Loan Coding. Agenda. May History. Flow of Information. Override Process. Key Loan Data and Common Problems. Project Update

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1 How It Impacts Your Reporting Sheila Earp, Senior Financial Reporting Analyst Susan Murphy, Reporting Project Coordinator Analyst May 13, 2014 Agenda History Flow of Information Override Process Key Loan Data and Common Problems Project Update 2 1

2 History Transitioning from manual data inputs and query processes to Hyperion members Advantages Efficiency of process from Association through District reporting Consistency of definitions Ability to slice and dice data Systematically correct data Requires consistent usage of fields as defined in District definitions Increased granularity results in more visible inconsistencies, resulting in improved data integrity 3 4 2

3 5 Override Process All of the loan data is balanced to the general ledger once and a super row is created. Loan number format is 999[Assn#] [# of balanced item]. The super rows get defaulted to entity s largest FCA loan type, AgBusiness code and state. Balanced fields Principal accrual loans balance Principal nonaccrual loans balance Principal accrual loans month-to-date ADB Principal nonaccrual loans month-to-date ADB Interest income balance Accrued interest Charge offs (year-to-date) Recoveries (year-to-date) The AgriBank Financial Reporting group monitors the super row balances and researches any balances over pre-determined thresholds each month, which range from 1% on balances to 10% on ADB s. This is also reviewed by PwC at year-end. 6 3

4 Override Process Our process creates groupings to summarize the data into the combinations we need for reporting. We pull the data using Hyperion to do our reporting. Examples: Loan volume by FCA Loan type by credit quality Principal by participation code by investor type code by FCA loan type An example of loan data pulled out of Hyperion. Bal Mar Actual District No StateVolume No SICGroup FY14 Delinquency - Current Delinquency Days Past Due Delinquency Days Past Due Delinquency Real Estate Mortgage 47,993,526, ,939, ,078, ,198,544, Other MRI 606,599, ,436, ,916, ,952, Production and Intermediate Term 20,528,790, ,322, ,816, ,701,929, AgriBusiness 7,888,882, ,226, ,671, ,897,781, Communication 860,724, ,724, Energy 759,650, ,650, Water/Waste disposal 6,997, ,997, Rural Residential Real Estate 2,601,014, ,655, ,001, ,633,672, International 50,152, ,152, Lease Receivables 464,668, , , ,408, Discounted Loans Of OFI 515,930, ,767, ,698, FCA Loan Type 82,276,936, ,087, ,487, ,713,511, Override Process When a change in loan data is identified after the month end database is created, we have the ability to create overrides. A report can be generated which shows the values of the field before and after the override is processed for an audit trail. During Q reporting, we processed overrides to over 4,300 fields and at year-end, it was just over 3,000 fields. Some of the most common were changes to FCA loan type, investor type code, past due days, syndication code, and volume. Many of the fields are dependent on each other Change in accrual status example: Accrual code GL code Probability of default Credit class code and amount Performing code Principal amount Volume FAS 5 volume FAS 114 volume 8 4

5 Inconsistent loan attributes between participants and/or between master and sold records Common inconsistent fields: PD LGD Credit quality Performance code Past due days FCA loan type Becoming more transparent as FCA receives loan data in extract and can do their own analysis, for example using Shared Asset Numbers Used in monthly management reports, FCA Call Reports (RC.1, RC-F, RC-O), shareholder reports, FCA data extract, MASK reporting to the Funding Corp, etc. 9 FCA loan type Used as to summarize loan data for reporting and analysis Automated process to populate new loans for Cornerstone associations with the ability to update the following day Process looks at product types, GL Codes, investor type, etc. to classify loans All Processing and Marketing gets defaulted to 25 (Loans made under (a)(1) and (a)(2)) Used on many of the FCA Call Report schedules, shareholder reports, FCA data extract, MASK reporting to the Funding Corp, etc. 10 5

