Wilary Winn - Estimation of Fair Value, Asset Liability Management (ALM), and Valuation of Illiquid Financial Instruments

Advice to Strengthen Financial Institutions

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Wilary Winn Welcomes New Analysts
June 14, 2018

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All You Ever Wanted to Know About Mortgage Banking - AICPA Conference on Credit Unions

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S&P Global Market Intelligence's 50 Top Performing Credit Unions for 2017
April 16, 2018

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Asset Liability Management

Proposed Risk-Based Capital Rule for Credit Unions Webinar

On February 21, 2014, Wilary Winn presented a webinar: Proposed Risk-BasedCapital Rule for Credit Unions. Wilary Winn presented this topic again on March 3, 2014, through a webinar hosed by the Federal Home Loan Bank of Des Moines. Key topics included: how the calculations for the proposed rule work, including a brief discussion on the NCUA's calculator; context for the proposed rule, and a discussion of which sections of the rule are consistent with the BASEL III rules for community banks and which are not.

Valuation of Illiquid Financial Instruments

Accounting and Regulatory Guidance for the Mortgage Partnership Finance® Program (updated May 2016)

The accounting and regulatory reporting for mortgage banking activities is relatively complex. For example, locking in a rate with aborrower for a loan to be sold into the secondary market creates a derivative that must be accounted for and reported at fair value. As anotherexample, mortgage servicing rights retained from the sale of a loan can be accounted for at fair value or under the amortization method. Loanssold to the Federal Home Loan Banks under the MPF® program create an additional level of complexity because they are often sold with limitedrecourse. The resulting credit enhancement obligation amount must be included in the calculation of regulatory net worth. Now in its 9th edition,our Accounting and Regulatory Guide addresses the issues related to mortgage banking activities in general, as well as the specific issuesrelated to the MPF program. The guide is designed to provide practical how-to advice with specific examples, including journal entries andspecific call report reporting references.

Our latest edition provides guidance related to the requirements of BASEL III, including the regulatory limits for mortgage servicingrights, and the calculation of risk-weighted assets under the Simplified Supervisory Formula Approach ("SSFA"). We note that we have acomplimentary SSFA calculation model available on our website.

Accounting and Regulatory Reporting for Mortgage Servicing Rights

An increasing number of community financial institutions have elected to retain the right to service loans sold into the secondary marketin order to maintain contact with their customers. This white paper provides a complete description of the required accounting and regulatory reporting, including example journal entries and specific call report cross references.

Accounting and Regulatory Reporting for Mortgage Banking Derivatives

Locking a rate in for a borrower on a loan that will be sold into the secondary market results in the creation of a derivative, which mustbe accounted for at fair value. Many forward sales commitments are also derivatives. This white paper provides a complete description of therequired accounting and regulatory reporting, including example journal entries and specific call report cross references.

Mortgage Lending in the Near Term - The Good, the Bad, and the Ugly

Interest rates are up, refinances are down, and the CFPB has recently released dizzying amounts of regulation regarding mortgage lending, with more to come. Lenders are asking - should I retain mortgage loans, sell them into the secondary market, exit the business? In order to help you answer these questions, we will discuss all of these challenges and more, while also identifying the opportunities and significant advantages that you have as community financial institutions.

Doug Winn presented this seminar at the FHLBTopeka's Annual Management Conference on April 25, 2014

Recent Trends in the Performance of Pooled Trust Preferred Securities (Updated March 2014)

As of December 31, 2013, Wilary Winn Risk Management analyzed 62 pooled trust preferred collateralized debt obligations (TruP CDOs) containing$24.4 billion of collateral. This represents 55 percent of the 113 total TruP CDO deals issued globally. This white paper summarizes the recenttrends we have observed regarding the performance of these securities.

Other than Temporary Impairment ("OTTI") of Fixed Income Securities Webinar for McGladrey & Pullen

WW Risk Management believes that the accounting and regulatory accounting for OTTI is among the most complex issues facing financialinstitutions. This webinar begins with a calculation example of OTTI and then addresses the required accounting.

Sales of Seasoned Loans

Determining whether or not a transferred loan can be accounted for as a sale has been complex historically. In June 2009, FASB issued SFAS166 – Accounting for Transfers of Financial Assets an Amendment of FASB Statement No. 140 ("FAS ASC 860-10-40") which further limited the abilityto account for transfers as sales. A critical issue is the creation of excess servicing and whether this interest only strip precludes salestreatment. This white paper addresses this issue specifically and discusses other matters related to "true sales accounting".

Mortgage Servicing Rights

Wilary Winn presented this seminar in 2005 and it includes information about valuation of MSRs, required repurchases and fraud issues, aswell as the accounting requirements. The required accounting was subsequently slightly amended and we recommend that you read our Accounting andRegulatory Reporting for Mortgage Servicing Rights for the up-to-date requirements. Given what happened in the mortgage marketplace subsequent to2005, readers could find the slides on fraud to be particularly interesting.

Estimation of Fair Value

Credit Union Purchase Accounting White Paper

Since January 2009, credit unions have been required to account for mergers in accordance with the rules for purchase accounting and fairvalue. WW Risk Management has performed valuations on nearly 100 credit union mergers under the new rules and in this white paper we share whatwe have learned. The paper addresses valuation of the overall credit union, valuation of the financial assets and liabilities, and valuation ofthe non-financial assets and liabilities. We include an example of the journal entry to be made on the effective date of the merger. We thendiscuss the required ongoing accounting, including accounting for loans acquired with deteriorated credit quality. We conclude with a summary ofthe rules related to the testing of goodwill for impairment.

Credit Union Merger FAQs

This is a companion piece to our Purchase Accounting White Paper and includes answers to the questions we are most frequently asked.

Troubled Debt Restructurings - White Paper from the Center for Audit Quality

In our experience, nearly all financial institutions calculate the effects of reductions in interest rate and/or payment and extensions ofterm in their TDR calculations. However, many do not realize that the calculation should be based on "best estimate cash flows", which mustinclude a credit component. This white paper provides detailed guidance on the required accounting.

Fair Value: Where Finance Meets Accounting

In 2013, Douglas Winn was invited to speak at the AICPA National Conference on Credit Unions and the Moss Adams Regional Credit Union Conferencein Portland, Oregon. Fair Value: Where Finance Meets Accounting was his presentation focusing on:

  • reviewing the standard industry approach to discounted cash flow analyses,
  • discussing the appropriate discount rate to use depending on the accounting application,
  • showing market trends for major input assumptions by asset type, and
  • showing market trends for M & A activity
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