US Federal Reserve: 6000

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Instructions for the Report of ExaminationEffective date May 1997 Section 6000.1

INTRODUCTION

The Uniform Commercial Bank Report of

Examination was approved by the Federal Finan-cial Institutions Examination Council and man-dated for use by the Federal Reserve System,Federal Deposit Insurance Corporation, and theOffice of the Comptroller of the Currency intheir examinations of commercial banks. Thereport is also available for use by state bankingdepartments in their examinations of state-chartered institutions.

Certain report pages are mandatory for allfull-scope bank examination reports prepared by

Federal Reserve examiners. Some of these pagesare required as the result of the four federalbanking and thrift regulatory agencies’ approvalof a uniform interagency report of examination.These pages address the examiner’s conclusionsand provide information on capital, asset qual-ity, management, earnings, liquidity, and sensi-tivity to market risk (CAMELS). Headings onspecific report pages for the examiner’s assess-ment of specific CAMELS components providea series of considerations for the examiner to

address in the evaluation of each component.The Federal Reserve has supplemented the inter-agency report by mandating the use of addi-tional report pages and by designating a thirdgroup of pages as optional for Federal Reservepurposes. This section will provide the examinerwith guidance on both when to include certainreport pages in the report and how to preparerequired and optional report pages. Instructionsfor optional pages describe situations that war-rant their inclusion in full-scope Federal Reserve

reports.

FEDERAL RESERVE SYSTEMREPORT INSTRUCTIONS

The following instructions provide general guid-ance to the examiner in evaluating certainaspects of a bank’s operations and in completingthe report; they are not intended to constitute atechnical manual on conducting examinationsand completing reports, nor are they designed toset forth all of the factors, considerations, andissues that examiners must address and evaluatewhen they conduct examinations. In addition,these instructions are not intended to address

legal and compliance questions; rather, examin-ers should consult appropriate laws, regulations,and examiner guidelines. Questions on complet-

ing the report that are not covered by theseinstructions should be referred to Reserve Bank management or Board staff.

Instructions for specific pages follow in theorder recommended for their inclusion in full-scope examination reports. The header at the topof each section of instructions indicates whetherthe report page is mandatory or optional.

The interagency instructions and report-pageformats do not provide for the use of peer-groupdata for analytical purposes. The Federal Reserve

System advocates the use of peer-group data forfinancial analysis. Examiners should routinelyconsider using peer information in report narra-tives or in charts and tables within narratives tosupport their conclusions. Comparisons to sub-sets of the national peer group may also bemeaningful. If the examiner uses other thannational UBPR peer information for comparisonpurposes, the substitute peer group should beclearly identified.

General Instructions for FinancialInformation

The following terms are used on many reportpages containing financial information. Guid-ance on the requirements and options availablefor each term is provided here.

Examination Date (or Exam Date). The date

of the financial data used for the examinationactivity or the ending date of the period reviewed.If the date of the asset-quality review is differ-ent from the exam date, any required use of ‘‘exam date’’ in connection with asset qualityshould refer to the date of the asset-qualityreview.

Period Ended . No specific timeframe is des-ignated. These columns reflect information for atime period deemed most appropriate by theexaminer to support conclusions presented inthe Report of Examination. For comparativepurposes, this column may reflect financial datafrom the same period of the prior year as theexamination date, the prior quarter, or the mostrecent year-end.

Commercial Bank Examination Manual May 1997Page 1



The examiner-in-charge is responsible forselecting dates deemed most appropriate topresent the examination findings. All amountsshould be consistent with instructions for theConsolidated Report of Condition and Income

(call report). If call report amendments havebeen made, the amended numbers should appear.If a bank’s management has made any signifi-cant misclassifications that have caused exam-iners to amend any financial statements, theexaminers’ numbers should be shown in thereport and used to calculate any ratios used inthe report. Columns titled ‘‘Period Ended’’should usually detail previous year-end informa-tion. However, the examiner may substitutedifferent dates, such as those of the previous

examination, when desired. Ratios should gen-erally be computed according to the instructionsin the User’s Guide to the Uniform Bank Per-formance Report. Care should be taken in com-puting all ratios to ensure that ratios are accurateand consistent throughout the report.

Federal Reserve Examination ReportPage List

The following table lists the Federal Reserve’sreport pages in the order in which they wouldusually appear, along with a notation of whethertheir inclusion in the report is mandatory oroptional.

6000.1 Instructions for the Report of Examination

May 1997 Commercial Bank Examination ManualPage 2



Mandatory/ Optional Report Page Title

OPEN SECTION

Mandatory Table of ContentsMandatory ScopeMandatory Matters Requiring Board AttentionMandatory Examination Conclusions and CommentsOptional* Compliance with Enforcement ActionsMandatory Comparative Statements of Financial ConditionMandatory Capital AdequacyMandatory Capital CalculationsMandatory Asset QualityMandatory Summary of Items Subject to Adverse Classification/Summary

of Items Listed as Special Mention

Mandatory Loans and Lease-Financing Receivables/Past-Due and Nonaccrual Loansand LeasesMandatory Management/AdministrationMandatory Violations of Laws and RegulationsMandatory EarningsMandatory Analysis of EarningsMandatory Liquidity/Asset Liability ManagementMandatory Sensitivity to Market Risk Optional Other MattersOptional ConcentrationsOptional* Items Subject to Adverse Classification

Optional* Items Listed for Special MentionOptional Assets with Credit-Data or Collateral-Documentation ExceptionsMandatory Signature of Directors

CONFIDENTIAL SECTION

Mandatory DirectorsMandatory Executive OfficersMandatory Management and ControlMandatory Ratings and General Information

* Some optional pages are mandatory if the circumstances

relevant to the page apply. For example, ‘‘Compliance withEnforcement Actions’’ is mandatory if the bank is subject to

corrective action. Optional pages to list classified and special-

mention assets are mandatory if items are classified or specialmentioned.

These pages may be augmented with supplemen-tal information as needed or required by theFederal Reserve System. Additional supportingschedules and visual aids (for example, graphsand charts) may also be included in the reportto communicate and support the examiner’sfindings.

Sample Report Pages

This section includes samples of most of thereport pages. Because each Reserve Bank may

use different methods for preparing the report,differences in typographic styles may existbetween the pages presented here and those atany particular Reserve Bank.

Several report pages are blank except for thetitle, allowing the examiner almost total discre-tion in choosing how to present the information.Samples of these report pages are not includedalthough instructions for their use are. Reportpages for which samples are not included areidentified below:

• Scope

• Matters Requiring Board Attention

Instructions for the Report of Examination 6000.1




• Compliance with Enforcement Actions

• Violations of Laws and Regulations

• Other Matters

• Concentrations

Combined Reports

Reserve Banks may issue a combined report fora bank holding company and its lead statemember bank subsidiary when (1) a bank hold-ing company’s lead bank subsidiary is a statemember bank and (2) the holding company’sboard formally approves the release of a com-bined report to its lead state member bank subsidiary. In cases where the company hasmore than one state member bank, separateexamination reports should be prepared for allother state member bank subsidiaries. At aminimum, a combined report will contain allexamination report pages required by SR-93-71,‘‘Final Interagency Examination Report Instruc-tions,’’ as well as information on the parentcompany, its subsidiaries, and the consolidatedorganization.

The Reserve Bank should send a letter to aqualified holding company that explains itsoption of receiving a combined report. If theholding company’s board wishes to receive acombined report, it should formally approve therelease of the combined report to its lead statemember bank subsidiary by board resolution.

REPORT PAGE INSTRUCTIONS

Table of Contents (Mandatory)

The table of contents indicates the pages includedin full-scope reports. All mandatory pages are tobe included in each full-scope Federal Reservebank examination report. Optional pages will beadded to the report as necessary in the orderoutlined herein, followed by the mandatorySignature of Directors page. Additional supple-mental pages to support examiner findings mayalso be added to the report at the examiner’sdiscretion.

Page numbers are included only for the sakeof completeness. The actual page-numberingsystem used may vary among Reserve Banks.

Scope (Mandatory)

The Scope page is used to list areas reviewedduring the examination and describes the extentof those reviews. The examiner should generally

address the following:

• the date of examination (commencement andconclusion)

• the type of examination (full-scope, targeted, joint, concurrent, combined (bank holdingcompany and bank))

• the agency or agencies conducting theexamination

• areas reviewed and analyzed (If the examina-tion is targeted, the examiner should identify

specific areas reviewed.)• the percentage and type of loans reviewed• a confirmation that examination results were

discussed with the organization and a list of those attending the meeting

• identification of the bank’s peer group• if necessary, recognition that the bank is

operating under a formal or informal supervi-sory action (If so, state that the provisions of the action were reviewed and compliance wasassessed.)

Matters Requiring Board Attention(Mandatory)

The Matters Requiring Board Attention page isused to inform the bank’s board of directors of the most significant issues identified during theexamination. It should summarize the mostimportant examination/inspection findings. The

Matters Requiring Board Attention page isintended to complement the complete Report of Examination findings prepared for use by bank management and directors. This page is to focuson identified problems, rather than on strengthsof the organization, and present them succinctlyand unmistakably clearly. In all cases, the typesof actions to be taken by the directors andmanagement to address these problems shouldbe specifically noted. Institutions rated 4 or 5 areto be told they are problem institutions thatwarrant special supervisory attention. Institu-tions rated 3 are to be informed that theircondition is not satisfactory, that they are sub-

ject to more-than-normal supervision, and thatthey may become problems if their weaknessesare not addressed adequately.





This page should also discuss significantweaknesses in 1- or 2-rated institutions. Ininstitutions where no specific matters are iden-tified as requiring board attention, this pageshould provide a brief summary of the institu-

tion’s condition. In all cases, this page shouldcontain a concluding statement reminding thedirectorate of its responsibility to review theentire Report of Examination and instructingeach director to sign the Signature of Directorspage.

Examination Conclusions andComments (Mandatory)

The report page should list the composite ratingfor the current examination and for the twoprevious examinations at the top of the page. Inaddition to the composite ratings, the numericratings of the six components will be disclosedfor examinations beginning after January 1,1997. This listing should be followed by theuniform definition of the assigned compositerating. The uniform definitions of the compo-nent ratings assigned need not be included in

reports; however, they should be made availableto bank management and directors upon request.

This report page should summarize examina-tion findings, particularly those of significance.The examiner should also provide an overviewof the bank’s financial condition. The examin-er’s major recommendations and management’splans for corrective actions should also be cov-ered on this page in appropriate detail, withreferences to additional supporting informationelsewhere in the report. The examiner’s com-

ments should also elaborate on the mattersrequiring board attention listed on the precedingpage. All comments should be presented inorder of importance. The comments should beprimarily on an exception basis, describing areasof the bank’s operations and aspects of itsfinancial condition that display weaknesses,deficiencies, or vulnerability. This does not pre-clude the examiner from recognizing positiveactions taken by management; however, laud-atory or conclusive remarks and endorsementsof specific management actions should beavoided.

Significant recommendations presented else-where in the report should be mentioned onthis page. Significant violations should also bediscussed briefly on this page and in greater

detail on the Violations of Laws and Regula-tions page; less serious violations should benoted and reference made to the violationspage. Compliance with any enforcement actionsshould be briefly discussed on this page (per

SR-82-8) and state that details are providedon the Compliance with Enforcement Actionspage.

The Examination Conclusions and Commentspage and the Matters Requiring Board Attentionpage should not be duplicative and should beeasily integrated if the issuance of a Director’sSummary of Examination Findings provesnecessary.

Compliance with EnforcementActions (Optional)

The Compliance with Enforcement Actions pagewill be used if the bank is under any type of supervisory action or has ratified board resolu-tions at the request of the Federal Reserve orstate banking authority. In all cases, the type anddate of the action or resolutions and parties tothe action should be listed. In addition, theexaminer should generally list each provision

requiring action and provide a comment address-ing compliance with that provision. Specifically,the examiner should comment on how the bank accomplished compliance or the reason why thebank is not in compliance with a particularprovision. These comments should be made atthe examination when supervisory actions areinitiated and at all subsequent examinationsuntil the action is removed.

Comparative Statements of FinancialCondition (Mandatory)

The left column titled ‘‘Exam Date’’ shouldcoincide with the Consolidated Report of Con-dition for the period used—generally, the mostrecent quarter-end. If call report amendmentshave been made, the amended numbers shouldappear on this page. If a bank’s management hasmade any significant misclassifications that havecaused examiners to amend any financial state-ments, the examiner’s numbers should appearon this page. The right column titled ‘‘PeriodEnded’’ should usually detail previous year-end information. However, the examiner maysubstitute a different date, such as a previousexamination, when desired. All amounts listed





in either column should conform to Consoli-dated Report of Condition instructions. Thispage also should reflect FASB 115 ‘‘Accountingfor Certain Investments in Debt and EquitySecurities’’ adjustments to capital. These adjust-

ments are made according to ConsolidatedReport of Condition and Income instructionsand are reflected on the line item ‘‘commonequity capital.’’

Capital Adequacy (Mandatory)

Capital is assessed at each full-scope examina-tion. Consideration is specifically given to risk identified within the bank, equity maintenance,

and any growth the bank might be experiencing.The bank’s capital ratios should be presented

as indicated on the report page. FASB 115adjustments are not to be reflected in capitalratios. However, the effect of FASB 115 onstockholders’ equity, if material, should be dis-cussed in the narrative. In cases when thecondition of the bank has changed significantlysince the last quarter-end (for example, anequity offering) and/or when examination find-ings have a material impact on conclusions

regarding capital adequacy, the examiner shouldreflect these changes and findings in these ratios.When adjustments are made, the examiner shouldidentify the date of the new capital calculation(presumably subsequent to quarter-end). In anyevent, when examination findings result in achange in a bank’s prompt-corrective-actiondesignation, the ratios provided must beadjusted. The Capital Category line refers to theprompt-corrective-action (PCA) capital designa-tion as described in the Federal Deposit Insurance

Corporation Improvement Act. Report com-ments need to clearly convey that this designa-tion is not the sole criterion for determiningcapital adequacy. If the bank is subject torestrictions under a PCA directive issued by theBoard of Governors, a discussion of the direc-tive’s requirements and the related capital-restoration plan are to be included.

The examiner should consider the volume of classified assets and any meaningful asset-quality trends. It is appropriate to address capitalratios adjusted for significant examinationclassifications in the narrative to emphasize theimpact of examination classifications on anyvaluation reserves and the impact of deficienciesin valuation reserves on the bank’s capitaladequacy.

The assessment of capital growth shouldinclude consideration of growth from variouscapital sources, including retained earningsand potential new capital-stock issues, andshould be compared to growth in total assets,

asset mix, market risk, concentration risk, risksassociated with nontraditional activities, interest-rate risk, and off-balance-sheet risks. Risk-basedcapital guidelines factor in changes in balance-sheet composition and exposure to potential risk via growth of off-balance-sheet activities.Although the guidelines give consideration tothe above, examiners still must exercise consid-erable judgment to evaluate all factors necessaryto make an accurate assessment of capitaladequacy.

The bank’s capital plan should also bereviewed. The content, degree of formality,sophistication, and form of plan will vary withbanks of different sizes and complexity. How-ever, each bank should be monitoring its capitalposition in relation to the required guidelineratios and risk. In addition, consideration shouldbe given to the bank’s ability to obtain addi-tional outside capital, including support pro-vided by a parent holding company. Also, thebank’s dividend history and plans should be

considered in relationship to regulatory guide-lines and anticipated profitability.

