CU Speedboat Capital Planning Session 1

Transcription

1 CU Speedboat Capital Planning Session 1 Tom Farin - CEO tfarin@farin.com Dave Koch COO dkoch@farin.com Farin & Associates, Inc. 1 NCUA Proposed Capital Regs 1

2 Details Roughly 200 pages double spaced Draft made available 1/23/2014 Comment Period 90 Days Effective Months After Publishing in Federal Register (shooting for 1/1/2016?) Most of it can be calculated off current call report Less complex definition of capital than under Basel III banking regulations More and different risk asset buckets than under Basel III banking regulations PCA Classification Criteria Same classifications as in Basel III banking regulations but different criteria for falling into classifications. Note: Visuals from NCUA risk-based capital calculator. 4 2

3 Capital Standards Banks Tier 1 Leverage 5% Well Capitalized 4% Adequately Capitalized CET1 RBC 6.5% Well Capitalized 4.5% Adequately Capitalized Tier 1 RBC 8% Well Capitalized 6% Adequately Capitalized Total RBC 10% Well Capitalized 8% Adequately Capitalized Total RBC Adequately + Capital Conservation Buffer 10.5% Credit Unions Net Worth Ratio 7% Well Capitalized 6% Adequately Capitalized Risk Based Capital Ratio CUs over $50 Million that are Complex Credit Unions 10.5% Well Capitalized 8% Adequately Capitalized What is Net Worth Undivided Earnings Regular Reserve Appropriations for Non-Conforming Investments Other Reserves Equity Acquired in Merger Miscellaneous Equity Net Income Subordinated Debt Included in Net Worth Note: This definition does not change 6 3

4 Net Worth Ratio Net Worth Ratio = Net Worth / Assets Calculation did not change Requirement also did not change 7 What is Risk Based Capital Net Worth Qualifying Subordinated Debt ALLL up to 1.25% of Risk Assets Less Adjustments NCUISF Goodwill Other Intangibles Identified Losses 4

5 Risk Based Capital Breakdown 9 Speedboat Liab & Capital GAAP Net Worth to NCUA Net Worth Planning Assumptions 10 5

6 Speedboat Liab & Capital NCUA Net Worth to Risk Based Capital 11 What are Risk Based Assets Banks Assets Slotted by Risk weight based on credit risk Off Balance Sheet Exposures times Conversion Factor Times Risk Weight Credit Unions Assets Slotted by Risk Weight Based on Credit Risk Interest Rate Risk Concentration Risk Off Balance Sheet Exposures times Conversion Factor Times Risk Weight 6

7 0% Risk Weight Cash NCUSIF Capital Deposit Backed out Goodwill of capital Identifiable intangible Assets Debt Inst Guaranteed by NCUA & FDIC US Government Securities Fully Guaranteed Non-Delinquent Student Loans Capital Speedboat Liab & Capital 14 7

8 Speedboat 0% Risk Weight 0% Risk Weight Category Total Balance from 5300 and % of assets Forecast totals based on asset Growth rate and mix percentages 15 Speedboat 0% Risk Weight 0% Risk Weight Categories Type of Asset Category balance from 5300 and % of category Forecast totals based on category growth rate and mix percentages 16 8

9 20% Risk Weight Cash on Deposit Insured Financial Institutions Cash Equivalents 90 Days or Less - Liquid Non-Security Investments Investments with WAL < 1 Year FHA/VA Guaranteed Residential Mortgages SBA and Other Agency Guaranteed 75% or Greater Speedboat 20% Risk Weight 20% Risk Weight Categories Type of Asset Category balance from 5300 and % of category Forecast totals based on category growth rate and mix percentages 18 9

10 50% Risk Weight Investments with WAL of 1-3 Years Non-Delinquent 1 st Mortgage Loans < 25% of Assets that are not Member Business Loans Speedboat 50% Risk Weight 50% Risk Weight Categories Type of Asset 20 10

11 75% Risk Weight Investments with WAL 3-5 Years Most Other Non-Delinquent Consumer Loans Current and Non-Delinquent Mortgage Loans 25-35% of Assets That Are Not MBLs Speedboat 75% Risk Weight 75% Risk Weight Categories 22 11

12 100% Risk Weight Corp CU Non-Perpetual Capital Loans to CUSOs Current and Non-Delinquent 1 st Mortgage loans >35% of Assets Delinquent 1 st Mortgage R/E Loans (>60 Days) Other R/E Loans <= 10% of Assets MBLs <= 10% of Assets Loans Held for Sale Land & Fixed Assets Non-Fed Insured Student Loans Other Assets Not Assigned a Risk Weight Speedboat 100% Risk Weight 24 12

