CUPRO 2011 - Jack Henry & Associatesprofitstarhelp.jackhenry.com/dev/CUPRO-2011-Help-Content.pdf ·...

CUPRO® 2011 Selected Help Content

CUPRO®

Copyright© 1999-2011

Jack Henry & Associates, Inc.

All rights reserved.

Information in this document is subject to change without notice.

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Contents

CUPRO® 2011 Help System Content

© 1999-2011 Jack Henry & Associates, Inc. ®

CUPRO 2011.65

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Table of Contents Introduction ................................................................................................................................................. 1

Welcome to CUPRO® ..................................................................................................................... 1

Getting Started and Getting Support ........................................................................................... 1 What’s New in CUPRO?................................................................................................................. 2

Summary of CUPRO 2011 Changes ................................................................................ 2 Summary of New Features Introduced in the 2010 Version ......................................... 5

Quick Start ................................................................................................................................................... 9 CUPRO Quick Start Guide ............................................................................................................. 9 How Do I... ....................................................................................................................................... 9 Register for CUPRO Education .................................................................................................. 10

Getting Started .......................................................................................................................................... 11 Getting Started with CUPRO ....................................................................................................... 11 The Layout of CUPRO .................................................................................................................. 11 Menu Commands ......................................................................................................................... 12 Moving Around in CUPRO .......................................................................................................... 13 A First Time Checklist ................................................................................................................. 13 Opening a Database ..................................................................................................................... 14 Information in the CUPRO Database .......................................................................................... 14 Updating Credit Union Properties .............................................................................................. 14

The Update Credit Union Information Screen .............................................................. 15 Basic Credit Union Information ..................................................................................... 16

Customizing General Ledger Accounts..................................................................................... 17 The Account Properties Screen .................................................................................... 17 Maneuvering in the Account List .................................................................................. 17 Renaming an Account .................................................................................................... 18 Changing the Order ........................................................................................................ 18 Setting the Active Status ................................................................................................ 18 Setting Up Interest Bearing Accounts .......................................................................... 18 Proper Use of Balancing Accounts ............................................................................... 18 Setting the Risk Assets .................................................................................................. 18 Customizing Peer Ratio Accounts ................................................................................ 19

Saving Your Database ................................................................................................................. 19 Using CUPRO on a LAN .............................................................................................................. 20 Upgrading from a Previous Version ........................................................................................... 20

Downloading with CUPRO® ...................................................................................................................... 21

Downloading with CUPRO .......................................................................................................... 21 Requirements ............................................................................................................................... 21 The Data File ................................................................................................................................. 22 Setting Download Parameters .................................................................................................... 23 The Download Parameters Selection Screen ............................................................................ 24

Command Buttons .......................................................................................................... 24 Editing with the Parameter Wizard ............................................................................................. 25 Mapping the General Ledger Accounts ..................................................................................... 28 The Map Setting Selection Screen ............................................................................................. 29

Command Buttons .......................................................................................................... 29 The Assign G/L Accounts Screen .............................................................................................. 30 The Nothing Account ................................................................................................................... 31 Using Wildcard Characters ......................................................................................................... 31 Points to Remember When Mapping ......................................................................................... 31

Updating Historical Data .......................................................................................................................... 33 Updating Historical Data ............................................................................................................. 33 Summary ....................................................................................................................................... 33 Update Checklist .......................................................................................................................... 33

Contents



CUPRO 2011.65

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Entering Data Manually ............................................................................................................... 34 Selecting a Month ........................................................................................................................ 35 The Data Entry Screen ................................................................................................................. 35 Updating General Ledger Data ................................................................................................... 36

Command Buttons .......................................................................................................... 36 Tab Specific Commands ................................................................................................ 36

Updating Memorandum Data ...................................................................................................... 37 Updating Peer Data ...................................................................................................................... 39

Tab Specific Commands ................................................................................................ 39 Downloading Data ........................................................................................................................ 40 Viewing the Data Summary Report ............................................................................................ 41 The Data Entry Worksheet .......................................................................................................... 42 Deleting Historical Data ............................................................................................................... 43