Capital Calculations (Mandatory)

The Capital Calculations page should be pre-pared using information as of the same dateas the exam date shown on the ComparativeStatements of Financial Condition page. When

the condition of the bank has changed signi-ficantly since the exam date (for example, anequity offering) or when examination findingsmaterially affect conclusions regarding capitaladequacy, the examiner should reflect thesechanges and findings in the capital calcula-tion. When adjustments are made, the examinershould identify the date of the new capitalcalculation. In any event, when examinationfindings result in a change in a bank’s prompt-corrective-action designation, the capital cal-culations provided must be adjusted. Char-acteristics of any capital elements that areunusual or significant may require an explana-tion on the Capital Adequacy page, as may anylimitations with regard to risk-based capitalguidelines.





Ineligible intangibles to be deducted fromtier 1 capital should include such items asineligible purchased credit-card relationships(PCCRs) and mortgage-servicing rights, whilethe Other Adjustments line should include such

items as disallowed deferred-tax assets. Underthe risk-weighted assets calculations section,the examiner should ensure that requesteddata are calculated in accordance with risk-based capital guidelines. All items deductedfrom capital noted above should also bededucted from the risk-weighted assets calcula-tion. FASB 115 adjustments are not to bereflected on this page. Adjusted average totalassets is average total assets for the most recentquarter less all goodwill and other disallowed

intangibles.

Asset Quality (Mandatory)

Federal Reserve examiners should specificallyaddress the following areas on the Asset Qualitypage. If all conditions are satisfactory, a brief statement that addresses each factor andsummarizes the examiner’s conclusions willsuffice.

• Assess (1) the quality of assets, including theirlevel, distribution, severity, and the trend of problem, classified, past-due, nonaccrual,restructured, and renegotiated loans not incompliance with modified terms for both on-and off-balance-sheet transactions; (2) theexistence of asset concentrations; (3) the ade-quacy of loan policies and loan-administration,credit documentation, or lending practices;(4) the adequacy of workout procedures for

problem credits; (5) the adequacy of theallowance for loan and lease losses; and(6) the adequacy of the bank’s internal loan-review and grading systems, including signifi-cant differences between internal loan gradesand examination classifications.

• Assess (1) the quality of investment securitiesand (2) the adequacy of investment policies.

• Comment on any off-balance-sheet items, suchas unfunded commitments, credit derivatives,commercial and standby letters of credit, andlines of credit, with respect to (1) their volumein relation to total assets, capital, or otherappropriate balance-sheet categories; (2) therisks inherent in the activity; and (3) theadequacy of management and control of off-balance-sheet risks.

• Comment on the quality of management withrespect to the lending function and man-agement’s awareness of problem loans.Examiners should also address the causes of existing credit problems and remedial actions

agreed to by management for correction of deficiencies.• Assess the adequacy of internal controls and

management information systems.

Although the mandatory interagency AssetQuality page does not provide for a weighted-asset classification to capital ratio, the FederalReserve System relies heavily on this measureof asset quality. Therefore, this page shouldinclude a line for the ratio of weighted classifi-

cations to tier 1 capital and for the allowance forloan losses without limitation. The sample pageincluded in this manual contains a line for thisratio.

Assets listed for special mention should notbe included in the classifications total, norshould they be referred to as adversely classifiedin the narrative. Although classified and special-mentioned asset totals should not be com-mingled, those two categories will display andpossibly share underwriting, documentation, or

other weaknesses or characteristics to bereported by the examiner.

The examiner should consider the total of other transfer risk problems, if significant, andbriefly discuss the volume and trend of suchcredits. The examiner should specifically assesswhether there are concentrations of credit in anyparticular economic sectors, the extent that prob-lem credits may be centered in these sectors, andconcentrations of transfer risk warranting spe-cial comment. Examiners should also address

the loan-loss reserve methodology and the ade-quacy of the allowance for loan and lease losses.Examiners should comment on the quality of investment securities and trading-account activi-ties and address credit risk associated withoff-balance-sheet items.

Examiners should assess the adequacy of policies and procedures relating to loans, invest-ments, and off-balance-sheet activities. Also,examiners should address policies and proce-dures regarding financial futures and foreign-exchange trading.

When assessing loan policies, loan adminis-tration, and lending practices, considerationshould be given to internal loan approval, inter-nal review and monitoring, and grading systemsand control procedures; the organization and





completeness of the credit files; collateraladministration and evaluation procedures; col-lection procedures; procedures for renewing orextending loans and placing loans on nonaccrualstatus; the accrual and capitalization of past-due

interest and prepaid interest; and any otherunfavorable practice that may result in or frompoor asset quality.

Deficiencies relating to the lack of writtenpolicies in any critical area should be noted indiscussing management’s adherence to policieson the Management/Administration page. Also,if excessive management turnover, weaknessesin middle management, or inadequate internalpromulgation of policies affects adherence toor implementation of policies, these areas

should also be addressed under Management/ Administration.

Examination ratios in this section are to bederived from information obtained during thecurrent and two most recent on-site examina-tions. The examiner may include in the narrativeadditional ratios, if necessary, to highlight aparticular financial factor. Reserve Banks thatare engaged in alternate examination programswith state banking departments should use clas-sified asset totals from state reports in complet-

ing and analyzing the trend in asset-quality dataon this page.

For the Asset Quality page, the tier 1 capitalnumbers to be used should come from theCapital Adequacy and Capital Calculationspages. However, the examiner may substitute adifferent date when desired. The total adverselyclassified assets numbers and total assets num-bers should be relevant to the date of theasset-quality review. This will reflect informa-tion for the period deemed most appropriate by

the examiner-in-charge.Capital is based on the guideline definition

of tier 1 capital. Weighted and total classi-fications are to be compared with tier 1 capitalplus the allowance for loan losses, both forpurposes of this page and for the asset-qualityrating under the CAMELS rating system. Totaladversely classified items includes totaladversely classified assets plus classified off-balance-sheet items, while total adversely clas-sified assets does not include classified off-balance-sheet items. The past-due and nonaccrualratio should be consistent with the informationcontained in the past-due and nonaccrual scheduleon the Loans and Lease-Financing Receivables/ Past-Due and Nonaccrual Loans and Leasespage.

Summary of Items Subject to AdverseClassification/Summary of Items Listedas Special Mention (Mandatory)

Summary of Items Subject to Adverse

Classification

The Summary of Items Subject to AdverseClassification page summarizes items classifiedby the examiner as of the examination date (forthis page, considered the date relevant to theasset-quality review). Total classifications arealso presented for the previous examination.Reserve Banks that are engaged in alternateexamination programs should provide totalscontained in the previous examination report

prepared by the state when applicable. Theexaminer should also consider creating a sched-ule on the Asset Quality page to detail classifi-cations from additional prior examinations if meaningful trend information is noted. Theexaminer should also present in the report nar-rative classifications trends for certain assetcategories if the analysis is meaningful.

The report format does not contain provisionsfor other transfer risk problems or value-impaired assets. For examination of banks

engaged in international lending, Reserve Bank examiners should provide additional informa-tion to include categories for other transfer risk problems and value-impaired assets. The formatfor this page will also require adjustments forU.S. addressees and non-U.S. addressees.

For banks with foreign activity, the distinc-tion between U.S. and non-U.S. addressees fol-lows the definition set forth in the instructionsfor the Consolidated Report of Condition:whether a customer is U.S. or non-U.S. is deter-

mined by the customer’s principal address, thatis, by its domicile. A U.S. address would be inthe 50 states of the United States, the District of Columbia, Puerto Rico, and U.S. territories andpossessions. Non-U.S. addressees include allother geographic areas.

The examiner should list in the appropriatecategory the amounts of all credits classified dueto transfer risk. The value of credits shown asvalue-impaired should be computed after deduct-ing any allocated transfer risk reserve estab-lished against an asset. In determining totalclassified assets, examiners should arrive at a netassets classified due to country risk. Examinersshould identify any credits classified due totransfer risk which have received the same ormore severe classification due to credit risk and





are listed above in the summary of classifieditems due to credit risk. The sum of such assetsshould be listed in the appropriate column andthen deducted to arrive at net assets classifieddue to country risk. For the purpose of this page,

any credits classified as value-impaired for trans-fer risk purposes should not be included in thesummary of credits classified due to credit risk,unless the credits are classified loss.

For the purpose of arriving at total classifiedassets, add the amount classified due to creditrisk to net assets classified due to transfer risk for each category. When computing weightedclassifications, the residual portion of any value-impaired assets should be assigned the sameweight as substandard classifications. However,

the residual exposure still remains value-impaired for examination and classificationpurposes. Value-impaired assets held in thetrading account should also be included in totalclassified assets, but should not be consideredclassified assets when computing weightedclassifications.

Summary of Items Listed as Special Mention

The Summary of Items Listed as Special Men-tion page presents the total of assets listed forspecial mention. The summary includes special-mention totals for the current and one previousexamination. Assets listed for special mentionare not included when computing classificationratios. Reserve Banks that are engaged in alter-nate examination programs should rely on theprevious state examination’s special-mentiontotal when applicable.

Loans and Lease-FinancingReceivables/ Past-Due and Nonaccrual Loans andLeases (Mandatory)

The examiner has the flexibility to use the sameor different dates for the Loans and Lease-Financing Receivables and the Past-Due andNonaccrual Loans and Leases schedules. TheLoans and Lease-Financing Receivables sched-ule will usually be as of the most recent quarter-end. The Past-Due and Nonaccrual Loans andLeases schedule will usually be as of the asset-quality review date. Based on examination find-

ings, the examiner-in-charge should determineif other ‘‘as of’’ dates best reflect the conditionof the institution. For example, the Loans andLease-Financing Receivables schedule may bepresented as of the asset-quality review date if

the examiner identifies significant changes sincethe last quarter-end that need to be incorporated.The format of the Loans and Lease-Financing

Receivables schedule is similar to that used inthe Consolidated Report of Condition. The defi-nitions of the loan categories as contained in theInstructions for the Consolidated Report of Con-dition should be used in completing the sched-ule. For examinations of banks engaged ininternational lending, Reserve Bank examinersshould adjust the format of this schedule for U.S.

addressees and non-U.S. addressees.For examinations of banks engaged in inter-

national lending, Reserve Bank examinersshould adjust the format of the Past-Due andNonaccrual Loans and Leases schedule for U.S.addressees and non-U.S. addressees. The defini-tions of past-due and nonaccrual loans andleases as contained in the Instructions for theConsolidated Report of Condition should beused in completing this schedule, unless thebank’s policy is more conservative, in which

case the bank’s definition may be used. If so, orif state law requires the bank to apply differentdefinitions, the examiner should discuss thebank’s policy or state law in the Commentssection following the past-due and nonaccrualschedule. The Memorandum section shouldinclude the amount of restructured loans andleases included in the totals. Relevant issuespertaining to past-due and nonaccrual loans andleases should be briefly discussed in the Com-ments section. More significant issues should be

discussed on the Asset Quality page.

Management/Administration(Mandatory)

The report-page heading states that managementis evaluated against all factors necessaryto operate the institution in a safe and soundmanner and in accordance with acceptable prac-tices. Consideration is given to technical com-petence, leadership, and administrative ability;compliance with regulations and statutes; abilityto plan and respond to changing circumstances;effectiveness of management information sys-tems; tendencies toward self-dealing; demon-





strated willingness to serve the legitimatebanking needs of the community; and manage-ment depth and succession. In addition, consid-eration is given to the extent that management isaffected by or susceptible to dominant influence

or concentration of authority.In preparation for making report comments,examiners should consider the following:

• the adequacy of supervision by the board of directors, including its role in establishingpolicies and its responsiveness to recom-mendations from auditors and supervisoryauthorities

• compliance with supervisory agreements• compliance with banking laws and regulations

• management’s timeliness in recognizing andresolving problems

• the adequacy of the institution’s policies nec-essary to operate the bank in a safe and soundmanner and in compliance with applicablestatutes and regulations (Examiners shouldreview the mechanism for formulating,approving, reviewing, and updating policies;determine if the policies are in writing and areproperly communicated to all appropriatepersonnel; and determine if all policies are

followed.)• management’s adherence to policies as estab-

lished by the board of directors• management information systems and con-

trols used to monitor and control risks through-out the bank and ensure compliance withestablished policies, statutes, and regulations(Examiners should also address the adequacyof the overall internal accounting-control sys-tem and the audit function employed by thebank. Deficiencies in internal accounting-

control systems and the audit function shouldbe discussed in detail.)

• the adequacy and effectiveness of the planningfunction, including planning and budgetingand the role of management in each process

• the business strategy and policies and proce-dures for avoiding conflicts of interest

• significant findings and conclusions notedin specialty examinations (for example,trust, EDP, CRA, and consumer) conductedsince the previous full-scope commercialexamination

• management depth and succession• the extent that the board of directors and

management are affected by or susceptibleto dominant influence or concentration of authority

• demonstrated willingness to serve the legiti-mate banking needs of the community

While topics in this section may appear tooverlap with other areas of the report, the

discussion in this section should focus on therole of the bank’s directors, the bank’s internaladministration, management supervision and pol-icy development, and management’s adherenceto operating policies and procedures. This sec-tion should not repeat financial assessments setforth elsewhere in the report.

Violations of Laws and Regulations

(Mandatory)

The Violations of Laws and Regulations pageshould be included in every Federal Reserveexamination; if there are no apparent violations,write ‘‘None.’’ When violations of federal orstate banking laws and regulations are found,they should be listed in detail on this page.Violations of the Bank Secrecy Act should alsobe listed on this page in detail.

The format for listing violations should beconsistent. A heading for each violation listedshould name the applicable regulation and sec-tion and provide a brief description of what thelaw covers. This should be followed by a brief description of the requirements of the regulationor statute and a discussion of how or why theviolation occurred. The examiner should describeany plans or recommendations for correction. If a review of the Bank Secrecy Act is conductedseparately, or as part of another examination, a

statement to this fact should be included on theOther Matters page.

Earnings (Mandatory)

The exam-date column on the Earnings pageshould be prepared using information as of thesame date as the exam date shown on theComparative Statements of Financial Conditionpage. Ratios required on this page are availablein the UBPR or may be calculated from theConsolidated Report of Condition and Incomeor the bank’s records.

On this page, the examiner should address, ata minimum, the following:





• the level of earnings, including trends andstability

• the quality of earnings (for example, strengthof the net interest margin, the amount of non-interest income and expense, reliance on

unusual or nonrecurring gains or losses, andadequacy of provisions for loan losses)

• plans for correcting any earnings deficiencies

• the bank’s budget and expense controls, suchas management’s earnings projections withregard to reasonableness of assumptions,actual results versus projections, and reasonsfor significant differences between projectedand actual earnings

• the vulnerability of the bank’s earnings to

interest-rate and other risks (However, fulldiscussion should be in the Liquidity/AssetLiability Management section of the report).

• the ability to provide for adequate capitalthrough retained earnings

When assessing the quality of net income, theexaminer should also consider the amount of interest accrued but not collected and other areasfor possible overstatement of income. This

amount may be reflected in other assets asincome earned or not collected, or in the loanaccount as capitalized interest (interest added tothe loan balance). The examiner should alsoconsider the composition, reasonableness, andextent of management’s control over operatingexpenses.