6 Performance / Delinquency Under FCA guidelines, loans 90 days or more past due and still accruing interest need to be adequately secured and in the process of collection in order to be eligible to remain in accruing status. Positive disclosure included in shareholder reports If an association is not able to make this disclosure, it also cannot be made from a District perspective. Used in FCA call reports (RC-F), monthly management reports, allowance reports, shareholder reports, FCA data extract, MASK reporting to the Funding Corp Litigation Used in FCA call reports (RC.1), FCA data extract, MASK reporting to the Funding Corp In Foreclosure litigation code is 1 or 2 In Bankruptcy litigation code is 7, 8, 9, 10, 11, 12 or 13 In Bankruptcy AND Foreclosure litigation code is 3, 4, 5 or 6 NOT in Bankruptcy or Foreclosure litigation code is 0, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 or Credit Quality AgriBank Financial Reporting runs queries throughout month-end close to identify: UNCL loans Credit quality percentages > 100% Used in FCA call reports (RC-F), monthly management reports, borrowing base report, allowance reports, shareholder reports, FCA data extract, MASK reporting to the Funding Corp 12 6

7 Loan participation related fields Participation code Syndication code Excluded from participation reporting on call report and shareholder reports Included on a separate line on call report Sold records with syndication code Y that aren t direct signors Assignment code Separate line item on RC-O Similar entity code Customer level field Similar entity code trumps syndication code for call reporting purposes Investor type code/investor number Missing or incorrect investor number Investor number drives investor type code and impacts FCA loan type Associations provide participation data and AgriBank Financial Reporting does reconciliation each quarter and processes overrides. Future plan get away from separate request for this data and use current data. Used in FCA Call Reports (RC-O), syndication study, shareholder reports, FCA data extract, MASK reporting to the Funding Corp, etc. 13 Commitments to Lend Four new members were established in order to facilitate a completeness check to total commitments and in anticipation of Regulatory Capital changes. Non-Guarantee Commitments LT (> 14 months) Guarantee Commitments LT (> 14 months) Non-Guarantee Commitments ST (< 14 months) Guarantee Commitments ST (< 14 months) FCA regulations assign a 50% credit conversion factor to LT commitments (> 14 months) Proposed new capital regulations assign a 20% conversion factor to ST commitments (< 14 months) Watch for negative unfunded balances on loans with part codes not equal to S and positive unfunded balances on loans with part codes equal to S Used in risk adjusted assets, denominator in regulatory capital ratios, reported in FCA Call report (Sch RC-I) and Annual Shareholder Reports 14 7

8 Letters of Credit (LOCs) Letters of Credit reported separately from commitments on Sch RC-I New members available to identify LOCs housed in the Commitment system Some associations have LOCs set up in Cornerstone as loans for tracking purposes which we are unable to identify and query Associations provide LOC data and AgriBank Financial Reporting prepares reconciliation each quarter and processes overrides. Future goal have all LOCs housed in Commitment system and eliminate need to request separately. Identified problem during Q reporting: Loan paid off, but did not go to Paid status due to pennies on loan or other issue Practically, upon maturity and/or payment, LOC balances are never cleared. Since loan in Active status, LOC was included in Hyperion members creating errors on RC-I commitment/letter of credit data 15 Territorial Concurrence FCA regulations require any loan originated by the institution that requires territory concurrence from other Farm Credit institutions to be reported. Loan participations purchased from outside the association s chartered territory are excluded. Prior approval letter and formal documentation of concurrence must be kept in the loan file Use Prior approval code = 4 to identify Where territorial concurrence is being obtained, recently aware of several instances in the District with coding issues resulting in incorrect regulatory reporting. Used in FCA Call reports (RC.1) 16 8

9 Special Instruction codes (SPI) related to MRI reporting Used to determine MRI category (rural business, rural housing, etc.) for MRI loans, and MBS/ABS split, identify ARC bonds, and investment type (government guaranteed, securitization, etc.) for investments Project coming to automate current process using this field Used in FCA Call Report (RC-B, RC-B.1), MRI report, shareholder reports, FCA data extract, MASK reporting to the Funding Corp, etc. 17 Guarantees Federal government (guarantee indicators = 1-FSA, 2-SBA, 5-FHA and 9- Other Fed government) Federal government 0% risk weighted (guarantee indicator = 8) State government (guarantee indicator = 4) Farmer Mac (guarantee indicator =3) FCA regulations assign a 20% risk weighting for all guaranteed volume used in risk adjusted assets, denominator in regulatory capital ratios Non-guaranteed portion of Farmer Mac reported as a securitization residual interest, a dollar-for-dollar reduction in permanent capital, total surplus and core surplus (See Information Memorandum on Long-Term Standby Purchase Commitments dated May 2, 2012) Used in shareholder reports, call reports, FCS Insurance calculation, MASK reporting to the Funding Corp, FCA data extract FCS Insurance auditors sample loans and check for required documents in the loan file. Last year many of the loans sampled had errors. 18 9

