Using Loan Participations as part of Liquidity Management

Transcription

1 Jeff Hamilton Vice President, Member Credit The Liquidity Landscape Review of Loan Participations Using Loan Participations as part of Liquidity Management 2 1

2 Hi,. I m from the government and I m here to help you. Examination Program Liquidity Questionnaire 3 Liquidity & Balance Sheet Risk Management Liability Mgt Highly Rate Sensitive & Volatile Funding Letters to CUs 00-CU CU CU CU CU CU-10 Managing Share Inflows in Uncertain Times Strengthening Funding and Liquidity Risk Management Compliance with NCUA Regulation Liquidity & Contingency Funding Plans Part A: Scope Determination Fundamental Criteria: 1. Loans / Assets.. 2. Borrowings + Non-Member Deposits / Total Shares + Liabilities 3. Cash + ST Investments (<1-Year) / Assets. 4. CU sold loan participation with recourse.. Supplemental Ratios Other Examiner Concerns Part B Limited < 80% < 5% > 15% NO NO Part C Extended > 80% > 5% < 15% YES YES 4 2

3 Part A Supplemental Ratios: 1. Loans / Shares.. 2. Contingent Liab. / Cash + Investments.. 3. Net Liquid Assets / Total Liab (incl. Shares). 4. Volatile Liabilities / Cash + Short-Term Investments.. 5. Growth in Volatile Liabilities / Assets. 6. Investment Loss Ratio (Unrealized Losses). Threshold > 100% >= 200% < 5% >= 600% >= 15% >= 3% 7. Estimated Loan Maturity >= 48 Mo If ratios are within threshold levels Part B will apply 5 Part B - Limited Scope Examination 1. Has the CU established a liquidity policy? 2. Has the CU established liquidity limits? 3. Is the CU monitoring its liquidity position? 4. Is the CU monitoring its contingent liabilities? 5. Has the CU identified alternative sources of liquidity? 6. Are there any recent trends or future events forecasted by the CU that may have a material impact on the balance sheet s structure? 6 3

4 Part C - Extended Scope Examination 1. Policies & Procedures 2. Liquidity Oversight There are numerous questions for each topic. 3. Liquidity Measurement 4. Alternative Funding 5. Borrowed Funds.designed to assess the adequacy of the credit union s liquidity management. 6. Repurchase Agreements 7. Non-Member Deposits and Secondary Capital Accounts 8. RE Loan Sales, Other Loan Sales, Loan Participations 7 A Part C Expanded Liquidity Review will apply if a credit union has: 8 4

5 Borrowing Sources Fed Discount Window CLF FHLB Corporate CU 9 Purpose Type of Credit Available Eligibility Cost Central Liquidity Facility (CLF) Improve the general financial stability of credit unions by meeting their liquidity needs 1. Short term Credit: 90 days 2. Seasonal Credit: 270 days 3. Protracted Adj. Credit: Varies Federal or state chartered natural person credit unions. Privately insured CUs are also eligible. Purchase CLF Stock. ½% of CU paid in and unimpaired capital and surplus. FRB Discount Window For short term borrowings to meet temporary shortages of liquidity caused by internal or external disruptions. 1. Primary Credit: Overnight 2. Secondary Credit: Short Term 3. Seasonal Credit: Special Situation Depository institutions that maintain reservable transaction accounts or nonpersonal time deposits. No capital required. 10 5

6 Membership Requirements Type of Credit Available Corporate Credit Union PCC LOC Term Loans Federal Home Loan Bank Purchase FHLB Stock N/A Term Loans Borrowing Options Collateral Requirements Fixed, Floating, Amortizing & with or without Prepay Penalties Yes Variety of loan types accepted, securities, general pledge of assets Fixed, Floating, Amortizing & Prepay options Yes Mortgage related loans, securities, other eligible assets Funding Same Day* Same Day* 11 Borrowing Sources Fed Discount Window CLF FHLB Corporate CU Securities Sales Repo Marketable CDs SimpliCD Issuance Loan Participations 12 6