Analysis of Earnings (Mandatory)

The exam-date columns on the Analysis of Earnings page should be prepared using infor-mation as of the same date as the exam dateshown on the Comparative Statements of Finan-cial Condition page. The different sections of this page are described below:

Comparative Statement of Income

(Institution Only or Consolidated)Indicate whether this section is for the institu-tion only or is consolidated. For the line itemOther Increases/Decreases, reflect the period-to-period change in FASB 115 adjustments(gains/losses on available-for-sale securities).

Reconcilement of Allowance for Loan and Lease Losses

Information for reconcilement of the allowancefor loan and lease losses is available from bank

records or call reports. The December 31 Con-solidated Report of Income for all banks includesa reconcilement of this account on Sched-ule RI-B.

Other Component Ratios and Trends

Ratios for this section can be obtained frominformation in the Consolidated Reports of Con-dition and Income, the most recent UBPR, or

bank records. The ratio Nonperforming/ALLLrefers to noncurrent loans/ALLL as representedin the UBPR.

Liquidity/Asset Liability Management(Mandatory)

The Liquidity/Asset Liability Management pageaddresses both overall bank liquidity and balance-sheet interest-rate sensitivity. Liquidity refers to

the ability to meet maturing obligations andcommitments and incorporates considerationssuch as availability of funding and the degree of reliance on volatile or concentrated fundingsources. Interest sensitivity considers the overallmatching of rate sensitivities of assets andliabilities and the responsiveness of asset yields,interest expense, and interest margins to changesin market interest rates.

The examiner should consider the level and/orpercentages of core and/or volatile deposits,

including the composition and stability of depos-its. In particular, the level of volatile depositsshould be closely scrutinized, and the examinershould consider if the bank must pay premiumrates to attract those funds. Volatile deposits aregenerally composed of certificates of depositgreater than $100,000 and brokered deposits.Report comments should thoroughly discuss thebank’s use of brokered deposits and evaluate thecompliance of brokered deposit activity withregulatory guidelines. Report comments shouldalso consider deposit and other liability concen-trations and the extent of the bank’s reliance onthose concentrations. The examiner should alsoconsider vulnerability of the institution’s fund-ing to adverse publicity and lowered creditratings.





The report should consider the level and typesof liquid assets. These assets include cash anddue from banks, U.S. government and agencysecurities, federal funds sold, and securitiespurchased under agreements to resell. Liquid

assets should be maintained at a sufficient levelto cover maturing obligations and allow extendedcommitments to be fulfilled. The level of tem-porary investments (federal funds sold, securi-ties purchased under agreement to resell, interest-bearing bank balances, trading-account assets,and debt securities with remaining maturitiesor earliest pricing opportunities of one yearor less) should also be considered. The exam-iner should also keep in mind the percentageof the bank’s securities that are pledged

against liabilities and be mindful of whetherthey are available for sale, as well as any marketappreciation or depreciation in the investmentportfolio.

To further analyze liquidity, a history of thebank’s borrowings, such as federal funds pur-chased and repurchase agreements, and excessfunds sold since the previous examination shouldbe considered. Also, consideration should begiven to the bank’s ability to obtain borrowingsfrom outside sources, should that be consistent

with the bank’s funding strategy.The examiner needs to consider the bank’s

interest-rate risk exposure. The examiner shouldassess how the bank is monitoring exposure, anyweaknesses inherent in the bank’s system, andmanagement’s plans to correct any inappropri-ately mismatched positions. The volume andimpact of any derivative contracts should alsobe considered.

Examiners should assess the adequacy andreasonableness of the bank’s policies regarding

liquidity, interest-rate risk, and funding, as wellas management’s compliance with those poli-cies. The examiner should also consider aug-menting the discussion of the organization’sliquidity and asset/liability management withgap information or other meaningful financialdata presented in supporting schedules.

Sensitivity to Market Risk

(Mandatory)

This section reflects the degree to which changesin interest rates, foreign-exchange rates, com-modity prices, or equity prices can affect abank’s earnings or economic capital. When

evaluating, the examiner should considermanagement’s ability to identify, measure,monitor, and control market risk; the bank’s sizeand the nature and complexity of its activities;and the adequacy of the bank’s capital and

earnings in relation to its level of market-risk exposure.For many banks, the primary source of market

risk arises from nontrading position and theirsensitivity to changes in interest rates. In somelarger banks, foreign operations can be a signifi-cant source of market risk. For some banks,trading activities are a major source of marketrisk. To analyze a bank’s market risk, an assess-ment of the following evaluation factors shouldbe made:

• the sensitivity of the bank’s earnings or theeconomic value of its capital to adversechanges in interest rates, foreign-exchangerates, commodity prices, or equity prices

• the ability of management to identify, mea-sure, monitor, and control exposure to marketrisk given the bank’s size, complexity, andrisk profile

• the nature and complexity of interest-rate risk exposure arising from nontrading positions

• where appropriate, the nature and complexityof market-risk exposure arising from tradingand foreign operations

Other Matters (Optional)

Examiners should use the Other Matters reportpage to discuss other significant issues thathave not been mentioned elsewhere in the re-

port or significant matters mentioned elsewherethat require further explanation, such as thetype, scope, and volume of any new activity inwhich the bank is engaged. Examiners shoulduse this report page to make comments on thefollowing specific areas if issues or concerns arenoted:

• accounting, audit, and internal controls• affiliate relationships• criminal referral procedures

• emergency preparedness• financial recordkeeping and reporting

regulations• insurance• investment in bank premises• litigation





• security and controls against external crimes

• payments system risk • nontraditional banking activities (for example,

mortgage warehousing or data processingservices)

• supervisory reporting• nondeposit investment products

Other examination matters may also warrantcomments on this report page.

Concentrations (Optional)

The Concentrations page is to be used only

when concentrations are noted. A brief para-graph at the beginning of the page should beincluded to inform the reader that the listing isgenerally for informational purposes and doesnot necessarily represent criticism unless other-wise specifically stated. This paragraph shouldalso mention that a concentration includes obli-gations, direct or indirect, of the same or affili-ated interests that represent 25 percent or moreof the bank’s capital structure. The reader shouldalso be informed that, for the purposes of this

page, the capital structure is defined as tier 1capital plus the allowance for loan and leaselosses.

When determining and calculating concentra-tions, the amount of loan commitments andother off-balance-sheet risk items should beconsidered. The listing should include all typesof loans, overdrafts, cash items, suspenseresources, securities, leases, acceptances,advances, letters of credit, and all other itemsdue to the bank, as well as loans endorsed,

guaranteed, or cosigned by related individualsand their related interests.

Concentrations by industry, transfer risk, prod-uct line, type of collateral, and others are detailedwhere appropriate. The listing also includesamounts due from depository institutions, fed-eral funds sold, and other assets where paymentis dependent on one financial institution oraffiliated group and the total represents 25 per-cent or more of the bank’s capital structure.Treasury securities, obligations of U.S. govern-ment agencies and corporations, and any assetscollateralized by these items are not includedin the listing. The requirements of Regula-tion F should also be considered as they relateto concentrations involving correspondentbanks.

Items Subject to AdverseClassification (Optional)

The Items Subject to Adverse Classificationpage is to be included in the report if any items

are subject to adverse classification. The pageshould include all assets that are classified butshould not include assets listed for special men-tion. However, for examinations of banks thatare involved in international lending, ReserveBanks should develop supporting pages toaddress exposures warranting special comment,other transfer risk problems, and value-impairedcredits. This page should be used by examinersfor the individual write-ups for assets subject toclassification, including any off-balance-sheet

items. It should also be used to list assets subjectto classification that do not require write-ups.Assets specially mentioned should be includedon the page titled Items Listed for SpecialMention.

Requirements for loan write-ups presentedon this page are found in section 2060, ‘‘Clas-sification of Credits.’’ Examiners should rely onthe definitions of substandard, doubtful, andloss, as defined in this section, when classifyingassets.

Items Listed for Special Mention(Optional)

The Items Listed for Special Mention page is tobe used if any items are listed for specialmention. Any assets so listed should meet thedefinition of special mention found in the ‘‘Clas-sification of Credits’’ section of this manual.

Specially mentioned assets must be written up if they exceed the loan review cutoff amount and if the bank’s management disagrees with theexaminer’s findings with regard to the asset.Specially mentioned assets are not to be referredto as "criticized assets." Write-up guidelines forspecially mentioned assets are the same as thosefor classified assets enumerated in the ‘‘Classi-fication of Credits’’ section of this manual.

Assets with Credit-Data orCollateral-Documentation Exceptions(Optional)

The Assets with Credit-Data or Collateral-Documentation Exceptions page should be





included in the report if a significant volume of documentation exceptions is noted. If credit-data or collateral-documentation exceptions aresignificant, this page should support a discus-sion of credit-documentation practices on the

Asset Quality page. In addition to the six com-mon documentation exceptions listed, the pageheading provides space to list other exceptionsnoted at a particular examination.

Examiners should refrain from listing in thissection any loans that bank management haselected to identify as exempt from certain docu-mentation requirements under the ‘‘InteragencyPolicy Statement on Documentation of Loans toSmall and Medium-Sized Businesses and Farms’’(policy statement) or any other applicable guide-

lines. The policy statement is intended to elimi-nate unnecessary documentation on small andmedium-sized business and farm loans for insti-tutions that are highly rated and that are well oradequately capitalized. Under the provisions of the policy statement, these institutions areallowed to identify, within certain limits, an‘‘exempt portion’’ of their small and medium-sized business and farm-loan portfolios thatexaminers are to evaluate solely on performanceand are exempt from examiner criticism of

documentation.

Signature of Directors (Mandatory)

The Signature of Directors page is to be signedby the directors of the bank upon receipt of thecompleted report and retained in the bank’srecords for review by examiners during subse-quent examinations.

Confidential Section—Directors(Mandatory)

The Confidential Section—Directors should listall bank directors in alphabetical order. If thebank elects advisory directors, they should belisted alphabetically under a separate heading.

Information requested in the report-pageheader should be supplied for each director.Specific instructions for certain requested infor-mation is as follows:

• Under meetings missed, include all meetings adirector has not attended between the previ-ous (FRB or state) and current examination. If

a director was elected since the previousexamination, only list the number of meetingsthat he or she missed since the date of election.

• Under fees paid to each director, indicate

whether the compensation is based onattendance.

• Under occupation or principal business affili-ation, use concise and descriptive designa-tions (for example, farmer, grocer, commer-cial real estate development).

For banks with active board committees, a codeor legend for all committees should be prepared,indicating committee memberships for eachdirector.

Confidential Section—Executive Officers (Mandatory)

The Confidential Section—Executive Officerspage employs the Regulation O definition of executive officers, but other significant officersmay be included at the discretion of the exam-

iner. Information requested by the report pageshould be supplied.

Additional individuals to be reported mayinclude persons without official designation thatexercise considerable influence or executive offi-cers excluded from the Regulation O definitionby board resolution who actually maintain ahigh level of responsibility. Officers should belisted in order of title or position of responsibil-ity, with dominant individuals shown first. Spe-cific instructions for this requested information

is as follows:

• Examples of areas of responsibility includeadministration, policy formulation, lending,operations, or branch manager.

• Salary should indicate the current annual sal-ary, and bonus should show total bonuses forthe previous year.

If executive officers receive any other pertinentforms of compensation beyond their listed sal-ary and bonus (such as commission-based pay,employment contracts, stock options, unusuallylarge benefit programs, or affiliated bank sala-ries and fees), these should be discussed in anarrative format below the listing of executiveofficers or on a separate page.





Confidential Section—Managementand Control (Mandatory)

The examiner should respond to each listedquestion on the Confidential Section—

Management and Control page. The followinginstructions are keyed to respective questionnumbers:1—Generally, the examiner’s assessment of management should be fully discussed in theopen section of the report; however, this ques-tion provides a forum to discuss any supervisorymatter regarding management that clearly requiresconfidential treatment.

2—Each principal shareholder’s ability and will-

ingness to offer support to a weakened bank should be assessed. Any other potential forms of support, such as a parent company, other affili-ate, or third party desiring to acquire this bank should also be identified. The possibility orlikelihood of forthcoming support should alsobe addressed.

3(a)—Each major shareholder of the bank shouldbe listed, with footnotes for any indirect control,such as control over spousal or family trust

shares. Finally, any special control arrange-ments, such as buy-sell agreements or control-group structures, should be noted.

3(b)—The degree of control or influence exer-cised by any one individual or group of indi-viduals should be discussed and include anindication of whether this influence has beenpositive or detrimental to the bank.

3(c)—In addition to any abusive practices thatshould be discussed here, such as self-dealing,any other problems, such as incompetent man-agement or other relevant factors, should beaddressed.

3(d)—The volume of insider borrowings and theimpact of those transactions on the bank shouldbe commented on. If the bank is using theRegulation O small-bank exception regardingaggregate insider borrowings, it should be noted,

including the presence of the required boardresolution sanctioning that level.

4—Any filing of a criminal referral form or anybond claim relating to insiders should be com-mented on. The report question also requires theexaminer to explain why legal authorities havenot been informed of possible criminal activity.

Confidential Section—Ratings andGeneral Information (Mandatory)

The examiner should respond to each listedquestion on the Confidential Section—Ratingsand General Information page. The followinginstructions are keyed to the respective questionnumbers:

2—Items for possible discussion include thebank’s trade area, major employers or primaryindustries, the area’s economic condition andtrend, and the bank’s ability to operate satisfac-torily within this environment. Other discussiontopics could include competition, expansionplans, and strategic direction.

5—Individuals with EIC responsibilities shouldbe listed, with primary work areas shown for allother examiners (that is, loans or operations).For joint examinations, the agency for non-FRBexaminers should be listed. If an examiner wasin training and required significant assistance,that person should be designated as a trainee.





COMMERCIAL BANK REPORT OF EXAMINATION

NAME OF BANK STREET CITY

COUNTY STATE ZIP CODE

JOINT CONCURRENT INDEPENDENT

TABLE OF CONTENTS

Page

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

MATTERS REQUIRING BOARD ATTENTION .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

EXAMINATION CONCLUSIONS AND COMMENTS .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 1a

COMPARATIVE STATEMENTS OF FINANCIAL CONDITION .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 2

CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

CAPITAL CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a

ASSET QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SUMMARY OF ITEMS SUBJECT TO ADVERSE CLASSIFICATION/

SUMMARY OF ITEMS LISTED AS SPECIAL MENTION . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 4a

LOANS AND LEASE-FINANCING RECEIVABLES/

PAST-DUE AND NONACCRUAL LOANS AND LEASES .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 4b

MANAGEMENT/ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

VIOLATIONS OF LAWS AND REGULATIONS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5a

EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ANALYSIS OF EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6a

LIQUIDITY/ASSET LIABILITY MANAGEMENT .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SENSITIVITY TO MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . **

CONCENTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . **

ITEMS SUBJECT TO ADVERSE CLASSIFICATION .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. **

ITEMS LISTED FOR SPECIAL MENTION .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . **

ASSETS WITH CREDIT-DATA OR COLLATERAL-DOCUMENTATION EXCEPTIONS . . . . . . . **

SIGNATURE OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *

Dollar amounts are in thousands unless otherwise indicated.*Mandatory

**Optional pages, per interagency guidelines, become mandatory if the material is appropriate.





EXAMINATION CONCLUSIONS AND COMMENTS

Uniform Financial Institutions Rating System

Current Exam Prior Exam Prior ExamExam date:Composite rating:

Component ratings:CapitalAsset QualityManagementEarningsLiquiditySensitivity to Market Risk

Examiner-in-Charge

Additional Sign-Off





COMPARATIVE STATEMENTS OF FINANCIAL CONDITION(Institution only or consolidated)

(Amounts reported in thousands)

Exam Date Period Ended ASSETS

Total loans and leasesLess: allowance for loan and lease losses

Loans and leases (net)Interest-bearing balances

Federal funds soldSecurities purchased under agreements to resellTrading-account assetsSecurities

Total earning assets

Cash and non-interest-bearing balancesPremises and fixed assetsOther real estate ownedIntangiblesOther assets

Total assets

LIABILITIES

DepositsFederal funds purchasedSecurities sold under agreements to repurchaseOther borrowed moneyOther liabilitiesSubordinated notes and debentures

Total liabilities

EQUITY CAPITAL

Perpetual preferred stock Common equity capitalOther equity capital

Total equity capitalTotal liabilities and capital

OFF-BALANCE-SHEET ITEMS

Unused loan commitmentsLetters of creditInterest-rate contractsOther off-balance-sheet items





CAPITAL ADEQUACY

Capital adequacy is evaluated in relation to supervisory guidelines, the nature and extent of risks to theorganization, and the ability of management to address these risks. Consideration is given to the level andquality of capital and the overall financial condition of the bank; the nature, trend, and volume of problemassets and the adequacy of the allowance for loan and lease losses and other valuation reserves; risk exposures presented by off-balance-sheet activities; the quality and strength of earnings; balance-sheetcomposition, including the nature and amount of intangible assets, market risk, concentration risk, andnontraditional activity risk; growth experiences, plans, and prospects; the reasonableness of dividends;access to capital markets and other appropriate sources of financial assistance; and the ability of management to address emerging needs for additional capital.