Forecasting with CUPRO® ........................................................................................................................ 45

Forecast Theory ........................................................................................................................... 45 An Overview of Strategic Planning ............................................................................................ 45 An Overview of Budgeting .......................................................................................................... 45 Strategic Planning vs. Budgeting ............................................................................................... 47 Forecasting with CUPRO............................................................................................................. 48

Summary of Forecasting ................................................................................................ 48 Forecasting Options .................................................................................................................... 48

Creating a Forecast......................................................................................................... 48 Forecasting Tips ............................................................................................................. 49

The Forecast Selection Screen ................................................................................................... 50 Parameters ....................................................................................................................... 51 The Rate Shock Setup Screen ....................................................................................... 52 The Forecast Settings Screen ....................................................................................... 53 Forecast Methods ........................................................................................................... 54 Using the Interpolate Feature ........................................................................................ 56 Using the Copy Down Feature ....................................................................................... 56 System Accounts ............................................................................................................ 56 Fine Tuning a Forecast ................................................................................................... 57 Forecasting a ‘What-If’ ................................................................................................... 58

Creating a Budget ........................................................................................................................ 58 Creating a Budget Using Forecast Assumptions ..................................................................... 59

The Budget Selection Screen ........................................................................................ 59 Command Buttons .......................................................................................................... 60 Parameters ....................................................................................................................... 60

Forecasting a Rate Shock ........................................................................................................... 61 The Necessity of Interest Rate Shocks ......................................................................... 61

Setting Rate Shocks with Level 3 ............................................................................................... 61 Steps in Creating a Rate Shock .................................................................................................. 62 An Example of a Rate Shock ...................................................................................................... 62 Handling Negative New Funds ................................................................................................... 65

Break Even Formula ....................................................................................................... 66 Suggestions for Setting Assumptions ....................................................................................... 67

Performing GAP Analysis ........................................................................................................................ 69 Gap Theory ................................................................................................................................... 69 What Is a Gap Report?................................................................................................................. 69 What about Regular Shares? ...................................................................................................... 69

What Does a Gap Report Tell Us? ................................................................................. 70 Cumulative GAP Ratios .................................................................................................. 72 Limitations of Gap Analysis ........................................................................................... 72

Performing Gap Analysis ............................................................................................................ 73 Summary ....................................................................................................................................... 73 Setting Gap Parameters .............................................................................................................. 73

Contents



CUPRO 2011.65

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The Select Gap Entry Period Screen .......................................................................................... 74 The Gap Entry Screen.................................................................................................................. 75

Accounts Area ................................................................................................................. 75 Assumptions Area .......................................................................................................... 76

Viewing Results ......................................................................................................................................... 77 Viewing Results Summary .......................................................................................................... 77 Viewing a Report or Graph .......................................................................................................... 77 The Report/Graph Selection Screen .......................................................................................... 78

Screen Selections ........................................................................................................... 78 Available Dates ................................................................................................................ 79 Report Options ................................................................................................................ 80 Graph Options ................................................................................................................. 81 Date Ranges .................................................................................................................... 81

Data Output Options .................................................................................................................... 82 Report Groups ................................................................................................................. 82 Reports ............................................................................................................................. 83 Graphs .............................................................................................................................. 83

The Report Preview Screen ........................................................................................................ 84 Command Buttons .......................................................................................................... 84

The Report Print Preview Screen ............................................................................................... 85 Command Buttons .......................................................................................................... 85

The Print Setup Screen................................................................................................................ 86 Print Setup Options ........................................................................................................ 86

Reserve Transfer – PCA Check Report Analysis ...................................................................... 87 Introduction ..................................................................................................................... 87 Running the Report......................................................................................................... 87 Analyzing the PCA Check Report .................................................................................. 88

The Graph Preview Screen ......................................................................................................... 89 Setting the Graph Properties ......................................................................................... 89 Chart Design Options ..................................................................................................... 90 3-D Options ...................................................................................................................... 90 Legend/Chart Position Options ..................................................................................... 90 Color/Background Options ............................................................................................ 90

