confidential sec. tion.

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changes in statement items. In most cases, however, such comments should be in the comment section under Earnings or Liquidity, Asset and Liability Management. Reconciliation of Capital Funds and Outstanding Debt Capital The first schedule reflects changes in total capital funds for the latest three years and for the year-todate period, most recent month-end. The schedule includes both equity capital and subordinated capital notes and debentures. Figures are in thousands. The schedule serves as a point of reference for analysis of earnings and capital. Following the reconciliation of capital funds is a schedule giving details on outstanding debt capital. The schedule provides useful information to the reader on the future capital impact of maturing subordinated notes and debentures. At the bottom of the page is a footnote to the reconciliation of capital funds schedule. That footnote re. flects, in tabular form, the number of shares and par value of preferred or common stock outstanding over the latest 3 years and for the most recent month-end. Figures for the latest 3 years are for the end of the year. Contingent Liabilities and Memorandum Accounts The third page in the appendix reflects the bank's outstanding contingencies and certain other information potentially requiring funding at a future date. Use of this page is optional in all examinations. Figures are in thousands. Review of the schedule gives the reader an understanding of potential tuture liquidity demands and sources. The examiner may comment on any contingent liabilities which may exhibit undue risk to the bank. However, in most cases, such comments should be in the comment section under Liquidity, Asset and Liability Management. The schedule serves to support comments on the bank's funds management.

Appendix Consolidated Statement of Financial Position and Consolidated Statement of Income Condensed The first page in the appendix is the consolidated statement of financial position and consolidated statement of income condensed. The asset and liabilities accounts have been expanded to give the reader a more detailed picture of the bank's composition. Dollar amounts will be rounded to nearest thousands and the percentage column to nearest tenth percent. Data will be presented on a consolidated basis to include subsidiaries. The balance sheet will be as of examination date which, in the larger banks, will be preceding month. end figures. Income figures should be year-to-date as of most recent month-end and comparable figures for a similar period of the prior year should be inserted in right-hand column. The page is used as a reference for determining information, such as the size of the bank, asset/liability mix and improvement or deterioration in net income. The examiner may comment on such matters as source and application of funds, and significant

Trend of Overdue and Renegotiated Loans The page illustrates the trend of delinquent obligations within departments and in the entire loan porttolio. It also identifies loans which are considered current as a result of significantly adjusted repayment terms. The handbook sections establish guidelines for determining delinquent status for various types of loans.

Comptroller's Handbook for Nanonal Bank Examiners

August 1981

Reports of Examination and Visitation Introduction

Section 600.1

Renegotiated loans are defined as lending relationships in which the borrower has experienced financial difficulties which necessitated restructuring principal and/or interest payment requirements significantly from terms the bank would be willing to accept in a new lending situation. Examples include: an obligation contracted with a 3 percent interest rate at a time when the prevailing interest rates for similar borrowers was 9 percent, and a shon-term working capital advance restructured to a 3-year note with token monthly payments. The page is not intended to be a catch-all for all loans for which the original repayment terms were not met. Carryover crop loans, short-term advances restructured on a reasonable term basis and instal. ment loans with isolated extensions are specifically excluded. Examiners should use their judgment to determine those loans which should be included in this category. The intent of the page is to accurately reflect the delinquent status of the loan portfolio. The separate caption "Renegotiated" is intended to provide additional insight into the true delinquent status by including loans which would otherwise be excluded as they are legally and contractually current. A particular loan should not be included in both categories. A renegotiated loan should be shown as past due if the loan has reverted to a delinquent status. Listing of Credit to Insiders and Their Interest This page will be used for the detailed information relating to the Extension of Credit to Insiders and Their Interest page in the comment section. Assets Subject to Criticism This page is the same as page 7 in the old report, except that the past-due column has been eliminated and "Assets" rather than "Loans" is used in the heading. Delinquent status should be embodied in the write-up. The page can be used for assets other than loans. It will suppon and provide detail for the related page in the comment section and will be used when larger loans, leases, etc., are criticized. Miscellaneous Criticized Assets The page supplements the previous page, Assets Subject to Criticism, and its inclusion in the report is optional. The examiner uses this page to detail smaller criticized assets (those below 1 percent of total capital), including loans, investments, other real estate owned, cash items, overdrafts, accrued inter

est and miscellaneous assets. If management dis- + agrees with the criticism of an asset, the examiner should use the Assets Subject to Criticism page with appropriate write-up, regardless of size. The page is constructed for the examiner to explain the reason for criticism by marking the