Component Rating X

CAPITAL RATIOS AND TRENDS

Ratio Exam Date Period Ended Period Ended

Total risk-based capital/ risk-weighted assets % % %

Tier 1 risk-based capital/ risk-weighted assets % % %

Tier 1 leverage capital/ average total assets % % %

Tangible equity capital/ average total assets % % %

Capital category





CAPITAL CALCULATIONS

$(000’s) Date

Tier 1 Capital

Common stock SurplusUndivided profits and capital reservesForeign-currency-translation adjustmentsNoncumulative perpetual preferred stock and surplusMinority interestsSubtotal: tier 1 capital elements

Less:Ineligible intangiblesOther adjustments

Tier 1 capital

Tier 2 Capital

Allowance for loan and lease losses*Mandatory convertible debtAgricultural loss deferralCumulative perpetual preferred stock Subordinated debt

OtherTier 2 capital (not to exceed 100% of tier 1 capital)

Total Capital

Tier 1 plus tier 2 capitalLess: deductions

Total capital

Risk-Weighted Assets Calculation

Risk-weighted balance-sheet assetsRisk-weighted off-balance-sheet items

Less: risk-weighted amounts deducted from capitalGross risk-weighted assetsLess: excess ALLL and ATRR

Total risk-weighted assets

Adjusted average total assets

* Limited to a maximum of 1.25 percent of gross risk-weighted assets.





ASSET QUALITY

Asset quality is evaluated in relation to the level, distribution, severity, and trend of problem, classified,delinquent, nonaccrual, nonperforming, and restructured assets, both on- and off-balance-sheet; theadequacy of the allowance for loan and lease losses and other valuation reserves; the demonstrated abilityto identify, administer, and collect problem assets; the diversification and quality of loan and investmentportfolios; the adequacy of loan and investment policies, procedures, and practices; the extent of securities underwriting activities and exposure to counterparties in trading activities; credit risk arisingfrom or reduced by off-balance-sheet transactions; asset concentrations; the volume and nature of documentation exceptions; and the effectiveness of credit-administration procedures, underwritingstandards, risk-identification practices, controls, and management information systems.

Component Rating X

ASSET-QUALITY RATIOS AND TRENDS

Ratio Exam Date Prior Exam Prior Exam

Total adversely classified items/ tier 1 capital + allowance % % %

Total adversely classified assets/ total assets % % %

Past-due and nonaccrual loans and leases/ gross loans and leases % % %

Weighted adversely classified items/ tier 1 capital + allowance % % %





SUMMARY OF ITEMS SUBJECT TO ADVERSE CLASSIFICATION/ SUMMARY OF ITEMS LISTED AS SPECIAL MENTION

Asset Category

Adversely Classified

Substandard Doubtful Loss Total

Loans/leases

Securities

Other real estate owned

Other assets

Totals at this exam (MM/DD/YY)

Totals at prior exam (MM/DD/YY)

SUMMARY OF ITEMS LISTED AS SPECIAL MENTION

Exam Date Prior ExamLoans/leases





LOANS AND LEASE-FINANCING RECEIVABLES

Date

Category Amount Percent

Real estate loansInstallment loansCredit card and related plansCommercial loansAll other loans and leases

Gross loans and leases

PAST-DUE AND NONACCRUAL LOANS AND LEASES

Date

Category

Past Due30 through

89 Days

Past Due90 Days

or More

TotalPast-Due

and

Accruing Percent

Non-

accrual Percent

Real estate loansInstallment loansCredit card and

related plansCommercial and all

other loansTotals

MEMORANDUM

‘‘Restructured’’ loansand leases includedin the above totals:

COMMENTS





MANAGEMENT/ADMINISTRATION

Management and the board of directors are evaluated against all factors necessary to operate theinstitution in a safe and sound manner and their ability to identify, measure, monitor, and control the risksof the institution’s activities. Consideration is given to the level and quality of oversight and supportprovided by management and the board; compliance with regulations and statutes; the ability to plan forand respond to risks that may arise from changing business conditions or initiation of new products orservices; the accuracy, timeliness, and effectiveness of management information and risk-monitoringsystems; the adequacy of and compliance with internal policies and controls; the adequacy of audit andinternal control systems; the responsiveness to recommendations from auditors and supervisoryauthorities; the reasonableness of compensation policies and avoidance of self-dealing; a demonstratedunderstanding and willingness to serve the legitimate banking needs of the community; managementdepth and succession; the extent that management is affected by or susceptible to dominant influence orconcentration of authority; and the overall performance of the institution and its risk profile.

Component Rating X





EARNINGS

Quality and quantity of earnings are evaluated in relation to the ability to provide for adequate capitalthrough retained earnings; level, trend, and stability of earnings; quality and sources of earnings; levelof expenses in relation to operations; vulnerability of earnings to market-risk exposures; adequacy of provisions to the allowance for loan and lease losses and other valuation reserves; reliance on unusual ornonrecurring gains or losses; contribution of extraordinary items, securities transactions, and tax effectsto net income; and adequacy of budgeting systems, forecasting processes, and management informationsystems.

Component Rating X

COMPONENT RATIOS AND TRENDS


Net income (after tax)/average assets % % %

Net operating income (after tax)/ average assets % % %





ANALYSIS OF EARNINGS

Comparative Statement of Income (Institution Only or Consolidated)

Exam Date Period Ended Interest incomeInterest expense

Net interest incomeNon-interest incomeTotal non-interest expenseProvision for loan & lease lossesProvision for allocated transfer risk Securities gains (losses)

Net operating income (pre-tax)Applicable income taxes

Net operating income (after-tax)Extraordinary credits (charges), net

Net incomeOther increases/decreasesCash dividends

Net change in equity accounts

Reconcilement of Allowance for Loan and Lease Losses

Exam Date Period Ended Beginning balanceGross loan and lease lossesRecoveriesProvision for loan and lease lossesOther increases (decreases)

Ending balance

Other Component Ratios and Trends


Net interest income (TE)/average earning assetsTotal non-interest expense/average assetsNet income/average total equityNet losses/average total loans and leasesEarnings coverage of net losses (X)ALLL/total loans and leasesNonperforming/ALLL





LIQUIDITY/ASSET LIABILITY MANAGEMENT

Liquidity and asset/liability management is evaluated in relation to the trend and stability of deposits;degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowingsor brokered deposits to fund longer-term assets; availability of assets readily convertible to cash withoutundue loss; availability to securitize and sell certain pools of assets; access to money markets and othersources of funding; adequacy of liquidity sources and ability to meet liquidity needs; effectiveness of liquidity policies and practices, funds-management strategies, management information systems, andcontingency-funding plans; capability of management to properly identify, measure, monitor, and controlliquidity; and level of diversification of funding sources, both on- and off-balance-sheet.

Component Rating X





SENSITIVITY TO MARKET RISK

Sensitivity to market risk reflects the degree to which changes in interest rates, foreign-exchange rates,commodity prices, or equity prices can adversely affect earnings or the economic value of capital; theability of management to identify, measure, monitor, and control exposures to market risk given thebank’s size, complexity, and risk profile; the nature and complexity of interest-rate risk arising fromnontrading positions; and, where appropriate, the nature and complexity of interest-rate risk arising fromtrading and foreign operations.

Component Rating X





ITEMS SUBJECT TO ADVERSE CLASSIFICATION

Includes assets and off-balance-sheet items which are detailed in the following categories:

Substandard Assets—A substandard asset is inadequately protected by the current sound worth andpaying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have awell-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterizedby the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful Assets—An asset classified doubtful has all the weaknesses inherent in one classifiedsubstandard with the added characteristic that the weaknesses make collection or liquidation in full, onthe basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss Assets—An asset classified loss is considered uncollectible and of such little value that continuance

as a bankable asset is not warranted. This classification does not mean that the asset has absolutely norecovery or salvage value, but rather it is not practical or desirable to defer writing off this basicallyworthless asset even though partial recovery may be effected in the future.

Category

Amounts, Description, and Comments Substandard Doubtful Loss





ITEMS LISTED FOR SPECIAL MENTION

Includes assets that are detailed as follows:

Special-Mention Assets—A special-mention asset has potential weaknesses that deserve management’sclose attention. If left uncorrected, these potential weaknesses may result in deterioration of therepayment prospects for the asset or in the institution’s credit position at some future date. Special-mention assets are not adversely classified and do not expose an institution to sufficient risk to warrantadverse classification.

Description





ASSETS WITH CREDIT-DATA OR COLLATERAL-DOCUMENTATION EXCEPTIONS

Includes assets with technical defects not corrected during the examination for which deficiency theappropriate number or description is noted in the Deficiency column.

1—Appraisal 5—Insurance

2—Title Search or Legal Opinion 6—Collateral Assignment

3—Borrowing Authorization 7—

4—Recordation 8—

Name or Description Amount

Date of Most Recent

FinancialStatement

Deficiency Number(s)

or Description





SIGNATURE OF DIRECTORS

We, the undersigned directors of , have personally reviewed

the contents of the report of examination dated .

Signature of Directors Date

NOTE: This form should remain attached to the Report of Examination and be retained in the institution’s

file for review during subsequent examinations. The signature of committee members will suffice onlyif the committee includes outside directors and a resolution has been passed by the full board delegatingthe review to such committee.





CONFIDENTIAL SECTIONDIRECTORS

Name *Year of Birth

Year Elected to Board

Occupationor

Principal Business

Affiliation

* Number of meetings missed of a total of held since the previous examination.

Regular schedule of directors’ meetings:

Fee paid each director:





CONFIDENTIAL SECTIONEXECUTIVE OFFICERS

Name and Title

Area of Responsi-

bilityYear of Birth

Years with Bank

Years inPresent Position

Compen-sation

(Bonus)





CONFIDENTIAL SECTIONMANAGEMENT AND CONTROL

1. DISCUSS ANY OTHER RELEVANT MATTERS REGARDING THE BANK’S MANAGEMENTNOT PREVIOUSLY ADDRESSED.

2. IF THE BANK IS IN A WEAKENED OR EXTENDED CONDITION, WHAT AID MAY BEEXPECTED FROM SHAREHOLDERS OR OTHERS?

3. (A) LIST EACH MAJOR SHAREHOLDER (5 PERCENT OR MORE) OF THE BANK AND THERESPECTIVE PERCENTAGE OF OWNERSHIP. WHEN THE MAJOR SHAREHOLDER IS ABANK HOLDING COMPANY, LIST ITS MAJOR SHAREHOLDERS AND THE PERCENT

CONTROLLED.Shareholders Percentage Owned

(B) COMMENT ON THE EXTENT TO WHICH A PARTICULAR DIRECTOR(S), SHAREHOLD-ER(S), OR EXECUTIVE OFFICER(S) CONTROLS OR DOMINATES THE BANK’S POLI-CIES AND OPERATIONS.

(C) COMMENT ON ANY ADVERSE EFFECTS OF INSIDERS ON OPERATING POLICIES,

PROCEDURES, OR OVERALL FINANCIAL CONDITION OF THE BANK.

(D) PROVIDE THE AGGREGATE AMOUNT OF BORROWINGS BY DIRECTORS, EXECU-TIVE OFFICERS, PRINCIPAL SHAREHOLDERS, AND THEIR RELATED INTERESTS (ASDEFINED IN REGULATION O). DESCRIBE ANY MATERIAL LOANS OR OTHERTRANSACTIONS BETWEEN THE BANK AND ITS EXECUTIVE OFFICERS, DIRECTORS,OR ITS DIRECT OR INDIRECT PRINCIPAL SHAREHOLDER(S) AND THEIR INTER-EST(S), AND ASSESS THE IMPACT OF THE TRANSACTIONS ON THE BANK. (ANINTEREST WOULD INCLUDE ANY HOLDING COMPANY AFFILIATE OR OUTSIDEBUSINESS INTEREST OR A BANK OR HOLDING COMPANY INSIDER IN WHICH25 PERCENT OR MORE IS CONTROLLED.)

4. HAS ANY DIRECTOR, OFFICER, OR EMPLOYEE ALLEGEDLY EMBEZZLED, ABSTRACTED,OR OTHERWISE CRIMINALLY MISUSED THE FUNDS OF THE BANK SINCE THE PREVI-OUS EXAMINATION? IF SO, HAVE PROPER AUTHORITIES BEEN NOTIFIED? IF PROPERAUTHORITIES HAVE NOT BEEN NOTIFIED, EXPLAIN WHY.





CONFIDENTIAL SECTIONRATING AND GENERAL INFORMATION

1. STATE THE BANK’S RATING AT THIS EXAMINATION AND THE DATE OF AND RATING ATTHE LAST EXAMINATION. BRIEFLY DISCUSS THE RATIONALE FOR THE RATING ANDREASONS FOR ANY DEPARTURES FROM FEDERAL RESERVE IMPLEMENTING GUIDE-LINES WITH RESPECT TO THE CAMELS COMPONENT RATINGS AND THE COMPOSITERATING.

2. DISCUSS PROSPECTS OF THE BANK.

3. WAS A MEETING HELD WITH THE FULL BOARD OF DIRECTORS TO DISCUSS MATTERS

SUBJECT TO CRITICISM? IF NOT, GIVE NAMES OF DIRECTORS AND OFFICERS WITHWHOM THE BANK’S CONDITION WAS DISCUSSED.

4. PROVIDE THE COMPOSITE RATINGS AND DATES OF THE MOST RECENT BANK SPE-CIALTY EXAMINATIONS (EDP, TRUST, CONSUMER, CRA) AND BANK HOLDING COM-PANY INSPECTION, IF APPLICABLE. IF ANY SPECIALTY EXAMINATION OR INSPECTIONRESULTED IN A PROBLEM RATING, DISCUSS ANY ADVERSE IMPACT OF THOSEPARTICULAR WEAKNESSES ON THE OVERALL SAFETY AND SOUNDNESS OF THEBANK.