Graph Print Preview Screen ........................................................................................................ 91 Graph Print Preview Options ......................................................................................... 92

Using CUPRO® Tools ................................................................................................................................ 93

Using CUPRO Tools ..................................................................................................................... 93 Entering a Password .................................................................................................................... 93 Zipping Files ................................................................................................................................. 94 Unzipping Files ............................................................................................................................. 95 Backing Up and Restoring .......................................................................................................... 95

Backup ............................................................................................................................. 95 Restore ............................................................................................................................. 96

Setting Options ............................................................................................................................ 97 General Options .............................................................................................................. 98 Report Options ................................................................................................................ 99 Include pagebreaks in all reports ................................................................................ 100 Graphs Options ............................................................................................................. 101

Calculations ............................................................................................................................................. 103 NCUA FPR Ratios Calculations ................................................................................................ 103 Introduction ................................................................................................................................ 103 FPR Ratios vs. CAMEL Ratios .................................................................................................. 104 Ratio Components ..................................................................................................................... 104 Capital Adequacy Ratios ........................................................................................................... 105 Asset Quality Ratios .................................................................................................................. 105 Earnings Ratios .......................................................................................................................... 106

Contents



CUPRO 2011.65

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Asset/Liability Management Ratios .......................................................................................... 107 Productivity Ratios .................................................................................................................... 108 Other Ratios ................................................................................................................................ 109 Spread Ratio Calculations......................................................................................................... 111 What Is Spread? ......................................................................................................................... 111

Calculating Spread........................................................................................................ 112 The Spread Formula .................................................................................................................. 112

Annualization ................................................................................................................. 112 Average Balance ........................................................................................................... 113 Examples of Spread Calculations ............................................................................... 113

Spread vs. Net Interest Margin ................................................................................................. 114 Other Calculations ........................................................................................................ 114

Key Ratio Calculations .............................................................................................................. 115 Asset Mix Ratios ........................................................................................................... 115 Liability Mix .................................................................................................................... 116 Earnings ......................................................................................................................... 116

General Ratio Calculations ....................................................................................................... 117 Date Ranges .................................................................................................................. 117 Member Data .................................................................................................................. 117 Loan Activity .................................................................................................................. 118 Employee Data .............................................................................................................. 118

System Accounts Calculations ................................................................................................ 119 How System Accounts Work .................................................................................................... 119 Allowance for Loan Loss........................................................................................................... 120 Asset and Liability Balancing Accounts .................................................................................. 120 Equity Accounts ......................................................................................................................... 120 Net Income/Loss Account ......................................................................................................... 121 Undivided Earnings ................................................................................................................... 121 Reserve Transfer to Regular Reserves .................................................................................... 122

Method A: Risk Asset Method ..................................................................................... 122 Method B: PCA Method ................................................................................................ 123



CUPRO 2011.65

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Introduction

Welcome to CUPRO®

CUPRO is designed to serve the data management requirements of credit union professionals. The program compiles, calculates, and conveys a vast assortment of credit union data that managers, directors, and committee members will find useful when making decisions concerning the services and policies of the credit union.

In addition, CUPRO makes your personal computer a more effective tool in the day-to-day operations of your credit union.

There are three levels available:

Level 1 assists credit unions with financial report generation, budgeting and basic interest rate risk analysis, including gap analysis.

Level 2 has the same features as Level 1, plus it offers more advanced capabilities, including forecasting the balance sheet and income statement up to three years into the future. It also performs net income simulations and detailed spread analysis.

Level 3 has the same features as Level 2, plus it has additional accounts, can forecast up to five years into the future, and can run an income shock.

Getting Started and Getting Support

If you prefer to learn new software by exploring it, start CUPRO and take a look around. Most of the tools and commands you need are easy to find on the menus.

If you have a question about CUPRO, first look in the Help files. If you cannot find the answer, contact the Client Services division of ProfitStars.

Helpline: (800) 356-9099

Support hours (Central Time):

Monday through Thursday, 8:00 a.m. to 6:30 p.m. Friday, 8:00 a.m. to 5:00 p.m. No Saturday support.

