Risk Management Manual of Examination Policies - FDIC

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IV. GENERAL CHARACTER OF THE MANAGEMENT (Continued) Application. Exceptions involved excessive option grants to the proposed president, that were nearly 3x the volume of initial shares purchased. Warrant Holders and Intrinsic Value Based on the most recent bid of 2.5p (£0.03) per share (or ¢3.75), and existing strike price above of 2p, the intrinsic value of the Mr. Newbury’s warrants is less than $50,000. Given the current pricing, this additional form of compensation does not appear unreasonable. The overall finding on this factor is FAVORABLE, pending receipt of acceptable stock benefit plans. FDIC 6510/10 (02-2002) 32
RISK TO THE FUNDS As a general matter, the FDIC interprets this factor very broadly, relying on any information available including, but not limited to the applicant’s business plan. Assess the proposed institution’s business plan. The business plan’s goals should be commensurate with the capabilities of its management and the financial commitment of the incorporators. The business plan should demonstrate an ability to achieve a reasonable market share, reasonable earnings prospects, the ability to attract and maintain adequate capital, and demonstrate a responsiveness to community needs. The plan should also demonstrate adequate risk management policies. Business plans that rely on high risk lending, a special purpose market, or significant funding from sources other than core deposits, or that otherwise diverge from conventional bank related financial services require detailed analysis as to the suitability of the proposed activities for an insured institution. Summary and Findings The Applicant is proposing to execute a traditional integrated business model with respect to deposit acquisition and funding. Funding will primarily draw on two key delivery channels, a supermarket branch network and traditional retail banking office and to a lesser extent, a fully transactional web-site. Business Model Strengths The business model enjoys a strong initial capitalization base, a seemingly conservative management team and investment philosophy, a viable and multi-faceted branch network strategy, and a vast deposit market within its operating environment. These factors comprise the proposal’s prevailing strengths. The most integral change in the proposal versus the prior previous bank model consists primarily of the upgrade in the executive management team and secondly, the adoption of a more fundamentally sound and traditional business model. The new team is led by an executive (CEO Hamm) possessing an extensive commercial banking and lending background. Equally important has been the addition of seemingly strong outside directors, one of whom (Director Lamar) possesses previous executive and director level experience. The remaining new outside directors (Wart and Marcotte) appear to be very influential within various County economic development endeavors. By all accounts, the outside directors may be in a position to influence and stimulate the proposal’s funding and business development initiatives. The proposed management’s aversion for risk is best manifested in the proforma asset-mix, which is heavily weighted towards residential real estate during the first year of operation. With regard to funding, the business model is seeking to replicate the deposit generating success of the supermarket branch network once operated by Anybank. Its previous success within demographically favorable and densely populated towns and cities adds credence to the model’s funding projections. Business Model Risks As depicted in the Applicant’s sensitivity analysis and stress testing, the model is most vulnerable to a slower rate of deposit growth {Scenario 2} during the formative years. What-if scenarios depict an earnings risk should funding fall below 75% of original projections. A deposit shortfall without any commensurate and effective cost containment plans may adversely impact profitability and the model’s ultimate success. In light of funding’s importance during the formative stages, any shortfalls may induce management to compete more aggressively on price thereby jeopardizing margins, profitability or risk selection. Executive management’s ability to attract funding at a reasonable cost will be critical to the model’s success. The finding on this factor is FAVORABLE. FDIC 6510/10 (02-2002) 33
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DSC Risk Management Manual of Exami
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INDEX Section 0.1 Policies, Procedu
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INDEX Section 0.1 Liquidity Managem
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INDEX Section 0.1 Introduction 14.1
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BASIC EXAMINATION CONCEPTS AND GUID
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CAPITAL Section 2.1 INTRODUCTION Pu
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CAPITAL Section 2.1 Interests in As
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CAPITAL Section 2.1 the holder prio
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CAPITAL Section 2.1 • Qualifying
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CAPITAL Section 2.1 application sub
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CAPITAL Section 2.1 may leave the b
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CAPITAL Section 2.1 procedures empl
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CAPITAL Section 2.1 growth and rema
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ASSET QUALITY Section 3.1 INTRODUCT
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LOANS Section 3.2 INTRODUCTION The
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LOANS Section 3.2 Qualifications of
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LOANS Section 3.2 to the ALLL), an
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LOANS Section 3.2 PORTFOLIO COMPOSI
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LOANS Section 3.2 • Require reaso
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LOANS Section 3.2 Internal Controls
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LOANS Section 3.2 board of director
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LOANS Section 3.2 exercise control
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LOANS Section 3.2 Problems in this
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LOANS Section 3.2 that reveal other
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LOANS Section 3.2 Other loans of qu
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LOANS Section 3.2 be determined whe
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LOANS Section 3.2 time period elaps
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LOANS Section 3.2 individual apprai
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LOANS Section 3.2 controls over its