Bank Specialty Examinations Date Rating

5. INDICATE THE NUMBER OF FEDERAL RESERVE EXAMINER DAYS TO COMPLETE THEPRE-EXAMINATION, ON-SITE, AND POST-EXAMINATION WORK.

Name On Premises Off Premises

Examiner





Community Bank Examination ReportEffective date November 2005 Section 6003.1

Developments in technology, the expansion of financial services, and a risk-focused approachto examinations necessitate an increased flex-

ibility in structuring and organizing the contentof community bank examination reports. Thereporting format for community bank examina-tions has been revised to focus more on ‘‘con-tent.’’ The format allows examiners to use cer-tain content headings, which follow a continuous-flow reporting format, and to use certain requiredreport pages. The community bank examinationreport format may, however, continue to consistof specific or individual report ‘‘pages.’’

The community bank reporting instructions

distinguish between mandatory content (whenthe bank’s condition or circumstances warrant)versus optional content. The examiner thus hasdiscretion in the arrangement of certain content.This guidance applies only to the preparation of community bank examination reports. See SR-01-19.

Subject to certain limitations, the examinermay customize and streamline the communitybank examination report to better focus theexamination’s findings on matters of risk and

importance to the bank’s overall financial con-

dition. The revised format for the communitybank examination report and its instructionsshould strengthen communications with the

bank’s board of directors and senior manage-ment and minimize reporting burden. The reportincorporates the specialty examination’s find-ings with the overall safety-and-soundness find-ings, thus culminating in a more comprehensivesafety-and-soundness assessment.

The scope and depth of matters discussedunder a content heading or on an examinationreport page, whether required or optional, willvary based on the issues and areas of concernpresented, as well as on their severity. A more

abbreviated discussion may be warranted forcommunity banks that are found to be in soundfinancial condition, with no material concerns orissues. All examination reports should containsufficient documentation to support any signifi-cant findings, issues, supervisory conclusions,and examiner recommendations.

The following table lists, in their requiredorder, the content headings or report pages of theopen and confidential sections of the communitybank examination report.

Community Bank Examination Report Content

Mandatory/ optional Required report page or section heading

OPEN SECTION

Mandatory Cover Page (Separate page required.)

Mandatory Table of Contents (Separate page required.)

Mandatory Scope (Combined or separate page.)Mandatory Matters Requiring Board Attention and Examination Conclusions

and Comments (Combined with the Scope or a separate page.)

Optional* Compliance with Enforcement Actions

The order of the following is at the examiner’s discretion.

Mandatory Management/Administration and Risk Management (Separate sectionrequired.)

Optional Risk Assessment Matrix

Mandatory Analysis of Financial Factors (Separate section required.)

Capital AdequacyAsset QualityEarningsLiquiditySensitivity to Market Risk

Commercial Bank Examination Manual November 2005Page 1



Other optional and mandatory pages or sections:

Optional* Information Technology Assessment

Optional* Fiduciary Activities Assessment

Mandatory Summary of Items Subject to Adverse Classification/Summary of Items

Listed as Special MentionOptional Loans and Lease-Financing Receivables/Past-Due and Nonaccrual Loans

and Leases

Optional* Items Subject to Adverse Classification

Optional* Items Listed for Special Mention

Optional* Assets with Credit-Data or Collateral-Documentation Exceptions

Optional* Concentrations

Optional* Violations of Laws and Regulations

Optional Other Matters

Mandatory Comparative Statement of Financial Condition

Mandatory Comparative Statement of Income

Optional* Capital Calculations

The capital calculations are optional. However, they may be mandatory if (1) the bank has a financial subsidiary within the meaning of the Gramm-Leach-Bliley Act, (2) there is a change in the capital category as a result of the examination, or (3) the ratios supporting the capital category in theexamination are not derived from the bank ’s Call Report as of the same date.Exception 3 could occur if the examination ratios were calculated at a dateother than a quarter-end or, if calculated at quarter-end, the numbers wereadjusted or changed from those filed in the Call Report.

Optional Other Financial Pages(At the examiner ’s discretion, other financial pages may alternatively be

included in an appendix to the report or in the confidential section.)

Mandatory Signature of Directors (A separate page is required. The signature pageshould be the last page in the report.)


The order of the following is at the examiner’s discretion.

Mandatory Directors and Of ficers

Mandatory General Information

* Indicates optional pages that are mandatory if circumstances relevant to the page apply.

6003.1 Community Bank Examination Report

November 2005 Commercial Bank Examination Manual

Page 2



COMMUNITY BANKEXAMINATION REPORTINSTRUCTIONS

Open Section

Content Heading or Report Page Title

Cover page. A separate cover page is mandatory.

Table of contents. A separate table of contentspage is mandatory. The table of contents indi-cates the pages included in the report. Allmandatory pages are to be included in eachexamination report. Optional pages are added asnecessary. The mandatory Signature of Direc-

tors page is the last page in the open section of the report. Additional supplemental pages maybe added to the report at the examiner’sdiscretion.

Page numbers should be included for com-pleteness. The page-numbering system may varyamong Reserve Banks.

Scope

The Scope content heading or report page ismandatory. It may be a combined content head-ing or a separate report page. The scope shouldinclude the examiner’s comments on examina-tion depth, scope, and procedures performed foreach area of review, including any specialtyareas. The examination’s scope should generallyaddress the following:

• the date of examination (commencement andconclusion)

• the type of examination (full-scope, targeted, joint, concurrent, combined (bank and bank holding company))

• the agency or agencies conducting the com-munity bank examination

• areas reviewed and analyzed (If the examina-tion is targeted, the examiner should identifyspecific areas reviewed.)

• the percentage and type of loans reviewed, if any

• a confirmation that examination results werediscussed with the organization, including alist of those who attended the meeting

• identification of the bank ’s peer group

• if necessary, recognition that the bank isoperating under a formal or informal supervi-

sory action (If so, state that the provisions of the action were reviewed and compliance wasassessed.)

Matters Requiring Board Attention, and Examination Conclusions and Comments

The content heading or report page is manda-tory. The content of the heading or page may becombined with the Scope content heading, or itmay be in the form of a separate report page.This section of the examination report informsthe bank ’s board of directors of the most sig-nificant and most important supervisory issuesor concerns identified during the examination as

well as the examination’s general conclusions—asummary of the most important findings. TheMatters Requiring Board Attention content head-ing or report page is intended to complement thecomplete findings of the Report of Examinationand is prepared for the use of the board of directors and the bank ’s management. The focusshould be on identified problems, rather than onstrengths of the organization. Problems shouldbe presented succinctly and unmistakably clearly.In all cases, the types of actions to be taken by

the directors and management to address theseproblems should be specifically noted.

All supervisory ratings assigned during theexamination and for the two previous examina-tions should be provided. The board of directorsand senior management of an institution that israted a composite 4 or 5 are to be informed thatthe bank is a problem institution that warrantsspecial supervisory attention. The board of directors and senior management of banks thatare rated composite 3 are to be informed that

their condition is not satisfactory, that the bank may be subject to more-than-normal supervi-sion, and that the cited supervisory issues andareas of concerns may cause their bank to beconsidered a problem institution if the weak-nesses are not promptly and adequately addressed.This content heading or report page should alsodiscuss significant weaknesses in 1- or 2-ratedinstitutions, and a brief summary of the bank ’scondition should be provided. Include any spe-cialty or targeted examination ratings assignedor other assessments, including findings fromother on-site visits during the recent FederalReserve examination cycle. In all cases, a con-cluding statement should be provided thatreminds the directorate of its responsibility toreview the entire Report of Examination. The

Community Bank Examination Report 6003.1




report should instruct each director to sign theSignature of Directors page.

The supervisory ratings should be followedby the uniform definition of the assigned com-posite rating. The uniform definitions of the

component ratings assigned need not be includedin reports; they should, however, be made avail-able to the board of directors and managementon request. This content heading or report pageshould summarize examination findings, particu-larly those of significance. The examiner shouldalso provide an overview of the bank ’s financialcondition. The examiner’s major recommenda-tions and management’s plans for correctiveactions should also be covered in appropriatedetail, with references to additional supporting

information elsewhere in the report. All com-ments should be presented in order of impor-tance. Comments should be provided primarilyon an exception basis; that is, they shoulddescribe areas of the bank ’s operations andaspects of its financial condition that displayweaknesses, deficiencies, or vulnerability. How-ever, the examiner is not precluded from recog-nizing positive actions taken by management.Laudatory or conclusive remarks and endorse-ments of specific management actions, however,

should be avoided.Significant recommendations presented else-

where in the report should be mentioned. Sig-nificant violations should also be discussedbriefly, but they should be presented in greaterdetail under the content heading or the reportpage for Violations of Laws and Regulations.

Compliance with Enforcement Actions

The content heading or report page is optional.

The order of the following headings or pages is

at the examiner ’s discretion.

Management/Administration and Risk Management

The content heading or report page is manda-tory. A separate section is required. The reportedinformation under this content heading shouldalways include (1) the risk-management numeri-cal rating; (2) the mandatory discussion of therisk factors—types of risk (that is, credit risk,

market risk, liquidity risk, operational risk, legalrisk, and reputational risk); (3) the adequacy of risk management associated with risk levels andrisk trends; and (4) the impact of specialtyexamination areas on relevant risk areas. The

fourth item, for example, might consist of adiscussion of the impact of any informationtechnology concerns on operational and otherrelevant risks, what impact any findings onfiduciary activities have on legal or other risks,or compliance concerns.

Within this section of the report, managementand the board of directors are to be evaluatedagainst all factors necessary to operate theinstitution in a safe and sound manner and ontheir ability to identify, measure, monitor, and

control the risks of the institution’s activities.Consideration is given to (1) the level, quality,and adequacy of supervisory oversight and sup-port provided by the board of directors andsenior management; (2) compliance with bank-ing and other statutes, regulations, and supervi-sory agreements; (3) the ability to plan for andrespond to risks that may arise from changingbusiness conditions or the initiation of a newproduct or service; (4) the accuracy, timeliness,and effectiveness of management information

and risk-monitoring systems used to controlrisks throughout the bank; (5) the adequacy andlevel of compliance with the board of directorspolicies and procedures and the bank ’s otherinternal policies and controls that are necessaryto operate the bank in a safe and sound manner;(6) the adequacy of internal accounting controlsystems, the bank ’s audits and audit function,and the bank ’s internal control systems (discussall of these in detail); (7) the responsiveness torecommendations from auditors and supervisory

authorities; (8) the reasonableness of compensa-tion policies and avoidance of, or tendencytoward, self-dealing; (9) the business strategyand policies and procedures for avoiding con-flicts of interests; (10) a demonstrated under-standing and willingness to serve the legitimatebanking needs of the community; (11) the insti-tution’s management depth and succession;(12) the extent that management is affected byor is susceptible to dominant influence or con-centration of authority; and (13) the overall risk profile and performance of the institution. SeeSR-95-51 for specific guidance on rating theadequacy of risk-management processes andinternal controls.

Provide the risk-management rating and dis-cuss the risk factors and the adequacy of risk



Page 4



management associated with the risk levels andrisk trends. Also discuss the impact of specialtyareas on relevant risk areas. For example, dis-cuss the impact of any information technologyconcerns on operational and other relevant risks,

as well as what impact any findings on fiduciaryactivities or compliance concerns have on legaland other risks. The section should discuss themanagement and risk-management analysis and‘‘R’’ rating assignment for the bank holdingcompany RFI/C(D) rating, as well as the exam-iner’s risk management-conclusions about thebank holding company.

Risk Assessment Matrix

The inclusion of a risk matrix is optional underthe Management/Administration and Risk Man-agement content heading. A risk assessment

matrix may be included either in theManagement/Administration and Risk Manage-ment section or in the Examination Conclusionsand Comments section, if appropriate. If notincluded in the open section of the report, therisk assessment matrix must be included in theconfidential section of the report. The followingis an example illustration:

Risk Assessment Matrix

Type of risk

Inherent

risk

Adequacy of risk

management Composite risk Trend

Credit Moderate Weak Moderate IncreasingMarket Low Weak Low StableLiquidity High Strong Moderate DecreasingOperational Low Acceptable Low StableLegal Low Acceptable Low StableReputational Low Acceptable Low Stable

Analysis of Financial Factors

The content heading or report page is manda-tory. It is to be included as a separate section andshould include all analyses and conclusions foreach financial component. Subheadings are tobe used to depict the ratings and the analysis of the individual components and other topics of discussion. The order is optional. However, themore significant issues should be addressed at

the beginning of this analysis. In addition to theCAELS components listed below, the bank holding company RFI/C(D) rating system com-ponent analysis should be reported in this sec-tion, if applicable. Financial tables and graphsare optional. They may also be included in anappendix.

1. [C]apital adequacy. Capital adequacy shouldbe evaluated in relation to supervisory guide-lines, the nature and extent of risks to the bank,and the ability of management to address andcontrol these risks to the organization. Consid-eration is to be given to (1) the level of, qualityof, and changes in capital and the bank ’s overallfinancial condition; (2) the nature, trend, andvolume of problem assets and the adequacy of

the allowance for loan losses and other valuationreserves; (3) risk exposures, including thosepresented by off-balance-sheet activities; (4) thequality and strength of earnings; (5) the balancesheet’s composition, including the nature andamount of intangible assets, market risk, con-centration risk, and nontraditional-activity risk;(6) equity maintenance and any growth experi-ences, plans, and prospects; (7) the reasonable-ness of dividends; (8) the access to capital

markets and other appropriate sources of finan-cial assistance; and (9) the ability of manage-ment to address emerging needs for additionalcapital.

2. [A]sset quality. Asset quality should be evalu-ated in relation to (1) the level, distribution,severity, and trend of problem, classified, delin-quent, nonaccrual, nonperforming, and restruc-tured assets, both on- and off-balance-sheet;(2) the adequacy of the allowance for loan andlease losses and other valuation reserves (includ-ing the adequacy of the bank ’s methodology andwritten documentation policies, procedures, andpractices); (3) management’s awareness of prob-lem loans and their causes and its demonstratedability to identify, administer, and collect prob-





lem assets; (4) the diversification and quality of loan and investment portfolios; (5) the adequacyof loan-administration and lending policies, pro-cedures, and practices; (6) the adequacy of workout procedures for problem credits; (7) the

quality of investment securities and the adequacyof investment policies, procedures, and prac-tices; (8) the extent of securities underwritingactivities and exposure to counterparties in trad-ing activities; (9) the credit risk that is arisingfrom, or reduced by, off-balance-sheet transac-tions; (10) asset concentrations (including thoseassets, problem credits, and other transfer-risk problems in particular economic sectors); (11) thevolume and nature of documentation excep-tions; (12) the effectiveness of credit-

administration procedures, underwriting stan-dards, risk-identification practices, internalcontrols, internal loan-review and credit-gradingsystems (including noted significant differencesbetween the internal loan grades and the exami-nation’s loan classifications), and managementinformation systems; and (13) the adequacy of policies, procedures, and practices involvingfinancial futures and foreign-exchange trading.

3. [E]arnings. The quality and quantity of earn-

ings should be evaluated in relation to (1) theability to provide for adequate capital throughretained earnings; (2) the level, quality (includ-ing the strength of net interest margin, theamount of noninterest income and expense, andthe extent of reliance on unusual or nonrecurringgains or losses), and stability of earnings; (3) thelevel of, composition of, reasonableness of assumptions for, and the extent of manage-ment’s control over any variances between actualresults versus the budgeted projections of income

and expenses in relation to the size and nature of the bank ’s operations; (4) the vulnerability of earnings to market-risk exposures; (5) theadequacy of provisions to the allowance for loanand lease losses and other valuation reserves;(6) the impact of extraordinary items, securitiestransactions, and tax effects on net income; and(7) the adequacy of budgeting systems, forecast-ing processes (including the reasonableness of assumptions), and management informationsystems.