Address: ProfitStars CUPRO 17110 Marcy Street Suite 200 Omaha, NE 68118

Fax: (402) 431-8822

Email: [email protected]

mailto:[email protected]

Introduction



CUPRO 2011.65

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When you call, you should be at your computer. Be prepared to give the following information:

Your name, the name of your credit union, and your contract number.

The version of Windows you are using.

The type of hardware you are using.

The exact wording of any messages that appeared on the screen.

What happened and what you were doing when the problem occurred.

How you tried to solve the problem.

Choosing ‘About CUPRO’ from the Help menu will display information about CUPRO and your PC that may be helpful in determining your problem.

What’s New in CUPRO?

Summary of CUPRO 2011 Changes

The following enhancements and fixes are available in the 2011 edition of CUPRO:

Installation Errors on Vista or Windows 7 Machines

Name and Charter # Lost During Conversion

Opening CUPRO Databases

Unable to Create a New Database

Warning of Another User in the Data

Default Value for the Period Format Setting

Values Displayed on the Yield / Cost Tab

NCUSIF Stabilization Expense not reflected in Data Entry Validation

Balance Sheet Comparison Report Column Alignment

Account Names Clipped in Some Reports

Header Text Truncated on Some Reports

Default Report Name used when Saving as PDF

Font and Font Size Corrected in the Balance Sheet Comparison Report

Note: A list of 2010 enhancements follows the 2011 items.

General

Installation Errors on Vista or Windows 7 Machines

During the installation process, users on Vista or Windows 7 machines encountered several error messages, which referenced DLL files. Since Vista and Windows 7contained newer versions of the referenced files, users were able to ignore the error messages. Following the last of these messages, the installation would finish successfully.

For the 2011 release, the CUPRO installation process has been modified so that users will no longer receive these errors.

Introduction



CUPRO 2011.65

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Name and Charter # Lost During Conversion

An institution’s Name and Charter # were lost when converting CUPRO data to the 2010.49 version.

While this conversion issue has now been corrected, clients are encouraged to verify that the correct Credit Union information exists under the Update > Properties menu option.

Opening CUPRO Databases

Previously, the Select Database window was opened each time CUPRO was launched—if multiple sets of CUPRO data existed.

Now, after upgrading to the 2011 version, when you start CUPRO it will open the last database you used. You can still use the File > Open command to select a different database, if necessary.

Unable to create a ‘New’ Database

In 2010.49, the File > New command did not open the screen from which a new database, with no data, could be created.

The File > New functionality is restored in this release.

Warning of another User in the Data

Previously, when users logged into the 2010.49 version, they were not warned if another person was already in the data.

Now, the pre-2010 ‘Unable to open file!’ message is again displayed in the lower left corner of the CUPRO window—when someone is already in the database and another user tries to access it.

Default Value for the Period Format Setting

Under Tools > Options, the default value of the Period Format setting, on the General tab, has been changed from Period Long Name to Period Short Name, if nothing else was previously specified. If a different selection has already been made, the setting will not be changed.

Introduction



CUPRO 2011.65

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Forecasting

Values Displayed in the Wrong Format on the Yield / Cost Tab

In the 2010 version, the values on the Yield / Cost tab, in the Forecast Settings screen, were displayed as amounts, when they should have been percentages.

Now, the Yield / Cost tab properly shows its values as percentages.

Reporting

NCUSIF Stabilization Expense not reflected in Data Entry Validation

The Data Entry Validation report—available when you click the [Summary] button in the Data Entry screen—did not reflect the impact of the NCUSIF Stabilization Expense in the Net Income amount shown on the report.

Now, when you click the [Summary] button, the report does reflect the NCUSIF adjustment in the Net Income subtotal.

Column Alignment in the Balance Sheet Comparison Report

The first column (‘Actual’) of this report was left aligned in 2010.49, when the rest of the columns were right aligned.

Now, the first column is also right aligned.