10 Electric Coop FCA issued Bookletter BL-053 Revised Regulatory Capital Treatment for Certain Electric Cooperative Assets in February 2007 addressed specified conditions in which loans to electric cooperatives can be assigned to a lower risk weight (50% or 20% depending on the circumstances) FM47 user code 3 field is used to identify these loans (E50 or E20) Both volume (principal and interest) and Commitments > 14 months used in risk adjusted assets, denominator for regulatory capital ratios 19 Qualified Residential Loans (QRL) FCA regulations (c)(2) assign a 50% risk weighting to all qualified residential loans, as defined in To be a qualified residential loan, a loan must be either: A rural home loan, as authorized by or Identified by a GL code = 2 (QRL Indicator = GL) A single-family residential loan to a bona fide farmer, rancher, or producer or harvester of aquatic products. Identified by SPI codes 1650, 1651 or 1652 (QRL Indicator = SP) In addition, eligible loans (under both scenarios) must be in accrual status, past due < 90 days, and have a monthly payment schedule Used in risk adjusted assets, denominator in regulatory capital ratios 20 10

11 Ineligible_Unfinaled Used to identify ineligible or unfinaled loans, treated as a reduction on the borrowing base report, certified by associations Ineligible loans identified by a COLL_PLEDGE_CD of 3 Unfinaled loans identified by a COLL_PLEDGE_CD of 2 Watch for inconsistent coding between master and participation sold loans 21 Related Party Includes all loans to directors, senior officers, and both their immediate family members and affiliated organizations (any organization, other than a Farm Credit organization, of which they are a partner, director, officer or majority shareholder) who had transactions with the institution or any institution supervised by the director s institution any time during the year. Identified by a prior approval code = 2, although many associations need customized queries AgriBank Financial Reporting sends preliminary reports as of November month-end for verification Used in Annual Shareholder Report, FCA data extract, MASK reporting to the Funding Corp 22 11

12 Customer AgBusiness Code Used to classify loan data for reporting and analysis Missing or invalid codes are defaulted through grouping process Used in Annual Shareholder Reports, allowance for loan losses analysis, FCA data extract, MASK reporting to the Funding Corp, etc. Restructure Indicator Used to identify restructured loans and TDRs Indicator needs to be a 1 or a 2 for the loan to be reported as a TDR Used in Annual Shareholder Reports, Call Reports, Monthly Management Reports, Allowance, FCA data extract, MASK reporting to the Funding Corp, etc. 23 Collateral Information Accurate EMV and NRVs EMV = estimated market value NRV = net realizable value ( liquidation value) Correct breakdown between buildings and land Separate values needed for the dirt and the improvements If total of all buildings, including the house, get entered in the building field, then the dwelling entered again in the dwelling field, the values could be overstated if they are added together. Used in FCA data extract and Allowance 24 12

13 Project Update May 2014 Implementation Loan Transactions - Project # Replace daily transaction feeds from Cornerstone for accrual and nonaccrual loan roll forward activity such as new money, repayments, transfers to/from nonaccrual status used in Call reports and association monthly management reports Discontinue Management Lever File (MLF) - Project # Replace the month-end MLF feed from Cornerstone and the month-end feed from the Leasing system which populates portfolio statistics regarding performing/delinquency, bankruptcy/foreclosure and credit quality used in association management reports. Includes similar reporting for association investments. June 2014 Release Scheduled ADB Enhancements for FCSIC guarantees, Nonaccruals and AIR - Project # Enhance ADB calculations from simple average to aggregation of daily balances divided by number of days 25 Project Update In Process LN712 and LN713 Reports to District Database Project #TBD Add the Interface and Explosion tables to the District database, creating sections for Associations to view Association Investments - Project # Automate reporting for association investments, similar to AgriBank investments Participations/Syndications - Project # Make the necessary system modifications to more accurately account for syndicated loans while providing some of the functionality that is used for participation servicing Regulatory Capital Changes - Projects #309847/# Implement changes required for reporting under the new capital regulations Nonaccrual Income by Loan Type & Related Party Transactions - Project # Create new groupings for nonaccrual income by FCA loan type and related party disbursements and payments Voting/Non-Voting Stock Project # Replace MLF feed for number of voting/non-voting stockholders 26 13

14 For questions or comments, please contact: Sheila Earp at or Susan Murphy at or