4. [L]iquidity. Liquidity and asset-liability man-agement should be evaluated in relation to(1) the trend and stability of deposits; (2) thedegree of and reliance on short-term volatilesources of funds, including any undue reliance

on borrowings or brokered deposits to fundlonger-term assets; (3) the availability of assetsthat are readily convertible to cash withoutundue loss; (4) the bank ’s ability to securitizeand sell certain pools of assets; (5) the extent

and ease of the bank ’s access to money marketsand other sources of funding; (6) the adequacyof and ease of access to liquidity sources and thebank ’s ability to meet liquidity needs; (7) thelevel of securities pledged against liabilities;(8) the bank ’s ability to obtain borrowed fundsfrom outside sources that are consistent with thebank ’s funding strategies; (9) the effectivenessof and the extent of compliance with the bank ’spolicies and procedures for funding and manag-ing liquidity, interest-rate risk, management

information systems, and contingency-fundingplans; (10) the capability of management toproperly identify, measure, monitor, and controlliquidity; (11) the level of diversification of funding sources, both on- and off-balance sheet;(12) the extent of the bank ’s asset-liability andgap-management practices; and (13) the vulner-ability of the bank ’s funding to adverse public-ity, increased reputation risk, and lowered creditratings.

5. [S]ensitivity to market risk. Sensitivity tomarket risk reflects (1) the degree to whichchanges in interest rates, foreign-exchange rates,commodity prices, or equity prices can adverselyaffect earnings or the economic value of capital;(2) the ability of management to identify, mea-sure, monitor, and control exposures to marketrisk, given the bank ’s size, complexity, and risk profile; (3) the nature and complexity of interest-rate risk exposure arising from nontrading posi-tions; and (4) where appropriate, the nature and

complexity of interest-rate risk arising fromtrading and foreign operations.

In the following optional and mandatory pagesor sections, the asterisk (*) denotes optional

pages that are mandatory if circumstances rel-evant to the page apply.

Information Technology Assessment

The inclusion of an information technologyassessment as a content heading or report pageis optional.* An information technology assess-ment is mandatory, however, if an informationtechnology (URSIT) rating is assigned (seeSR-00-3) or if significant supervisory concerns



Page 6



exist. Information technology activities shouldbe evaluated based on the nature and extent of information technology risks, including manage-ment processes, architecture, integrity, security,and availability. The supporting rationale for

composite or component IT ratings should beincluded. Examiners should note whether a listof technical exceptions was provided to man-agement. The examiner’s conclusions shouldalso be reflected in the Analysis of FinancialFactors or the Management/Administration andRisk Management sections of the report, asappropriate. Any significant supervisory con-cerns should be reflected in the Matters Requir-ing Board Attention and in the ExaminationConclusions and Comments section.

Fiduciary Activities Assessment

The content heading or report page is optional.*The heading or page is mandatory, however, if atrust (UITRS) or transfer-agent rating wasassigned during the most recent Federal Reserveexamination cycle or if significant supervisoryconcerns exist in these areas. Fiduciary activi-ties should be evaluated relative to manage-

ment’s oversight of fiduciary activities and thenature and extent of risk that the fiduciaryactivities or business lines evaluated present tothe institution. Management’s ability to assessthe risk of fiduciary products and servicesoffered, including new products, should be evalu-ated. Note whether a list of technical exceptionswas provided to management. The supportingrationale for any ratings assigned should beincluded. Conclusions should also be reflectedin the Analysis of Financial Factors or the

Management/Administration and Risk Manage-ment sections of the report, as appropriate.Significant supervisory concerns should bereflected in the Matters Requiring Board Atten-tion and Examination Conclusions and Com-ments section.

Summary of Items Subject to AdverseClassi fication/Summary of Items Listed as

Special MentionThe content heading or report page (and theassociated content) is mandatory. The topic,however, must be discussed in the examinationreport. The Summary of Items Subject toAdverse Classification content heading or report

page summarizes items classified by the exam-iner as either substandard, doubtful, or loss as of the examination date (for this page, consideredthe date relevant to the asset-quality review).See SR-04-9 or section 2020.1 for the June 14,

2004, interagency agreement on the UniformAgreement on the Classification of Assets andAppraisal of Securities Held by Banks andThrifts.

A Substandard asset is inadequately protectedby the current sound worth and paying capacityof the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardizethe liquidation of the debt. They are character-ized by the distinct possibility that the institution

will sustain some loss if the deficiencies are notcorrected. An asset classified Doubtful has allthe weaknesses inherent in one classified Sub-standard with the added characteristic that theweaknesses make collection or liquidation infull, on the basis of currently existing facts,conditions, and values, highly questionable andimprobable. Assets classified Loss are consid-ered uncollectible and of such little value thattheir continuance as bankable assets is notwarranted. This classification does not mean

that the asset has absolutely no recovery orsalvage value, but rather that it is not practical ordesirable to defer writing off this basicallyworthless asset even though partial recoverymay be effected in the future. Amounts classi-fied Loss should be promptly charged off.

Total classifications are also presented for theprevious examination. Reserve Banks that areengaged in alternate-year examination programsshould provide totals contained in the previousexamination report prepared by the state when

applicable. The examiner should also considercreating a schedule under the Asset Qualitycontent heading or page to detail classificationsfrom additional prior examinations if meaning-ful trend information is noted. The examinershould also present, in the report narrative,classification trends for certain asset categoriesif the analysis is meaningful.

The report format does not contain provisionsfor other transfer-risk problems or value-impaired assets. For the examinations of banksengaged in international lending, examinersshould provide additional information to includecategories for other transfer-risk problems andvalue-impaired assets. Adjustments are requiredto be made for U.S. addressees and non-U.S.addressees.





For banks with foreign activity, the distinc-tion between U.S. and non-U.S. addressees fol-lows the definition set forth in the instructionsfor the Consolidated Report of Condition:whether a customer is U.S. or non-U.S. is deter-

mined by the customer’s principal address, thatis, by its domicile. A U.S. address would be inthe 50 states of the United States, the District of Columbia, Puerto Rico, or U.S. territories andpossessions. Non-U.S. addressees include allother geographical areas.

The examiner should list in the appropriatecategory the amounts of all credits classified dueto transfer risk. The value of credits shown asvalue impaired should be computed after deduct-ing any allocated transfer-risk reserve that is

established against an asset. In determining totalclassified assets, examiners should arrive at netassets classified due to country risk. Examinersshould identify any credits classified due totransfer risk that have received the same or amore severe classification due to credit risk andthat are listed above in the summary of classifieditems due to credit risk. The sum of such assetsshould be listed in the appropriate column andthen deducted to arrive at net assets classifieddue to country risk. For the purpose of this

content heading or report page, any creditsclassified as value impaired for transfer-risk purposes should not be included in the summaryof credits classified due to credit risk, unless thecredits are classified loss.

For the purpose of arriving at total classifiedassets, add the amount classified due to creditrisk to net assets classified due to transfer risk for each category. When computing weightedclassifications, the residual portion of any value-impaired assets should be assigned the same

weight as substandard classifications. However,the residual exposure still remains value impairedfor examination and classification purposes.Value-impaired assets held in the trading accountshould also be included in total classified assetsbut should not be considered classified assetswhen computing weighted classifications.

Summary of Items Listed as Special

MentionThe content heading or report page (and theassociated content) is mandatory. The topicmust be discussed in the examination report.The Summary of Items Listed for Special Men-tion content heading or report page presents the

total of assets listed for special mention for thecurrent and one previous examination. A special-mention extension of credit is defined as havingpotential weaknesses that deserve manage-ment’s close attention. If left uncorrected, these

potential weaknesses may, at some future date,result in the deterioration of the repaymentprospects for the credit or the institution’s creditposition. Special-mention credits are not consid-ered as part of the classified-extensions-of-creditcategory and do not expose an institution tosuf ficient risk to warrant classification. Thesummary does not include assets listed forspecial mention when computing classificationratios. Reserve Banks that are engaged inalternate-year examination programs should rely

on the special-mention total from the previousstate’s examination when applicable.

Loans and Lease-Financing Receivables/Past-Due and Nonaccrual Loans and Leases

The content heading or report page (and theassociated content) is optional. The examinerhas the flexibility to use the same or different

dates for the Loans and Lease-Financing Receiv-ables and the Past-Due and Nonaccrual Loansand Leases schedules. The Loans and LeaseFinancing Receivables schedule will usually beas of the most recent quarter-end. The Past-Dueand Nonaccrual Loans and Leases schedule willusually be as of the asset-quality review date.On the basis of the examination’s findings, theexaminer-in-charge should determine if otheras-of dates best reflect the condition of theinstitution. For example, the Loans and Lease-

Financing Receivables schedule may be pre-sented as of the asset-quality review date if theexaminer identifies significant changes since thelast quarter-end that need to be incorporated.

The format of the Loans and Lease-FinancingReceivables schedule is similar to that used inthe Consolidated Report of Condition. The defi-nitions of the loan categories as presented in theInstructions for the Consolidated Report of Con-dition should be used in completing the sched-ule. For examinations of banks engaged ininternational lending, Reserve Bank examinersshould adjust the format of this schedule for U.S.addressees and non-U.S. addressees. For exami-nations of banks engaged in international lend-ing, Reserve Bank examiners should adjust theformat of the Past-Due and Nonaccrual Loans



Page 8



and Leases schedule for U.S. addressees andnon-U.S. addressees. The definitions of past-dueand nonaccrual loans and leases as presented inthe Instructions for the Consolidated Report of Condition should be used in completing this

schedule, unless the bank ’s policy is moreconservative, in which case the bank ’s definitionmay be used. If so, or if state law requires thebank to apply different definitions, the examinershould discuss the bank ’s policy or state law inthe Comments section following the past-dueand nonaccrual schedule. The Memorandumsection should include the amount of restruc-tured loans and leases included in the totals.Relevant issues pertaining to past-due and non-accrual loans and leases should be briefly dis-

cussed in the Comments section. More-significant issues should be discussed on theAsset Quality page.

Items Subject to Adverse Classi fication

The content heading or report page is optional.*However, a full loan write-up is mandatory forall significant or material classified assets if (1) management disagrees with the disposition

accorded by the examiner or (2) the institutionwill be rated composite 3, 4, or 5. (See SR-99-24or section 2060.1 for further information.)

Items Listed for Special Mention

The content heading or report page is optional.*However, a full loan write-up is mandatory forall significant or material criticized assets if (1) management disagrees with the disposition

accorded by the examiner or (2) the institutionwill be rated composite 3, 4, or 5. (See SR-99-24or section 2060.1 for further information.)

Assets with Credit-Data or Collateral- Documentation Exceptions

The content heading or report page is optional.*However, the content heading and a discussionof any supervisory issues and concerns is man-datory if the information needed for loan linesheets is not available or if the information isnot reliable due to materially deficient loan-administration systems and processes, particu-larly with respect to loan and collateral docu-mentation and collateral values. (See SR-99-25

or section 2080.1 for further information.) If thecredit-data or collateral-documentation excep-tions are significant, this content heading orreport page should provide support for a discus-sion of credit-documentation practices under the

asset-quality portion of the Asset Quality con-tent heading or report page.

Concentrations

The content heading or report page (and itsassociated content) is optional.* If included, thecontent heading should include a discussion of supervisory issues and concerns regarding anysignificant concentrations of assets and liabili-

ties. This discussion should address the effec-tiveness of the bank ’s internal policies, systems,and controls to identify, monitor, and managethe risk associated with the concentrations andaddress the bank ’s alternatives or plans forreducing concentrations.

The content heading or report page shouldindicate that a concentration includes obliga-tions, direct or indirect, of the same or af filiatedinterests that represent 25 percent or more of thebank ’s capital structure. The reader should also

be informed that, for the purposes of this page,the capital structure is defined as tier 1 capitalplus the allowance for loan and lease losses.

When determining and calculating concentra-tions, the amount of loan commitments andother off-balance-sheet risk items should beconsidered. The listing should include all typesof loans, overdrafts, cash items, suspenseresources, securities, leases, acceptances,advances, letters of credit, and all other itemsdue to the bank, as well as loans endorsed,

guaranteed, or cosigned by related individualsand their related interests.

Concentrations by industry, transfer risk, prod-uct line, type of collateral, and other character-istics should be detailed when appropriate. Thelisting should include amounts due from deposi-tory institutions, federal funds sold, and otherassets in which payment depends on one finan-cial institution or af filiated group and the totalrepresents 25 percent or more of the bank ’scapital structure. Treasury securities, obligationsof U.S. government agencies and corporations,and any assets collateralized by these itemsshould not be included in the listing. Therequirements of Regulation F, as they relate toconcentrations involving correspondent banks,should also be considered.





Violations of Laws and Regulations

The content heading or report page is optional.*However, when violations of federal or statebanking laws and regulations are found, it is

mandatory that they be listed in detail on thispage. Violations of the Bank Secrecy Act shouldalso be listed on this page in detail.

The format for listing violations should beconsistent. A heading for each violation listedshould name the applicable regulation and sec-tion and provide a brief description of what thelaw covers. This summary should be followedby a brief description of the requirements of theregulation or statute and a discussion of how orwhy the violation occurred. The examiner should

describe any plans or recommendations for cor-rection. If a review of the Bank Secrecy Act isconducted separately, or as part of anotherexamination, a statement of this fact should beincluded under the Other Matters content head-ing or report page.

Other Matters

This content heading or report page is optional.If included, discuss issues or other matters of

significance not covered elsewhere in the com-munity bank ’s examination report. Discuss alsosignificant matters mentioned elsewhere thatrequire further explanation, such as the type,scope, and volume of any new activity in whichthe bank is engaged. If issues or concerns arenoted, examiners should provide comments onsuch specific areas, such as the following:

• accounting, audit, and internal controls

• af filiate relationships

• criminal referral procedures• emergency preparedness

• financial recordkeeping and reportingregulations

• insurance

• investment in bank premises• litigation

• security and controls against external crimes

• payments system risk

• nontraditional banking activities (for example,

mortgage warehousing or data processingservices)

• supervisory reporting

• nondeposit investment products

Other examination matters may also warrantcomments on this report page.

Comparative Statement of FinancialCondition

The Comparative Statement of Financial Con-dition page is mandatory. Alternatively, the

statement may be included in an appendix to theexamination report or in the confidential section.The left column of the statement should coin-cide with the Consolidated Report of Conditionfor the period used—generally, the most recentquarter-end. If Call Report amendments havebeen made, the amended numbers should appearon this page. If a bank ’s management has madeany significant misclassifications that havecaused examiners to amend any financial state-ments, the examiner’s numbers should appear

on this page. The right column should usuallydetail previous year-end information. However,the examiner may substitute a different date,such as a previous examination, when desired.All amounts listed in either column shouldconform to Consolidated Report of Conditioninstructions.

Comparative Statement of Income

The comparative statement of income is manda-tory. Alternatively, the statement may be includedin an appendix to the report or in the confidentialsection. The examiner should indicate whetherthe statement is for the institution only or isconsolidated.