Account Names Clipped in Some Reports

Under certain circumstances, account and/or subtotal names were truncated. The following reports demonstrated this behavior:

Spread Analysis Report – When printed with the Time Frame option set to Period-to-Date.

Income Statement – The clipping behavior occurred on subtotal account names, when the Time Frame option was either Comparative or Period-to-Date, and the value to be

displayed was $1,000,000 or greater.

The current release resolves this issue.

Header Text Truncated on Some Reports

When printing or previewing a report that included a long forecast name, the name, along with the dates for which the report was being generated, were truncated after the 60th character. This issue affected several reports, including:

Balance Sheet

Forecast Summary Balance Sheet

Income Statement

Forecast Summary Income Statement

NCUA FPR Ratios

General Data Report

Spread Analysis Report

Forecast Summary Spread Analysis Report

This is fixed in the current release.

Introduction



CUPRO 2011.65

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Default Report Name used when Saving as PDF

When printing a report in the 2010 version of the software, if a PDF printer was selected from the Print dialog, the report was given a default name of ‘Spread’ when the Save PDF File As window was opened.

In the 2011 version, the actual report name is used as the default name for the report being created.

Font and Font Size Corrected in the Balance Sheet Comparison Report

The Balance Sheet Comparison report was using a different font and font size for the last column on the report — the % Change column.

Now, the % Change column is formatted to match the other columns.

Summary of New Features Introduced in the 2010 Version

The following enhancements and changes are available in the 2010 edition of CUPRO:

New Equity Accounts Added

New NCUSIF Stabilization Expense Account Added

NCUA FPR Ratios and Forecast Data

Ratios Renamed

Ratios Added

Ratios Changed

Memorandum Data in Forecasts, Budgets, & Related Reporting

Balancing Routine Change

Select any Installed Printer from Printer Setup

General

New Equity Accounts Added

Additional Balance Sheet lines have been added to the Liabilities and Members’ Equity > Equity > Adjustments section of the Chart of Accounts.

Introduction



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These lines make it possible to define additional accounts that reflect changes in equity, without affecting net income. These accounts can be used to:

Show changes in equity due to NCUSIF Stabilization expense

Create more secondary capital accounts

These lines have also been identified as System Accounts, which allows the accounts to be included in ratio calculations. To begin using these new accounts, just rename them and select the corresponding Active checkboxes.

New NCUSIF Stabilization Expense Account Added

A new expense account has been added to the Income Statement and Forecast Income Statement. The ‘NCUSIF Stabilization Expense’ account is now available, near the bottom of the Chart of Accounts, in the Extraordinary Expenses section, and is included in reports and graphs.

From the Income Statement - Detailed report

Introduction



CUPRO 2011.65

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‘NCUSIF Stabilization Expense’ is also referenced by several ratios, such as ‘Return on Average Assets Before NCUSIF Stabilization’ (in the Earnings section).

Note: You will need to modify and re-save your forecasts to see, analyze, and report on the effect of this new expense item.

Ratios

NCUA FPR Ratios and Forecast Data

Financial Performance Ratios reports and graphs can now be generated for Forecast data.

Ratios Renamed

The names of three ratios were changed to match the corresponding NCUA ratio names. These are:

‘Delinquent Loans/Loans’ to ‘Delinquent Loans/Total Loans‘

‘Prov for Loan Loss/Average Assets’ to ‘Prov for Loan and Lease Losses/Average Assets‘

‘Fixed Assets and OREOs/Assets’ to ‘Fixed, Foreclosed and Repossessed Assets/Total Assets‘

Ratios Added

Six additional NCUA financial performance ratios have been added to CUPRO. These ratios, which are available for both Historical and Forecast data, are:

‘Return on Average Assets Before NCUSIF Stabilization‘ (in the Earnings section)

‘Yield on Average Loans‘ (in the Earnings section)

‘Fee and Other Operating Income / Average Assets‘ (in the Earnings section)

‘Yield on Average Investments‘ (in the Earnings section)

‘Reg Shares & Share Drafts/Tot Shares & Borrowings‘ (in the Asset/Liability Management section)

‘Membership Growth‘ (in the Other Ratios section)

Ratios Changed

Three existing ratios were changed:

‘Operating Expenses/Average Assets‘ (in the Earnings section)

The NCUSIF stabilization Expense is added to Operating Expense.