the appropriate column. Amounts shown are in dollars. When assets are aggregated, for example, instalment loans classified according to the uniform policy, use the notation "List Furnished Management." Each category of asset should be separately totalled and carried forward to the "Summary of Assets Subject to Criticism" page. Other Real Estate Owned Subject to Classification The page should be used only for other real estate owned subject to classification. Working papers should contain information on all significant parcels of other real estate. General comments regarding amounts, liquidation efforts and policies should be contained in the comment section under Other Mat. ters. Loans Not Supported by Satisfactory Credit Information and Collateral Exceptions These pages should be used to detail exceptions. When exceptions are material, in the aggregate, comments should be made under Loan Portfolio Management as well as in the letter to the board of directors. Other Schedules or Exhibits The examiner may include in this section any schedules or exhibits developed during the examination, including pro-forma working papers. Schedules and exhibits should be used when a point made in the comment section could be subject to differing interpretations or could be illustrated more easily by utiliz. ing those devices. Acknowledgment Page This page will be attached, in the regional office, to the copy of the report of examination forwarded to the bank. It indicates that each director or member of a properly designated committee has personally reviewed the contents. The examiner should ascertain during subsequent examinations that all directors or committee members have signed the report. The signature of committee members will suffice only if the committee includes outside directors and a resolution has been passed by the full board delegating the review to such committee. The examiner should

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Comptroller's Handbook for National Bank Examiners August 1982

Reports of Examination and Visitation Introduction

Section 600.1

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determine that the committee adequately reports sig.
nificant matters contained in the report to the full
board.
Confidential Section
The confidential section should set forth matters re-
quiring the prompt attention of senior OCC personnel,
such as:

Suspected violations of law uncovered during
the examination reponed or to be reported to
the appropriate OCC officials or other regula-
tory and enforcement agencies.
Critical comments relating to senior bank offi-
cers which may require official remedial action
by the OCC, such as the threat of cease and
desist order or officer removal.
Other critical comments regarding major prob-
lems noted during the examination which re-
quire remedial actions, but on which the bank
has failed or refused to take appropriate cor-

rective action. This section also should contain additional data deemed necessary to the operation of the OCC, such as financial information of related organizations, schedules prepared by the bank, and subjective comments which cannot be supported by fact in the comment section. The examiner should include a description of the bank's ownership under the caption "Other Information Deemed Beneficial to OCC." The description should contain a listing of large shareholders (5 percent or more of capital stock, except in large banks where it may be desirable to lower the percentage), the number of shares outstanding, a calculation of the bank's adjusted book value per share, the current market price, recent trade activities and comments about the financial responsibility of any controlling group. If the bank is in poor condition or threatened with a capital impairment, the examiner should estimate the ability of large shareholders, directors or possible outside sources to purchase additional capital stock or otherwise aid the institution. Information requested by the Washington office will be included in this section. Regional administrators also may request information germane to a particular region and this data could be transmitted in this section. The appendix to this chapter of the handbook contains a checklist of attachments and miscellaneous information requested by the Comptroller.

The last page in the confidential section is a listing of
directors and officers. The captions are self-
explanatory. All directors, excluding honorary direc-
tors, should be included. A listing of officers is left to
the examiner's discretion; however, all executive offi-
cers as defined in 12 CFR 11.2(0) should be listed.
Years in present positon applies to functional area of
responsibility and not to the specific title.
Reports of Supervisory Visitation
Supervisory visitations are visits by examiners to
banks for any reason other than a general or special-
ized examination. They may vary from a simple in-
quiry on a single subject requiring a minimum amount
of time to a detailed investigation requiring substan-
tial time. As such, OCC does not prepare formal re-
ports for all supervisory visitations.
However, one situation occurs frequently enough to
require both a formal report and uniform procedural
guidelines. OCC may visit a bank with serious prob-
lems frequently to monitor its progress in correcting
those problems. The most common situation is when
the problems include substantial criticized assets
and inadequate liquidity. In that case, the examiner
files a formal report. The report includes:
• The Statistical Data Sheet

Letter to the Board of Directors
Comments on Criticized Assets
Directors Signature Page

Confidential The Statistical Data Sheet should contain only those figures pertaining to the scope of the visit. The Letter to the Board of Directors is the most important page. Its format should be narrative. In the letter, the examiner should:

Summarize improvement or deterioration since
the last examination or visitation.
Address any new areas of concern.
Make appropriate recommendations for further

improvements.
• Discuss management's performance or lack

thereof in correcting previously identified prob

lems. • Discuss substantial noncompliance with any

enforcement actions.

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Comproller's Handbook for National Bank Examiners

August 1982

Reports of Examination and Visitation Introduction

Section 600.1

The Comment on Criticized Assets page should contain all assets criticized at the previous examination or visitation. The page is structured in schedule format. The columns include name and comments, amount previously criticized and amount criticized at this visitation. Comments on previously criticized assets should be brief and cover only significant changes. The examiner should also list newly criticized assets and briefly comment on the reasons for criticism.

The confidential page should contain the same type of information as in a report of examination. For all other supervisory visitations, the regional administrator or the appropriate OCC department head will decide whether a formal report is written. If a formal report is not used, the examiner will communicate with OCC via memorandum. A copy of all formal reports of visitation will be provided to the bank. Examiner memoranda will not.

Comptroller's Handbook for National Bank Examiners August 1982

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