Capital Calculations

The Capital Calculations page is optional.*Inclusion of capital calculations is mandatory,however, if (1) the bank has a financial subsid-iary within the meaning of the Gramm-Leach-Bliley Act, (2) there is a change in the capitalcategory as a result of the examination, or(3) the ratios supporting the capital category inthe examination are not derived from the bank ’sCall Report as of the same date. The thirdexception could occur if the bank ’s examinationratios were calculated at a date other than theend of a quarter, or, if calculated at quarter-end,

the numbers were adjusted or changed fromthose filed in the Call Report.

Other Financial Pages

Other optional financial report content headings



Page 10



or report pages may be included in the exami-nation report at the examiner’s discretion. Alter-natively, the content headings or report pagesmay be included in an appendix to the exami-nation report or in the report’s confidential

section.

Signature of Directors

The content heading is mandatory. A separatereport page is required and should be the lastpage in the open section of the report.

Confidential Section

‘‘Confidential Section’’ is a required contentheading. This section of the bank examinationreport is mandatory. It must include all informa-tion that cannot or should not be disclosed ormade available to the public. It should alsoinclude internal administrative and supervisoryinformation relevant to the Federal ReserveSystem and its staff. The order of the followingheadings or pages is at the examiner’s discretion.

Directors and Of ficers

The content heading or report page is mandatoryfor inclusion in the report. A separate reportpage is required. All bank directors should belisted in alphabetical order. If the bank electsadvisory directors, they should be listed alpha-betically under a separate heading. Information

requested in the report-page header should besupplied for each director. Specific instructionsfor certain requested information are as follows:

• Under meetings missed, include all meetings adirector has not attended between the previous(FRB or state) and current examination. If adirector was elected since the previous exami-nation, list only the number of meetings thathe or she missed since the date of election.

• Under fees paid to each director, indicate

whether the compensation is based onattendance.

• Under occupation or principal business af fili-ation, use concise and descriptive designa-tions (for example, farmer, grocer, or commer-cial real estate developer).

For banks with active board committees, a codeor legend for all committees should be prepared,indicating committee memberships for eachdirector.

The Executive Of ficers portion of the report

page uses the Regulation O definition of execu-tive of ficers, but other significant of ficers maybe included at the examiner’s discretion. Infor-mation requested by the report page should besupplied. Additional individuals to be reportedmay include persons without of ficial designationwho exercise considerable influence or execu-tive of ficers excluded from the Regulation Odefinition by board resolution who actually main-tain a high level of responsibility. Of ficers shouldbe listed in order of title or position of respon-

sibility, with dominant individuals shown first.Specific instructions for the requested informa-tion for the report page are as follows:

• Examples of assigned areas of responsibilitymay include administration, policy formula-tion, lending, operations, or branch manager.

• A salary should indicate the current annualsalary. The total bonuses should be reportedfor the previous year.

If executive of ficers receive any other perti-nent forms of compensation beyond their listedsalary and bonus (such as commission-basedpay, employment contracts, stock options, unusu-ally large benefits, or af filiated bank salaries andfees), these should be discussed in narrativeformat below the listing of executive of ficers oron a separate page.

General Information

The content heading is mandatory. It includes(1) a discussion of strategic plans, future tech-nology plans, planned bank products or services,or prospects for the bank; (2) significant orsensitive matters regarding the bank ’s manage-ment not previously addressed; (3) applicablecomments on the extent that a particular insidercontrols or dominates the organization and anyadverse effect of insiders on operating policies,procedures, or the overall financial condition of the bank; and (4) a discussion of any recommen-dations for supervisory actions and any addi-tional material matters of a sensitive or confi-dential nature not previously addressed. To theextent not included on the Directors and Of ficerspage, this discussion should also include a list of





each of the major shareholders of the bank (those having 5 percent or more ownership) andtheir respective percentage of ownership. Whenthe major shareholder is a bank holding com-pany, its major shareholders and the percent

controlled by each should also be listed. Includea listing of critical turnkey software vendors or

information technology service providers, aswell as any client institutions for which process-ing services are provided. Include any signifi-cant matters of a confidential nature regardingvendors or third-party service providers. Also

include a description of any electronic bankingactivities.



Page 12



Example State Member Bank

Examination Report for

Community Banks(Instructions Included)





REPORT OF COMMERCIAL BANK EXAMINATION

____________ ____________ ____________ Lead Bank Name Street Address City

____________ ____________ ___________

County State Zip CodeMailing Address:

Joint Concurrent Independent

__________________________

Federal Reserve Bank Examiner-In-Charge

TABLE OF CONTENTS(Order of content is dependent upon importance and significance of the issues)

PageMandatory Content

Scope / Matters Requiring Board Attention and Examination Conclusions andComments..................................................................................................... * Analysis of Financial Factors............................................................................. *Management / Administration and Risk Management....................................... *Summary of Items Subject to Adverse Classification /

Summary of Items Listed as Special Mention ...............................................*Comparative Statement of Financial Condition ................................................. *Comparative Statement of Income.................................................................... *Signature of Directors........................................................................................ *

(Confidential Section)(Directors and Officers) .....................................................................................*

(General Information) ........................................................................................ *

Optional ContentCompliance with Enforcement Actions .............................................................. **Information Technology Assessment................................................................. **Fiduciary Activities Assessment ........................................................................ **Loans and Lease-Financing Receivables /

Past Due and Nonaccrual Loans and Leases ............................................... **Items Subject to Adverse Classification............................................................. **Items Listed for Special Mention ....................................................................... ** Assets with Credit-Data or Collateral-Documentation Exceptions..................... **

Concentrations .................................................................................................. **Violations of Laws and Regulations...................................................................**Other Matters .................................................................................................... **Capital Calculations........................................................................................... **Other Financial Pages....................................................................................... **

Note: Except as indicated, amounts in tables are shown to the nearest thousand dollars.

Date of previous Examination:

* Mandatory Content

** Optional Content (However, some content is mandatory if circumstances relevant to the issue apply.)



Page 14



SCOPE / MATTERS REQUIRING BOARD ATTENTION

AND EXAMINATION CONCLUSIONS AND COMMENTS

Page X of Y

SCOPE

Comment on the examination’s depth, scope, and procedures performed for eacharea of review, including any specialty areas.

MATTERS REQUIRING BOARD ATTENTION

State if there are any matters requiring board of director’s attention, including

significant issues from specialty examination areas, as applicable.

EXAMINATION CONCLUSIONS

Provide all supervisory ratings assigned during the examination and for the twoprevious examinations, any significant supervisory concerns, and generalconclusions. Include any specialty or target examination ratings assigned or other assessments, including findings from other on-site visits during the recent FederalReserve examination cycle.

Exam Date Prior Exam Prior Exammm/dd/yyyy mm/dd/yyyy mm/dd/yyyy

Uniform Composite Rating – Bank X X X

Component Ratings:[C]apital X X X[A]sset Quality X X X[M]anagement X X X[E]arnings X X X[L]iquidity X X X[S]ensitivity to Market Risk X X XRisk Management X X X

Bank Holding Company RFI/C (D) Rating

[R]isk Management X X X[F]inancial Condition X X X[I]mpact Potential X X X[C]omposite Rating X X X[D]epository Institutions X X X

Other examination area ratings (if applicable):

Date of Examination

Composite

Rating

Trust mm/dd/yyyy XCompliance mm/dd/yyyy XCRA mm/dd/yyyy X





SCOPE / MATTERS REQUIRING BOARD ATTENTION

AND EXAMINATION CONCLUSIONS AND COMMENTS

UNIFORM COMPOSITE RATING

Bank

BHC

Other

Examiner-In-Charge’sSignature

Designated signing authority

Page X of Y



Page 16



ANALYSIS OF FINANCIAL FACTORS

Page X of Y

Include analysis and conclusions for each financial component in this section usingsubheadings to depict ratings and analysis of individual components and other topics of discussion. The order is optional; however, the more significant issuesshould be addressed up front. In addition to the CAELS components listed below,the Bank Holding Company Rating component analysis should be written in thissection, if applicable. Financial tables and graphs may be included on this page or inan appendix.

Asset Quality (__)

Asset quality is considered ____

Liquidity Position (___)

The bank’s liquidity position and funds management are ___.

Sensitivity to Market Risk (_ _)

Interest rate risk (IRR) management is __________ and exposure to market risk is ____________.

Capital Adequacy (_ _)

The bank’s capital position is _____.

Earnings (___)

Earnings performance is ________.





MANAGEMENT / ADMINISTRATION

AND RISK MANAGEMENT

Page X of Y

The management and risk management analysis, rating, and conclusion for the bankand holding company, if applicable, should be included in this section.

Management (X)

Management is X.

Risk Management (X)

Mandatory Risk Management Assessment - Provide the risk management numericalrating and discussion of risk factors and the adequacy of risk managementassociated with risk levels and risk trends. The impact of specialty examination

areas on relevant risk areas should be incorporated. For example, the impact of anyinformation technology concerns on operational and other relevant risks should bediscussed, as well as the impact on legal or other risks of any findings with respectto fiduciary activities or compliance concerns.

Risk Management is X.

Optional Risk Assessment Matrix - A risk assessment matrix may be included either in the Management/Administration and Risk Management section or in theExamination Conclusions and Comments section, as appropriate.

Risk Assessment Matrix (Optional)

Type of Risk Inherent Risk

Adequacy of Risk

Management CompositeRisk

Trend

Credit Moderate Weak Moderate IncreasingMarket Low Weak Low StableLiquidity High Strong Moderate DecreasingOperational Low Acceptable Low StableLegal Low Acceptable Low StableReputational Low Acceptable Low Stable

Credit Risk (Mandatory)

Market Risk (Mandatory )

Liquidity Risk (Mandatory

Operational Risk (Mandatory)

Legal Risk (Mandatory)

Reputational Risk (Mandatory)



Page 18



SUMMARY OF ITEMS SUBJECT TO ADVERSE CLASSIFICATION /

SUMMARY OF ITEMS LISTED AS SPECIAL MENTION

Page X of Y

Adversely Classified Categories Asset Category Substandard Doubtful Loss Total

Classifications

Loans/Leases $

Securities $

Other Real Estate Owned $

Other Assets $

Totals at This Examdate $

Totals at Prior Examdate $

SUMMARY OF ITEMS LISTED FOR SPECIAL MENTION

Loans/Leases $





COMPARATIVE STATEMENTS OF FINANCIAL CONDITION

Page X of Y

(Amounts Reported in Thousands)

ASSETS mm/dd/yyyy mm/dd/yyyyTotal Loans and Leases

Less: Allowance for Loan & Lease LossesLoans and Leases (net)Interest-Bearing BalancesFederal Funds Sold and Securities Purchased

Under Agreements to ResellTrading Account AssetsSecurities: Held-to-Maturity (at Amortized Cost)

Available-for-Sale (at Fair Value)Total Earning Assets

Cash and Noninterest-Bearing BalancesPremises and Fixed AssetsOther Real Estate OwnedIntangible AssetsOther Assets

TOTAL ASSETS

LIABILITIES AND EQUITY CAPITALDepositsFederal Funds Purchased and Securities Sold

Under Agreements to Repurchase

Other Borrowed MoneyOther LiabilitiesSubordinated Notes and Debentures

Total LiabilitiesEquity CapitalPerpetual Preferred StockCommon Equity Capital

Includes net unrealized holding gains (losses)on available-for-sale securities.Other Equity Capital

Total Equity Capital

TOTAL LIABILITIES AND EQUITY CAPITAL

OFF-BALANCE-SHEET ITEMSUnused Loan CommitmentsLetters of CreditInterest Rate Contracts Appreciation (Depreciation) in Held-to-Maturity

SecuritiesOther Off-Balance-Sheet Items

Footnotes:



Page 20



COMPARATIVE STATEMENT OF INCOME (Amounts reported in $ thousands)

Page X of Y

ITEMS mm/dd/yyyy mm/dd/yyyy mm/dd/yyyy

INTEREST INCOME:Interest and fee income on loans

Income from lease financing

Interest on balances with depository institutions

Income on Federal funds sold and repos

Interest from assets held in trading accounts

Interest and dividends on:

U.S. government securities

Obligations of states and political subdivisions

Other securities

TOTAL INTEREST INCOMEINTEREST EXPENSE:

Interest on deposits

Expense on Federal funds purchased and repos

Interest on demand notes, other borrowed money,

mortgages, and capitalized leases

Interest on subordinated notes and debentures

TOTAL INTEREST EXPENSE

NET INTEREST INCOME

NONINTEREST INCOME:

Services charges on deposit accounts

Other fee income

All other noninterest income

TOTAL NONINTEREST INCOME

NONINTEREST EXPENSE:

Salaries and employee benefits

Premises and fixed assets expense (net of rental income)

Other noninterest expense

TOTAL NONINTEREST EXPENSE

Provision for loan and lease losses

Provision for allocated transfer risk

Securities gains (losses)

NET OPERATING INCOME (PRETAX)

Applicable income taxes

NET OPERATING INCOME (AFTERTAX)

Extraordinary credits (charges) net of income tax

NET INCOME

Cash dividends declared on common stock

Other increases or decreases

NET CHANGE IN EQUITY ACCOUNTS





COMPARATIVE STATEMENT OF INCOME (Amounts reported in $ thousands)

Page X of Y

Footnotes:



Page 22



SIGNATURE OF DIRECTORS

NOTE: This form should remain attached to the report of examination/inspection and be retained in the bank’s file for

review during subsequent examinations. The signature of committee members will suffice only if the committee includesoutside directors and a resolution has been passed by the full board delegating the review to such committee.

Page X of Y

We, the undersigned directors of _______Bank, have personally reviewed the

contents of the report of examination dated ______________, _____ Signature of Directors Date





CONFIDENTIALSECTION

Page X of Y



Page 24




DIRECTORS AND OFFICERS

Page X of Y

Name &Committees AddressYear of Birth

MeetingsMissed1

Years onBoard

SharesOwned

Compensation(Bonus)

Occupation or PrincipalBusiness Affiliation

Chairman

Directors

Principal Officers

Insert statements on qualifications of individual officers and directors as appropriate.

Regular schedule of directors’ meetings:

Fee paid each director:

Committees:

1Number of meetings missed out of a total of X held since X






GENERAL INFORMATION

Page X of Y

Include a discussion of strategic plans, future technology plans, planned bankproducts or services, and/or prospects for the bank; significant or sensitive mattersregarding the bank’s management not previously addressed; applicable commentson the extent a particular insider controls or dominates the organization and anyadverse effect of insiders on operating policies, procedures, or overall financialcondition of the bank; and a discussion of any recommendations for supervisoryactions and any additional material matters of a sensitive or confidential nature notpreviously addressed. To the extent not included on the Directors and Officers page,this discussion should also include a list of each major shareholder of the bank (5

percent or more) and the respective percentage of ownership. When the major shareholder is a bank holding company, its major shareholders and the percentcontrolled should be listed. Include a listing of critical turnkey software vendors,and/or service providers, and any client institutions for which processing services areprovided. Include any significant matters of a confidential nature regarding vendorsor third-party service providers. In addition, include a listing of e-banking activities.