‘Operating Expenses/Gross Income‘ (in the Earnings section)

The NCUSIF stabilization Expense is added to Operating Expense.

‘Net Operating Expense/Average Assets‘ (in the Earnings section)

The NCUSIF stabilization Expense is added to Net Operating Expense.

Introduction



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Forecasting

Memorandum data in Forecasts, Budgets, and Related Reporting

When forecasting and budgeting, users can now model their Memorandum data. As a result, Forecast time frames are also available for reports and graphs generated for General data and NCUA FPR ratios.

Balancing Routine Change

Before the 2010 release, it was possible to encounter a ‘mismatch’ between the YTD Net Income amount calculated on the Income Statement and the YTD Net Income amount shown in the Equity section of the Balance Sheet. While the YTD Net Income in the Income Statement was correct, the Balance Sheet value used by the system was the initial YTD Net Income amount that existed before the balancing routine calculations were performed.

Now, the balancing routine pushes the same YTD Net Income amount to both the Income Statement and the Balance Sheet. During the balancing process, the program iterates through the Chart of Accounts multiple times, to appropriately reflect income and expense changes resulting from balancing account volume changes.

Reporting

Select any Installed Printer from the Print Setup Dialog

In the Print Setup dialog, you can now select any installed printer as the output printer for the current report.



CUPRO 2011.65

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Quick Start

CUPRO Quick Start Guide

Need some help? Find it here.

Getting Started If you’re new to CUPRO, start here.

What’s New? Here’s what’s in the latest release of CUPRO.

How Do I? Frequently Asked Questions about CUPRO.

Contacting Us Have a problem that Help can’t solve? Here’s how to get in touch with us.

Online Education Find out how you can register for one of our CUPRO internet sessions. (Our beginner sessions are FREE.)

How Do I...

Click a question from the list below to find the answer.

Getting Started

... change the chart of accounts?

... run the software on a network?

... know if an account should be set as a risk asset?

... use the balancing accounts in my chart of accounts?

Update

... modify the download to include my new general ledger accounts?

... get peer information for my credit union?

... assign multiple general ledger accounts to a CUPRO account?

Forecast

... rate shock my forecast?

... get rid of the accounts in red?

... copy the same number for all months of my forecast?

... copy a forecast to my budget for next year?

Quick Start



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Reports and Graphs

... get my report to print on one page?

... put a background image on my graph?

... not show an account that has all zeros?

Miscellaneous

... tell CUPRO where to back up my database?

... know which level I have on my software?

... know which database I have open?

Register for CUPRO Education

To schedule a 1-on-1 training session or to obtain additional information, you can call us at 800-356-9099 or email [email protected].




CUPRO 2011.65

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Getting Started

Getting Started with CUPRO

This section covers the following topics:

The Layout of CUPRO

Menu Commands

A First Time Checklist

Opening a Database

Updating Credit Union Properties

Customizing General Ledger Accounts

Customizing Peer Ratio Accounts

Saving Your Database

Using CUPRO on a LAN

The Layout of CUPRO

The CUPRO main screen appears as follows.

There are three main areas to CUPRO, the Title bar, the Menu, and the Status bar.

Title Bar The Title bar shows the name of the file currently open. You can also minimize, resize or maximize, or close the main screen by clicking one of the Window buttons.

Menu The main menu contains the commands that you use with CUPRO. Selecting a menu option allows you to execute that particular command. The main menu also serves as a ‘home base.’ When you are finished with a particular command, you will return to the main menu.

Status Bar The Status bar shows the credit union name, the date and time, and displays status indicators and messages as CUPRO processes information.

Getting Started



CUPRO 2011.65

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Menu Commands

File Menu Commands

New - Opens a new database with no data. Open - Opens an existing CUPRO database. Close - Closes the current database. Save As - Lets you save your CUPRO database under a different file name and/or location. Backup - Backs up the current database to the location specified under Tools/Options.

