Malvern Case Study Of Business Law Essay
How does Malvern describe their “principal business” on page 1?
The Bank’s principal business consists of attracting deposits from businesses and the general public primarily in Chester County, Pennsylvania investing those deposits, together with borrowings and funds generated from operations, in one- to four-family residential real estate loans, construction and development loans, commercial and multi-family real estate loans, commercial business loans, home equity loans and lines of credit and other consumer loans, as well as investing in investment securities
2. What transaction did Malvern undertake in October 2013? What was the stated motivation for the transaction? What was the cost?
Malvern completed the sale of a substantial portion of their problem loans in a …show more content…
bulk transaction to a single investor. The motivation for the transaction was Malvern wanted to reduce their non-performing asset balances and significantly improved their credit quality metrics. The cost for this transaction was $10.1 M.
3. What are the primary products that Malvern offers? Do these products show up as assets or liabilities on their balance sheet?
The products that Malvern offers including loans, mortgages, saving account, checking accounts and etc. Those products are both assets and liabilities for bank. Products that bank pay interests, such as savings account are liabilities. Those bank receive interests are assets, for example mortgages and loans.
4.
Who is the “OOC” and what is the “Formal Agreement?” What restrictions are in place due to the formal agreement?
“OCC” stands for Office of the Comptroller of the Currency. “Formal Agreement” is an agreement bank signed with the OCC to addressing and resolving the issues raised by OCC.
Here are several restrictions:
• Malvern Federal Savings Bank is required to provide the OCC with prior notice of any new director or senior executive officer;
• Malvern Federal Savings Bank is restricted from making any “golden parachute payments,” as defined;
• Malvern Federal Savings Bank may not enter into, renew, extend or revise any contractual arrangements related to compensation or benefits with any director or officer without receiving prior written non-objection from the OCC;
• Malvern Federal Savings Bank may not declare or pay any dividends or make other capital distributions, such as repurchases of common stock, without the prior written approval of the OCC;
• Malvern Federal Savings Bank’s ability to engage in transactions with affiliates, as defined, is restricted; and
• Malvern Federal Savings Bank may not engage in the use of brokered deposits without the prior written non-objection of the
OCC.
5. Does Malvern have extra capital relative to what is required? Does Malvern need approval to make a capital distribution?
Malvern have extra capital relative to what is required. OCC is authorized to impose capital requirements in excess of standards on individual institutions. Here is one requirement set by OCC: an additional “cushion” of at least 100 basis points of core capital for all but the most highly rated saving associations effectively increasing their minimum tier 1 leverage ratio to 4% more. Yes, Malvern need the prior written approval of OCC to make a capital distribution.
6. What are the first 5 risk factors that Malvern describe?
• Financial condition and results of operation may be negatively impacted by economic conditions and other factors that adversely affect borrowers
• The changing economic environment may continue to adversely impact operations and results
• Change in interest rate could adversely affect our financial condition and results of operation
• Loan portfolio exhibits a high degree of risk
• The provisions to allowance for loan losses and net charge-offs to allowance for loan losses have adversely affected and may continue to adversely affect results of operations.
7. Explain how a change in interest rate will affect Malvern’s earnings
An increase in interest rate would adversely affect Malvern’s earning. Increasing interest rates will decrease net interest income, because the rates Malvern pay on deposits and borrowings increase more rapidly than the rates they earn on loans. Also, the market value of fixed-rate assets would decline if the interest rates raise.
8. Explain how Malvern determines “allowances for loan losses”
The allowances for loan losses are up to a maximum of 1.25% of risk-weighted assets. It is determined by earnings of history.
The Bank’s principal business consists of attracting deposits from businesses and the general public primarily in Chester County, Pennsylvania investing those deposits, together with borrowings and funds generated from operations, in one- to four-family residential real estate loans, construction and development loans, commercial and multi-family real estate loans, commercial business loans, home equity loans and lines of credit and other consumer loans, as well as investing in investment securities
2. What transaction did Malvern undertake in October 2013? What was the stated motivation for the transaction? What was the cost?
Malvern completed the sale of a substantial portion of their problem loans in a …show more content…
bulk transaction to a single investor. The motivation for the transaction was Malvern wanted to reduce their non-performing asset balances and significantly improved their credit quality metrics. The cost for this transaction was $10.1 M.
3. What are the primary products that Malvern offers? Do these products show up as assets or liabilities on their balance sheet?
The products that Malvern offers including loans, mortgages, saving account, checking accounts and etc. Those products are both assets and liabilities for bank. Products that bank pay interests, such as savings account are liabilities. Those bank receive interests are assets, for example mortgages and loans.
4.
Who is the “OOC” and what is the “Formal Agreement?” What restrictions are in place due to the formal agreement?
“OCC” stands for Office of the Comptroller of the Currency. “Formal Agreement” is an agreement bank signed with the OCC to addressing and resolving the issues raised by OCC.
Here are several restrictions:
• Malvern Federal Savings Bank is required to provide the OCC with prior notice of any new director or senior executive officer;
• Malvern Federal Savings Bank is restricted from making any “golden parachute payments,” as defined;
• Malvern Federal Savings Bank may not enter into, renew, extend or revise any contractual arrangements related to compensation or benefits with any director or officer without receiving prior written non-objection from the OCC;
• Malvern Federal Savings Bank may not declare or pay any dividends or make other capital distributions, such as repurchases of common stock, without the prior written approval of the OCC;
• Malvern Federal Savings Bank’s ability to engage in transactions with affiliates, as defined, is restricted; and
• Malvern Federal Savings Bank may not engage in the use of brokered deposits without the prior written non-objection of the
OCC.
5. Does Malvern have extra capital relative to what is required? Does Malvern need approval to make a capital distribution?
Malvern have extra capital relative to what is required. OCC is authorized to impose capital requirements in excess of standards on individual institutions. Here is one requirement set by OCC: an additional “cushion” of at least 100 basis points of core capital for all but the most highly rated saving associations effectively increasing their minimum tier 1 leverage ratio to 4% more. Yes, Malvern need the prior written approval of OCC to make a capital distribution.
6. What are the first 5 risk factors that Malvern describe?
• Financial condition and results of operation may be negatively impacted by economic conditions and other factors that adversely affect borrowers
• The changing economic environment may continue to adversely impact operations and results
• Change in interest rate could adversely affect our financial condition and results of operation
• Loan portfolio exhibits a high degree of risk
• The provisions to allowance for loan losses and net charge-offs to allowance for loan losses have adversely affected and may continue to adversely affect results of operations.
7. Explain how a change in interest rate will affect Malvern’s earnings
An increase in interest rate would adversely affect Malvern’s earning. Increasing interest rates will decrease net interest income, because the rates Malvern pay on deposits and borrowings increase more rapidly than the rates they earn on loans. Also, the market value of fixed-rate assets would decline if the interest rates raise.
8. Explain how Malvern determines “allowances for loan losses”
The allowances for loan losses are up to a maximum of 1.25% of risk-weighted assets. It is determined by earnings of history.