Page 26



Options

OPTIONAL PAGES





COMPLIANCE WITH ENFORCEMENT ACTIONS

Page X of Y



Page 28



INFORMATION TECHNOLOGY ASSESSMENT

Page X of Y

Mandatory if an Information Technology (URSIT) rating is assigned (refer to SR 00-3for details) or if significant supervisory concerns exist. Information technologyactivities should be evaluated based upon the nature and extent of informationtechnology risks including management processes, architecture, integrity, securityand availability. Supporting rationale for composite and/or component IT ratingsshould be included. Note whether a list of technical exceptions was provided tomanagement. Conclusions should also be reflected in Analysis of Financial Factorsand/or the Management/Administration and Risk Management sections of the report,as appropriate, and any significant supervisory concerns should be reflected in theMatters Requiring Board Attention and Examination Conclusions section.





FIDUCIARY ACTIVITIES ASSESSMENT

Page X of Y

Mandatory if a Trust (UITRS) or transfer agent rating is assigned during the mostrecent Federal Reserve examination cycle or if significant supervisory concerns existin these areas. Fiduciary activities should be evaluated relative to management’soversight of fiduciary activities and the nature and extent of risk to the institutionrepresented by the fiduciary activities or business lines evaluated. Management’sability to assess the risk of fiduciary products and services offered, including newproducts, should be evaluated. Note whether a list of technical exceptions wasprovided to management. Supporting rationale for any ratings assigned should beincluded. Conclusions should also be reflected in Analysis of Financial Factorsand/or the Management/Administration and Risk Management sections of the report,as appropriate, and any significant supervisory concerns should be reflected in theMatters Requiring Board Attention and Examination Conclusions and Comments

section.



Page 30



LOAN AND LEASE FINANCING RECEIVABLES/

PAST DUE AND NONACCRUAL LOANS AND LEASES

Date: ___________________

Page X of Y

Category Amount Percent

Real estate loansInstallment loansCredit card and related plansCommercial loans

All other loans and leasesGross loans and leases $ 100.00%

PAST DUE AND NONACCRUAL LOANS AND LEASES

Past Due Amount

Total Past Due Nonaccrual Total Past Dueand Nonaccrual

AssetCategory

30 -89

Days

90Days

or More

Amount Percent Amount Percent Amount Percent

Real estateloans

InstallmentloansCredit cardand relatedplans

Commercialloans and allother loansand leasesTotals

Memorandum:Restructuredloans andleases includedin the abovetotals.

Comments:





ITEMS SUBJECT TO ADVERSE CLASSIFICATION

Includes assets and off-balance-sheet items which are detailed in the following categories:

Substandard Assets - A Substandard asset is inadequately protected by the current sound worth and paying capacity of theobligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain

some loss if the deficiencies are not corrected.

Doubtful Assets - An asset classified Doubtful has all the weaknesses inherent in one classified Substandard with theadded characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,

conditions, and values, highly questionable and improbable.

Loss Assets - An asset classified Loss is considered uncollectible and of such little value that continuance as a bankableasset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but

rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may beeffected in the future. Amounts classified loss should be promptly charged off.

Classification Category

Amount, Description, and Comments Substandard Doubtful Loss

Page X of Y



Page 32



ITEMS LISTED FOR SPECIAL MENTION

Includes assets and off-balance-sheet items which are detailed as follows:

Special Mention Assets - A Special Mention asset has potential weaknesses that deserve management's close attention.

If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment

prospects for the asset or in the institution's credit position. Special Mention assets are not adversely classified and donot expose an institution to sufficient risk to warrant adverse classification.

Description Amount

Page X of Y





ASSETS WITH CREDIT-DATA OR COLLATERAL-DOCUMENTATIONEXCEPTIONS

Includes assets with technical defects not corrected during the examination for which deficiency the appropriate number or

description is noted in the "Deficiency" column.

1 – Appraisal 6 – Collateral Assignment

2 – Title Search or Legal Opinion 7 – Financial Statement3 – Borrowing Authorization 8 –

4 – Recordation 9 – 5 – Insurance 10 –

Name or Description Amount

Date of Most

Recent

Financial

Statement

Deficiency

Description

Page X of Y



Page 34



CONCENTRATIONS

Page X of Y





VIOLATIONS OF LAWS AND REGULATIONS

Page X of Y



Page 36



OTHER MATTERS

Page X of Y





CAPITAL CALCULATIONS __________________________________________

Page X of Y

Tier 1 Capital $(000’s) $(000’s)

Common StockSurplus

Undivided Profits and Capital Reserves

Does not include appreciation (depreciation) on held-to-maturity and available-for-sale securities

Noncumulative Perpetual Preferred Stock & Surplus

Minority Interests

Subtotal: Tier 1 Capital Elements

Add:

Less:

Tier 1 Capital

Tier 2 Capital Allowance for Loan & Lease Losses

Add:

Adjusted Allowance for Loan & Lease Losses ____________________________________

Less:

Eligible Allowance for Loan & Lease Losses ____________________________________

Cumulative Perpetual Preferred Stock

Subordinated Debt

Other:

Tier 2 Capital (Not to Exceed 100% of Tier 1 Capital)Total CapitalTier 1 Plus Tier 2 CapitalLess :

Total Capital

Risk-Weighted Assets and Average Total Assets CalculationsRisk-Weighted Balance-Sheet Items

Risk-Weighted Off-Balance-Sheet Items

Less: Risk-Weighted Amounts Deducted from Capital

Gross Risk-Weighted Assets

Less: Ineligible Portion of ALLL & ATRR

Total Risk-Weighted Assets Average Total Assets (From 01/01/__ Call Report)

Less: Amounts Deducted from Tier 1 Capital

Adjusted Average Total AssetsMEMORANDA

Securities Appreciation (Depreciation)

Contingent Liabilities/Potential Loss

Footnotes:



Page 38



OTHER FINANCIAL INFORMATION___________________________________

Page X of Y





Other Types of ExaminationsEffective date October 2007 Section 6010.1

This section deals specifically with System-wide Federal Reserve policies, practices, andprocedures relating to the examination of

domestic and international banking depart-ments of state-chartered commercial banks thatare members of the Federal Reserve System.Th e F ederal Res er ve als o has cer tainsupervisory and oversight responsibilities inother areas of banking, both domestic andinternational, for which it has developedspecialized examination procedures, conductson-site examinations, and completes separateexamination reports. These areas are notcovered in depth in this manual; Federal

Reserve policies and examination proceduresrelating to each of them are covered in eitherseparate manuals or supervisory letters (SR-letters) issued by the Federal Reserve Board.

BANK HOLDING COMPANIES

The Federal Reserve has the sole regulatoryresponsibility for supervising bank holding com-panies. These organizations control commercial

banks that hold most of the insured commercialbanking assets in the United States. Substan-tially all bank holding companies are subject toon-site inspection by the Federal Reserve Sys-tem. The frequency and scope of inspections aredetermined by the composite rating, size, amountof debt, and complexity of the organization.Inspections cover both financial and managerialfactors and include analysis at the parent, bank,nonbank, and consolidated levels.

INTERNATIONAL

Overseas Operations of U.S. BankingOrganizations

Under provisions of the Federal Reserve Actand the Board’s Regulation K, member banksmay establish branches in foreign countriessubject to, in most cases, the Board’s priorapproval. Examinations of the overseas opera-tions of state member banks are generally con-ducted at the banking organization’s head officein the United States, where the ultimate respon-sibility for the overseas facilities lies. To verifyand supplement the results of the head-officeexaminations, on-site reviews of important over-

seas operations are performed at least everythree years.

Edge Act and AgreementCorporations

Under sections 25 and 25A of the FederalReserve Act, Edge Act and agreement corpora-tions may engage in international banking andforeign financial transactions, and the FederalReserve is responsible for conducting specialtyexaminations of these entities and their branches.Edge corporations are chartered by the Board to

conduct an international banking business.Agreement corporations are state-chartered com-panies that enter into an agreement with theBoard to limit their operations to internationalbanking. These corporations, which are usuallysubsidiaries of member banks, provide theirowner organizations with additional powers intwo areas: (1) they may conduct a deposit andloan business in states other than that of theparent, provided that the business is strictlyrelated to international transactions, and (2) they

have somewhat broader foreign-investment pow-ers than member banks, being able to invest inforeign financial organizations, such as financecompanies and leasing companies, as well as inforeign banks.

U.S. Activities of Foreign BankingOrganizations

During the 1970s and 1980s, foreign entities

rapidly expanded their operations in the UnitedStates; today, they are a significant element inthe U.S. banking system. Although the FederalReserve previously had significant authority overforeign banking organizations (FBOs), its rolewas enhanced by the Foreign Bank SupervisionEnhancement Act of 1991 (FBSEA). The Fed-eral Reserve has broad oversight authority forthe supervision and regulation of FBOs thatengage in banking in the United States throughbranches, agencies, commercial lending compa-nies, and subsidiary banks. In fulfilling thisresponsibility, the Federal Reserve conducts itsown examinations and may also use reports of other agencies. FBSEA also requires FederalReserve approval for establishment of new FBOoffices in the United States, and it gives the

Commercial Bank Examination Manual October 2007Page 1



Federal Reserve the authority to terminate suchof fices.

ELECTRONIC DATA PROCESSING

ACTIVITIESThe Federal Reserve is responsible for conduct-ing examinations of electronic data processing(EDP) centers that provide EDP services to statemember banks, FBOs, and Edge Act corpora-tions. Section 3 of the Bank Service CorporationAct (12 USC 1863, redesignated as the Bank Service Company Act) generally authorizes bank service companies to perform significant cleri-cal, bookkeeping, or accounting functions, such

as demand-deposit accounting and loan process-ing. Section 7 of the Bank Service Company Act(12 USC 1867) empowers the appropriate fed-eral regulatory agency to examine banking ser-vices and operations regardless of whether theseservices are performed on or off the premises of a particular financial institution. When a finan-cial institution contracts with an external com-pany to provide data processing services, thedata processing company’s activities that pertainto financial institutions are subject to examina-

tion. Larger companies that operate in more thanone regulatory district or region are examinedpursuant to the Multiregional Data ProcessingServicer (MDPS) examination program. EDPexaminations, whether of independent process-ing companies or a state member bank ’s ownEDP functions, are operational in nature andfocus on evaluations of internal controls andaudit effectiveness. EDP examiners have spe-cialized training that enables them to assess theperformance of each data center in four critical

functions: audit, management, systems develop-ment and programming, and computer opera-tions.

TRUST DEPARTMENTS ANDTRUST COMPANIES

The Federal Reserve examines trust departmentsof state member banks, trust companies that aremembers of the Federal Reserve System, andcertain nondepository trust company subsidiar-ies of bank holding companies. These examina-tions determine whether the trust functions areconducted in accordance with applicable fidu-ciary principles and with other appropriate lawsand regulations.

To supplement the supervision of the increas-ing number of nondepository trust companiesthat are subsidiaries of bank holding companies,the Federal Reserve has instituted a program of examinations for those trust companies not

supervised by any other federal banking agency.In addition, a program of limited inspections of state member banks, bank holding companies,and Edge Act corporations that conduct foreignfiduciary activities has been instituted.

While the Federal Reserve’s Trust Examina-tion Manual and its Transfer Agent Manualprovide detailed coverage of those specializedareas, there are activities sometimes viewed as‘‘trust’’ matters that are not found solely in thebank ’s trust department. For example, this

manual covers recordkeeping and confirmationrules applicable to customer-accommodation ser-vices, reporting and inquiry requirements underthe Lost and Stolen Securities Program, theregistration of transfer agents, employee benefittrusts, and international fiduciary activities.

To engage in providing trust or fiduciaryservices, a bank must have proper authorizationunder state or federal law. Under the laws of most states, this requires a specific approval of the state financial supervision agency. Similarly,

pursuant to the Board’s Regulation H section208.3(d)(2), the Board’s permission must beobtained before changing the general characterof a bank ’s business.

TRANSFER-AGENT ACTIVITIES

Transfer agents countersign and monitor theissuance of securities, register transfers of secu-rities, and exchange or convert securities. Fed-eral Reserve examiners conduct separate exami-nations of and complete separate reports for thetransfer-agency activities of those state memberbanks and bank holding companies that areregistered with the Board of Governors as trans-fer agents.

MUNICIPAL SECURITIESDEALERS, GOVERNMENTSECURITIES DEALERS, ANDCLEARING AGENCIES

As a result of the Securities Act Amendmentsof 1975, the Board is responsible for supervisingstate member banks and bank holding compa-

6010.1 Other Types of Examinations

October 2007 Commercial Bank Examination Manual

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nies that act as municipal securities dealers orclearing agencies. Federal Reserve examinersconduct separate examinations of and completeseparate reports for both of these activities. Abank, a separate department or division of a

bank, or a bank holding company is required toregister as a municipal securities dealer if it‘‘engages in the business’’ of buying and sellingmunicipal securities for its own account otherthan in a fiduciary capacity. Examiners shouldrefer to SR-86-40 for examination proceduresand report forms on municipal securities dealers.

The Government Securities Act of 1986(GSA) gave the Federal Reserve responsibilityfor examining the government securities activi-ties of a state member bank, foreign bank, state

branch or state agency of a foreign bank, orcommercial lending company owned or con-trolled by a foreign bank. The GSA requires allgovernment securities brokers or dealers thatwere previously unregistered to register with theSecurities and Exchange Commission. Brokersand dealers receive specialized examinations todetermine compliance with the GSA. For banksthat have a lower level of government securitiesactivities, compliance with the GSA is deter-mined as part of the commercial examination.

The examination procedures for the GSA arefound in SR-87-37, SR-93-40, and several sub-sequent letters including SR-06-8. The respon-sible staff at the Reserve Bank conducting theexamination needs to ensure that they fullyconsider their supervisory responsibilities underthe GSA in formulating their supervisory plansand conducting risk-focused examinations. Inthis regard, two key factors should be consid-ered concerning government securities custodialactivities. First, all depository institutions that

hold government securities for customers,including securities under repurchase agree-ments, are subject to Treasury’s GSA custodyrules. Second, certain financial institutions thatare exempt from the definition of a governmentsecurities broker or dealer are, nevertheless,subject to the Treasury government securities

fully described in the examination procedurespertaining to government securities activities,which are referenced in SR-87-37 and SR-93-40.(See also SR-94-5, SR-90-1, and SR-88-26.)

Reserve Bank staff are to separately report to

Board staff only the results of reviews of gov-ernment securities broker-dealer activities (andsuch broker-dealer’s related custodial activi-ties). See SR-06-8 and its attachment, whichincludes the instructions for the report’s trans-mittal. When preparing these reports, ReserveBanks have the option of either using the Sum-mary Report of Examination of GovernmentSecurities Broker-Dealer Activities and Custo-dial Activities (GSB-D report) or forwarding acopy of the relevant section of the examination

report that contains the same information asrequired in the GSB-D report.

A clearing agency acts as a custodian of securities for the settlement of securities trans-actions by bookkeeping entries. Separate report-ing on the GSB-D form is not required for agovernment securities custodian that engages inhold-in-custody repurchase agreements but whichis otherwise exempt from filing notice as agovernment securities broker or dealer. See 17CFR 403.5(a) and (d), and SR-93-40.

CONSUMER EXAMINATIONS

Some banking laws, such as the Truth in Lend-ing Act and the Truth in Savings Act, requirebanks to disclose information that helps consum-ers evaluate product options open to them. Otherlaws (for example, the Community Reinvest-

ment Act and the Equal Credit Opportunity Act)require banks to help meet the credit needs intheir communities and promote the availabilityof credit to all creditworthy applicants. Finally,laws such as the Fair Credit Reporting Act andthe Fair Debt Collection Act provide consumersafeguards for the extension, collection, and

Other Types of Examinations 6010.1

Documents

US Federal Reserve: 6000