Restore - Restores the backup database. Print Preview - Review the output before you send to the printer. Print - Print the selected report to you printer. Printer Setup - Accesses the printer setup utility. Exit - Exits the program.

Edit Menu Commands

Undo - Reverses the last action. Cut - Removes the selection and places it in the Clipboard. Copy - Copies the selection and places it in the Clipboard. Paste - Places the information from the Clipboard.

Update Menu Commands

Data Entry - Edit the monthly entries for General Ledger, Memorandum, and Peer accounts. Download - Import data from a text file. Delete Data - Remove unwanted data in General Ledger, Memorandum, and Peer Ratios for a given range of months. Data Entry Worksheet - Prints out a form for preparing entry for General Ledger, Memorandum, Peer Ratios, and Gap data. Chart Of Accounts - Customize the CUPRO Chart of Accounts to match the chart of accounts used in your credit union. Properties - Update information on the credit union.

Analysis Menu Commands

Budgeting - Create and edit your budget for the year. Set Gap Parameters - Set maturity and repricing on rate sensitive assets and liabilities. Forecasting - Perform What-If assumptions (Level 2 and Level 3 only). Reports/Graphs - View and print results.

Tools Menu Commands

Password - Activate software and change setting for different features of CUPRO. Zip Files - Compresses one or more files into a single file for archiving and attaching to email. Unzip Files - Opens a compressed file. Options - Customize CUPRO.

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Window Menu Commands

Tile Horizontal - Arrange all open screens top to bottom. Tile Vertical - Arrange all open screens left to right. Cascade - Arrange all open screens layered one on top of each other. 1,2,3 - Indicates the screens currently open. The active screen is indicated by a check mark.

Help Menu Commands

Contents - Accesses the help system. How Do I - Brings up a list of frequently asked questions and links to answers. Register for Education - Provides the phone number to call to schedule a 1-on-1 training session or to obtain additional information. About CUPRO for Windows - Displays version number, system information, and the Support Helpline phone number.

Moving Around in CUPRO

The following list highlights some of the keystrokes used in various areas of CUPRO.

Function

Keystrokes

Activate a menu. [Alt] + underline letter in menu

Move to next area on screen. [Tab]

Move to previous area on screen. [Shift] + [Tab]

Move to next item in list. Down arrow

Move to previous item in list. Up arrow

Display item in drop-down list. Down arrow

Check or clear a check box. [Space]

On data entry areas, you may type in information, then press the [Enter] key. CUPRO will advance to the next data entry area. This works extremely well in the 10-key pad part of your keyboard.

A First Time Checklist

The first time you open a new database in CUPRO, you must perform the following steps:

First Time Checklist

1. Open a new database.

2. Enter the information for your credit union under Properties.

3. Customize your chart of accounts.

4. Set download parameters and map the general ledger accounts. (Download users only).

5. Back up the database.

Once you have completed these steps, you are now ready to update your historical data.

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Opening a Database

When you start CUPRO, it opens the last database you used. You may also open a CUPRO database by selecting File | Open from the Main menu, or by double-clicking a CUPRO Database file in Windows Explorer or a File Find list.

When you open a new database, CUPRO asks you to update the properties of the database. When you open a database created in a previous version of CUPRO, the program will automatically upgrade the database to the new version.

Information in the CUPRO Database

The CUPRO database has an extension of .C20, and stores all information it needs in a database.

General Credit Union Information

Historical Data

Download Parameters

Download Mapping

Forecast Assumptions Data

Forecast Results Data

Budget Assumptions Data

Budget Results Data

Gap Assumptions Data

Gap Results Data

Updating Credit Union Properties

Properties are where you input general credit union information.

To Update Credit Union Properties

1. From the Update menu, choose ‘Properties.’ The Update Credit Union Information screen will appear.

2. Click the appropriate tab.

3. Make your changes and click the [Save] button.

4. When finished, click the [Close] button.

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The Update Credit Union Information Screen

This screen sets up the basic credit union information.

