3.7 - Other Assets And Liabilities

Front 1

Other Assets

Back 1

• Accrued Income
• Tax Assets
• Interest-Only Strips
• Equities w/out readily determinable FVs
• BOLI
• Misc (prepaid expenses, repos, suspense, cash items not in process of collection)
• Intangible assets (goodwill, servicing assets)

Front 2

How long can operating losses be carried forward/carried back?

Back 2

Carried back - 2 years

Carried forward - 20 years

Front 3

What are interest-only strips and how are they valued?

Back 3

Contractual right to receive some or all interest due on an interest-bearing asset.

Fair value

Front 4

When must a bank recognize a servicing asset/liability and how is it measured?

Back 4

When contractually separated from underlying financial asset

• Bank's transfer of financial asset and qualifies as a sale
• Acquisition of a servicing asset

Must be fair valued initially then use either:

• Fair value method
• Amortization method

Front 5

Servicing assets - amortization method

Back 5

• Amortized in proportion to, and over the period of, estimated net servicing income.
• Should be assessed for impairment based on FV at ea quarter end.
• If impairment, reduce through a valuation allowance

Front 6

Servicing assets - fair value method

Back 6

• Fair valued at each quarter end.
• Changes in FV should be reflected in earnings.
• Can use:

1. market approach,
2. income approach,
3. cost approach, or
4. discounted cash flow approach

Front 7

What is the risk involved in servicing assets?

Back 7

• Risk of failure to follow servicing rules
• Mishandling of procedures in these transactions can affect holder's ability to collect.
• Credit risk of little concern

Front 8

Other Liabilities

Back 8

• Other borrowed money
• Accrued expenses
• Servicing liabilities
• Deferred tax liabilities
• Allowance for off-balance sheet items
• Other misc liabilities

Front 9

Accrued expenses - matching principle

Back 9

Attempting to match expenses incurred during a period to the revenues they helped generate

Front 10

Two main reasons banks purchase BOLI

Back 10

1. Manage exposures related to commitments to provide personnel compensation & benefits
2. Protect against loss of key persons

Front 11

Risk management process for BOLI

Back 11

• Pre-purchase analysis
• Ongoing monitoring
• Reporting to Board (annually)
• Reliable accounting process

Front 12

BOLI concentration & process

Back 12

• Aggregate value of CSV is over 25% of Tier 1 Capital
• Requires prior approval from Board
• Mgmt must justify further BOLI isn't imprudent

Front 13

Accounting for BOLI

Back 13

• Other asset
• Only CSV less applicable charges
• Increases in CSV is other non-interest income
• General account - 100% risk weight
• Separate account - may use look thu approach