13 125% Risk Weight Other Real Estate Loans Between 10% and 20% of Assets Speedboat 125% Risk Weight 26 13

14 150% Risk Weight Investments with WAL 5-10 Years Delinquent Consumer Loans Other than 1 st Mortgages (60+ days) Other Real Estate > 20% Of Assets MBLs 15-25% of Assets Speedboat 150% Risk Weight 28 14

15 200% Risk Weight Corporate CU Perpetual Capital Investments with WAL > 10 Years MBLs > 25% of Assets Speedboat 200% Risk Weight 30 15

16 250% Risk Weight Investments in CUSOs Mortgage Servicing Assets Speedboat 250% Risk Weight 32 16

17 1250% Risk Weight Asset-Backed Investments the CU Doesn t Understand Speedboat UD Risk Weight Summary of On-Balance Sheet Risk Assets 34 17

18 Off-Balance Sheet Similar Approach to Basel III Banking Regulation Conversion Factor Risk Weight Risk assets = Position x Conversion Factor x Risk Weight Note that Off-Balance Sheet Hedging Transactions Also Carry a Capital Requirement 10% Conversion Factor Unfunded Commitments for Non-Business Loans 75% Risk Weight 36 18

19 Off-Balance Sheet 10% / 75% Position x Conv Factor x Risk Weight $6,117 x 10% x 75% = $ % Conversion Factor Unfunded Commitments for Business Loans 100% Risk Weight MBLs Transferred with Recourse 100% Risk weight First Mortgage Real Estate Loans Transferred with Recourse 50% Risk Weight Other Real Estate Loans Transferred With Recourse 100% Risk Weight Non-Federally Guaranteed Student loans Transferred with Recourse 100% Risk Weight All Other Loans Transferred with Recourse 75% Risk Weight 38 19

20 Off-Balance Sheet 75% / 100% Position x Conv Factor x Risk Weight $38 x 75% x 100% = $29 39 Other Credit Exposures Can t download from call report so this is a user entry area, you Supply the position and the risk weight 40 20

21 Off-Balance Sheet Hedging Another user entry area 41 NCUA Calculator Based on current 5300 report rather than revised 5300 report Misses: 0% Risk Weight US Government securities Loans on non-accrual not in 60+ delinquencies FDIC Guaranteed Debt Instruments FHA/VA Guaranteed Loans Total SBA Loans Derivative Positions 42 21

22 These Are Minimum Requirements You Need to Have a Capital Plan Implied Need to Do Stress Testing 43 Regulatory Minimums vs. Expectations Who Takes The Initiative on Assessment? You or Them? 44 22

23 Homework Assignment Marshall your data Prepare a base static plan Thank goodness for SNL These tabs are laid out in user friendly 5300 report format sort of But keep in mind we are using an old regulation call report to do new regulation calculations. So you are on the hook to make adjusting Entries or you can just accept them as they come and do the Calculations the NCUA way. 45 Call Report Tabs General Layout 5300 Download 5300 Codes NCUA Risk Weight Allocations Where I would expect balances to go. Where I wouldn t expect them to go 46 23

24 Call Report Tabs General Layout What happens when an adjusting entry takes you out of balance Problem resolved Call Report Tabs General Layout Rest of the Asset Tab Note the two bottom lines how dare you paint outside the lines!!! 48 24

25 Call Report Tabs - Action Buttons Clears call report inputs Clears risk weight posts Imports from SNL I ve done this for you Posts risk weights note that I ve done this for you too, but if you make modifications to the input columns, you ll need to re-post the risk weights. Posts the results from this tab to the Liab&Capital, Assets, and/or Loan Stress tabs. 49 Call Report Tabs - Instructions 50 25

26 Call-Cap These will be posted to the Liab&Capital Tab 51 Call-Cap Done 52 26

27 Call - Assets See example we just went through note that loans and investments are noted but posted in detail from a separate tab. 53 Call-Loan Can adjust for non-accrual loans that are not delinquent and delinquencies not on call report. Can also break out guaranteed student loans and FHA/VA guaranteed loans

28 Call-Loan Risk weight postings based on my interpretation of the proposed regulation. You can color outside the lines if you feel appropriate. 55 Call-Loan Instructions 56 28

29 Call-Inv You can break out government guaranteed securities. 57 Call-Inv You can paint outside the lines if you wish

30 Call-Inv Instructions 59 Call-OffBal Off-Balance Sheet Commitments 60 30

31 Call-OffBal Loans with recourse and hedging. 61 Call-OffBal Instructions 62 31

32 Call-Liab 63 Static Base Plan 64 32

33 Static Base Plan 65 If You Feel Brave Save Your Work Fiddle with planning assumptions on Liab& Capital and Assets Tab 66 33