7 Seller assumes and bears all credit risk in the loans sold. No sale treatment for the seller. Recorded as a secured borrowing. Assets remain on the balance sheet with a matched borrowing. All owners assume pro-rata share of credit risk and losses. Must meet requirements of ASC 860 (FAS 166) for seller to receive sale treatment. Seller removes assets from balance sheet. 13 Collect Proceeds from Sale Record a secured borrowing on the Balance Sheet Obligation to repurchase delinquent / defaulted loans (Full Recourse guarantee ) Clean up Call permitted Recorded as an investment Collect Proceeds from Sale De Recognize Participating interests sold (remove loans from Bal. Sheet) No obligation to repurchase delinquent / defaulted loans (Excl. Fraud) Clean up Call permitted Recorded as loans 14 7

8 Capital Ratio Impact Matched Funding Assess Impact of Recourse Provision (Buybacks) on Liquidity Needs Keep LOCs Clear for Unexpected Needs Minimal Capital Ratio Impact Gain / Loss on Sale Servicing Income Keep LOCs Clear for Unexpected Needs 15 In a Full Recourse Loan Participation, the prepayment risk is borne by: 16 8

9 Credit Union Cash 12,500,000 5% Investments 25,000,000 10% Loans Credit Card 30,000,000 12% Auto 110,000,000 44% Mortgage 55,000,000 22% MBL/Other 7,500,000 3% Other Assets 10,000,000 4% TOTAL ASSETS 250,000, % Net Worth 25,000,000 10% Borrowings LOCs FRB 15,000,000 FHLB 30,000,000 Corporate 55,000,000 Loans / Assets: < 80% > 80% Limited Extended 81% Loan / Share Ratio: < 100% > 100% Limited Extended 90% Cash & S-T Investments: > 15% < 15% Limited Extended 15% 17 Credit Union Cash 12,500,000 5% Investments 25,000,000 10% Loans Credit Card 30,000,000 12% Auto 110,000,000 44% Mortgage 55,000,000 22% MBL/Other 7,500,000 3% Other Assets 10,000,000 4% TOTAL ASSETS 250,000, % Net Worth 25,000,000 10% Borrowings LOCs FRB 15,000,000 FHLB 30,000,000 Corporate 55,000,000 Recourse Sale 30,500,000 11% 25,000,000 9% 30,000,000 11% 110,000,000 41% 55,000,000 21% 7,500,000 3% 10,000,000 4% 268,000, % 25,000, % 18,000,000 15,000,000 30,000,000 55,000,000 Non Recourse Sale 30,860,000 12% 25,000,000 10% 30,000,000 12% 92,000,000 37% 55,000,000 22% 7,500,000 3% 10,000,000 4% 250,360, % 25,360, % 15,000,000 30,000,000 55,000,

10 Credit Union Cash 12,500,000 12,500,000 5% 5% Loans/Assets 25,000,000 10% Investments 25,000,000 10% Loans At Beginning: 81.0% Credit LoansCard 30,000,000 12% Now: 84.2% Auto Credit Card 110,000,000 30,000,000 44% 12% Mortgage 55,000,000 22% Auto 110,000,000 44% MBL/Other Loan/Share 7,500,000 3% Other At Mortgage Beginning: Assets 10,000, % 55,000,000 4% 22% TOTAL Now: MBL/Other ASSETS 250,000, % 7,500, % 3% Net Other Worth Assets 25,000,000 10,000,000 10% 4% Borrowings & Non Member TOTAL ASSETS 250,000, % LOCs Deposits/Total Shares + Liab FRB 15,000,000 At Net Beginning: Worth 25,000, % 10% FHLB 30,000,000 Corporate Now: Borrowings 55,000, % LOCs FRB 15,000,000 FHLB 30,000,000 Corporate 55,000,000 Loan demand continues. Fund Internally 19 Credit Union Cash 12,500,000 5% Investments Loans/Assets 25,000,000 10% Loans At Beginning: 81.0% Credit Card 30,000,000 12% Now: 81.6% Auto 110,000,000 44% Mortgage 55,000,000 22% MBL/Other Loan/Share 7,500,000 3% Other At Beginning: Assets 10,000, % 4% TOTAL Now: ASSETS 250,000, % 100% Net Worth 25,000,000 10% Borrowings & Non Member LOCs Deposits/Total Shares + Liab FRB 15,000,000 FHLB At Beginning: 30,000, % Corporate Now: 55,000, % Loan demand continues. Borrow 20 10