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LOANS Section 3.2 consistent with t
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LOANS Section 3.2 such funds, the m
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LOANS Section 3.2 security interest
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LOANS Section 3.2 unambiguous terms
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LOANS Section 3.2 Trustees are sele
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LOANS Section 3.2 be valid but cert
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LOANS Section 3.2 Overview of the S
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LOANS Section 3.2 Although some ins
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LOANS Section 3.2 • Portfolio gro
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LOANS Section 3.2 pricing decisions
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LOANS Section 3.2 trends, condition
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LOANS Section 3.2 provide additiona
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SECURITIES AND DERIVATIVES Section
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CASH AND DUE FROM BANKS Section 3.4
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CASH AND DUE FROM BANKS Section 3.4
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PREMISES AND EQUIPMENT Section 3.5
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PREMISES AND EQUIPMENT Section 3.5
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OTHER REAL ESTATE Section 3.6 Under
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OTHER ASSETS AND LIABILITIES Sectio
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OFF-BALANCE SHEET ACTIVITIES Sectio
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MANAGEMENT Section 4.1 INTRODUCTION
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MANAGEMENT Section 4.1 consequently
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MANAGEMENT Section 4.1 overdue, ren
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MANAGEMENT Section 4.1 money launde
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MANAGEMENT Section 4.1 management l
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MANAGEMENT Section 4.1 • An adequ
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MANAGEMENT Section 4.1 • Troubled
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MANAGEMENT Section 4.1 management i
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INTERNAL ROUTINE AND CONTROLS Secti
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RELATED ORGANIZATIONS Section 4.3
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RELATED ORGANIZATIONS Section 4.3 U
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RELATED ORGANIZATIONS Section 4.3 i
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RELATED ORGANIZATIONS Section 4.3 A
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RELATED ORGANIZATIONS Section 4.3 r
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RELATED ORGANIZATIONS Section 4.3 A
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FIDELITY AND OTHER INDEMNITY PROTEC
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VIOLATIONS OF LAWS AND REGULATIONS
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VIOLATIONS OF LAWS AND REGULATIONS
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MISCELLANEOUS BANKING ACTIVITIES Se
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EARNINGS Section 5.1 structure will
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EARNINGS Section 5.1 demand is low)
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EARNINGS Section 5.1 2. Certain dir
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EARNINGS Section 5.1 capital and al
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LIQUIDITY AND FUNDS MANAGEMENT Sect
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BANK FRAUD AND INSIDER ABUSE Sectio
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SUSPICIOUS ACTIVITY AND CRIMINAL VI
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INTERNATIONAL BANKING Section 11.1
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APPLICATIONS Section 12.1 Effective
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APPLICATIONS Section 12.1 for compa
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APPLICATIONS Section 12.1 be tantam
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APPLICATIONS Section 12.1 accept sh
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APPLICATIONS Section 12.1 consideri
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APPLICATIONS Section 12.1 accepted
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APPLICATIONS Section 12.1 The FDIC
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APPLICATIONS Section 12.1 employee
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APPLICATIONS Section 12.1 including
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APPLICATIONS Section 12.1 Branch cl
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APPLICATIONS Section 12.1 its accep
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APPLICATIONS Section 12.1 examinati
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MEMORANDUMS OF UNDERSTANDING Sectio
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CIVIL MONEY PENALTIES Section 14.1
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FORMAL ADMINISTRATIVE ACTIONS Secti
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REPORT OF EXAMINATION INSTRUCTIONS
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BANK OF ANYTOWN ANYTOWN ANY COUNTY
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Examination Conclusions and Comment
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Risk Management Assessment 99999 1.
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Violations of Laws and Regulations
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Information Technology Assessment (
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Fiduciary Activities Assessment (Co
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Comparative Statements of Financial
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Recapitulation of Securities 99999
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Analysis of Loans Subject to Advers
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INTERNATIONAL REPORT PAGES AND WORK
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Analysis of the Country Exposure Ma
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International Loans, Acceptances, a
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Position Analysis - Other Currencie
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Policy and Procedures 99999 1. (a)
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Policy and Procedures (Continued) 9
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REPORT OF INVESTIGATION INSTRUCTION
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