Obtain a trial balance of all floor plan accounts and:

• Agree balances to department controls and general ledger.

• Review reconciling items for reasonableness.

Review the information received from management and the Loan Portfolio Management examiner.

Select loans, using an appropriate sampling technique, which require in-depth review based on information derived from the review above. Transcribe the following information, for each borrower selected, onto the credit line sheets:

• Total outstanding liability.

• Number of items.

• Status of any outstanding interest or curtailment billings.

• Amount of approved floor plan line.

• Information from the bank’s collateral record, including:

  • A list of items floored, including date of entry, description of property, amount advanced, and curtailment, if any. (Similar items and model year should be shown in aggregate and entry dates shown as a range, except on stale or not properly curtailed items.)

  • A brief of the wholesale agreement between the bank and the dealer.

  • A brief of the agreement between the manufacturer and the bank.

  • A brief of any repurchase agreement.

  • Evidence that security interest has been perfected.

  • Details of any guarantees that may be held.

  • Details of any other collateral held.

Review the two most recent floor plan inspection reports, and:

• Determine the reason for differences between the bank’s collateral records and the actual items held by the dealer.

• Trace those items represented as sold or in process at the time of inspection to their subsequent removal from the bank’s liability ledger.

• Determine the number of days between the sale date and removal from liability ledger.

• Using the above information, review the dealer’s deposit account(s) and determine whether the dealer may be withholding funds received from the sale of the pledged collateral.

• Investigate other differences to the extent considered necessary.

• Determine if any items were sold out of trust.

• Determine that where trust receipts are used, all title documents were physically inspected during the floor plan inspection.

• Determine whether appropriate follow-up was made on all missing items.

If floor plan inspection procedures are considered deficient or if they are not performed on a timely basis, perform physical inspection of collateral on sample basis.

Review participations purchased and sold.

• Test participation certificates and records, and determine that the parties share in the risks and contractual payments on a pro rata basis.

• Determine that the books and records properly reflect the bank’s liability.

• Investigate any participations sold immediately prior to the examination to determine whether any were sold to avoid possible criticism during this examination.

Review extensions of credit to officers and directors of other banks. Investigate any circumstances that indicate preferential treatment.

Review miscellaneous loan debit and credit suspense accounts.

• Discuss with management any large or old items.

• Perform additional procedures as deemed appropriate.

Review loans classified during the previous examination, determine disposition of loans so classified by transcribing:

• Current balances and payment status, or

• Date loan was repaid and sources of payment.

For loan commitments and other contingent liabilities, analyze if:

• The borrower has been advised of the contingent liability.

• The combined amounts of the current loan balance and the commitment or contingent liability exceeds the cutoff.

Review rebooked charged-off loans and determine that the rebooked loans:

• Meet the criteria and terms of the bank’s lending policy for granting new loans.

• Are not subject to classification. If so, list the loans for charge-off.

Based on the findings from the preceding activities, determine, in consultation with the LPM examiner, whether the following verification procedures should be completed. If so, using appropriate sampling technique, select floor plan loans, and:

• Prepare and mail confirmation forms to dealers (information confirmed should include the loan balance and the schedule and date of items floored).

• After a reasonable time period, mail second requests.

• Follow-up on any no-replies or exceptions, and resolve differences.

• Compare title documents and/or invoices to trust receipts.

• Obtain a list of the most recent floor plan interest billings, and check calculation of interest report.

• Determine whether interest payments are delinquent, and trace to inclusion in delinquency report.

• Determine that appropriate action has been taken to bring delinquent accounts to a current status.

• Test trial balance reconciling items to the extent considered necessary.