11 Credit Union Cash 12,500,000 5% Investments Loans/Assets 25,000,000 10% Loans At Beginning: 81.0% Credit Card 30,000,000 12% Auto Now: 110,000, % 44% Mortgage 55,000,000 22% MBL/Other Loan/Share 7,500,000 3% Other At Beginning: Assets 10,000, % 4% TOTAL Now: ASSETS 250,000, % 100% Net Worth 25,000,000 10% Borrowings & Non Member LOCs Deposits/Total Shares + Liab FRB 15,000,000 FHLB At Beginning: 30,000, % Corporate Now: 55,000, % Loan demand continues. Sell a Loan Participation 21 Current Month 1 Month 2 Month 3 Month 4 Fund Internally Loans 366, , , , ,333 Cash 23,438 22,188 20,938 19,688 18, , , , , ,771 2,004,688 Borrow Loans 366, , , , ,333 Cash 23,438 23,438 23,438 23,438 23,438 Borrow 1,967 3,933 5,900 7, , , , , ,904 1,997,521 Sell Loan Participation Loans 366, , , , ,333 Cash 23,438 22,188 26,563 25,313 24,063 Servicing 1,875 1,875 1,875 Gain on Sale 135, , , , , ,271 2,072,

12 Loan Participations can help a credit union with all of the following except: 23 Buyers 24 12

13 Credit Union Cash 15,000,000 6% Investments 105,000,000 42% Loans/Assets Loans At Beginning: 48.0% Credit Now: Card 25,000, % 10% Auto 55,000,000 22% Mortgage Loan/Share 35,000,000 14% MBL/Other At Beginning: 5,000, % 2% Now: 57.8% Other Assets 10,000,000 4% TOTAL Borrowings ASSETS& Non Member 250,000, % Deposits/Total Shares + Liab Net At Worth Beginning: 25,000, % 10% Borrowings Now: 0.0% LOCs FRB 10,000,000 FHLB 28,000,000 Corporate 40,000,000 Non Recourse Purchase Cash 15,000,000 6% Investments 95,000,000 38% Loans/Assets Loans At Beginning: 48.0% Credit Now: Card 25,000, % 10% Auto 55,000,000 22% Mortgage Loan/Share 45,000,000 18% At Beginning: 53.3% MBL/Other 5,000,000 2% Now: 53.3% Other Assets 10,000,000 4% TOTAL Borrowings ASSETS & Non Member 250,000, % Deposits/Total Shares + Liab Net Worth At Beginning: 25,000, % 10% Borrowings Now: 0.0% LOCs FRB 10,000,000 FHLB 28,000,000 Corporate 40,000, Current Month 1 Month 2 Month 3 Month 4 Current Cash & S T 75,000 75,000 75,000 75,000 75, ,000 Buy Loan Participation Cash & S T 75,000 68,750 68,750 68,750 68,750 LP 25,000 25,000 25,000 25,000 75,000 93,750 93,750 93,750 93, ,

14 FED Discount Window Corporate CU FHLB CLF SimpliCD Loan Participations Short Term Temporary Funding Long Term Permanent Funding 27 Immediate Liquidity Need Near Term Liquidity Need Longer Term Liquidity Need Borrowings Corporate CU Yes Yes Yes FHLB Borrowings Yes Yes Yes FRB Borrowings Yes Maybe No CLF No/Maybe Yes Maybe Securities Yes Yes Yes Marketable CDs Yes/Maybe Yes Yes SimpliCD Issuance No Yes Yes Loan Participations No Yes Yes 28 14

15 29 Questions 30 15

16 Jeff Hamilton Vice President, Member Credit 16