Getting Started



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Basic Credit Union Information

Credit Union

Name The Credit Union Name appears in the lower-left corner on the screen, and in the title for reports and graphs.

Type Choose one of three options:

Federally Charter

Federally Insured State Chartered

Non-Federally Insured State Chartered

Reserve Transfer Method

If you select the Federal Charter option, CUPRO automatically uses the PCA method to determine the Reserve Transfer method used for the system accounts. If you select Federally Insured State Chartered or Non-Federally Insured State Chartered, you can select either the PCA method, or the Risk Asset method. Check with your examiner for the correct method to apply.

Contract # Displays your credit union’s charter number, prefixed by zeros. You cannot edit the Contract # from this screen.

Docket # Enter the ID number assigned to your credit union. The Docket # appears on reports.

Contact

Name Enter your name, or the name of the person primarily responsible for maintaining CUPRO.

Email Address Enter your email address.

Phone Enter your telephone number, and include an extension.

Fax Enter your fax number.

Officer 1/Officer 2

Name Enter the name of the first/second officer. This name will appear on the Statement of Condition.

Title Enter the title of the first/second officer. This title will appear on the Statement of Condition.

Comments

Enter any comments you wish to add to document the information in your database.

Getting Started



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Customizing General Ledger Accounts

You can structure the chart of accounts in CUPRO to mirror your credit union’s chart of accounts.

To Customize the Chart of Accounts

1. From the Update menu, select ‘Chart of Accounts.’ The Account Properties screen will appear.

2. Select the General Ledger Accounts tab.

3. Select each account you wish to modify, and make the appropriate changes.

4. When finished with all your changes, click [Save], then [Close].

The Account Properties Screen

The Account Properties screen is where you can rename an account, change the order of the account, set the status to active or inactive, and set the Risk Asset status.

Maneuvering in the Account List

The Account Properties screen shows the Chart of Accounts at its highest level.

You may expand the view by

You may collapse the view by

clicking the next to the Account Level

double-clicking the Level name, or by

clicking the [Expand All] button.

clicking the next to the Account Level

double-clicking the Level name, or by

clicking the [Collapse All] button.

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Renaming an Account

You may change the name of accounts in CUPRO to better match the names of the products you offer your members.

Changing the Order

You may reposition the accounts in the chart of account list. You may do this by using the [Up] button and [Down] button.

Setting the Active Status

You may not need to use all of the accounts in CUPRO, and you may set these to inactive. Inactive accounts will not show up on edit screens, reports, or graphs. Should you decide to show more detail in your reports, or would like to do a ‘What-If,’ you may set an account to active.

If an account is a system account used by CUPRO for calculations, contains a balance in History, or has a GL account mapped to it, you cannot set the account to inactive.

Setting Up Interest Bearing Accounts

Interest bearing accounts (loans, investments, shares, and borrowings) have a related income/expense account. This allows CUPRO to calculate the yield for the account. Ideally, there should be a general ledger account for the balance of an interest bearing account and its related income account. Some general ledger systems, however, may not have this one-for-one relationship. For example, you may have separate general ledger accounts for asset accounts (e.g., New Vehicle Loans, Used Vehicle Loans, First Mortgage Fixed Rate) but only one general ledger for income accounts (Interest on Loans).

Proper Use of Balancing Accounts

When using the two Balancing Accounts (Asset Balancing Account and Liability Balancing Account, keep in mind the following:

You cannot inactivate these accounts, since they are needed for forecasting.

You cannot set any gap assumptions. Any balances in these accounts will always appear in the first month on the gap report.

You cannot forecast a balance, although you can forecast a rate. If you are using the Old/New Money Method, the Estimated Life will always be set to 1 month.

More information on balancing accounts

Setting the Risk Assets

Risk Assets are used to determine the amount of regular reserves transferred in a forecast. You can designate a Loan, Investment, or a Fixed Asset as a Risk Asset.

In general, all loans are considered risk assets unless the loan is secured. For example, a Share Secured Loan or a Guaranteed Student Loan would not be set as a risk asset. For investments, only the maturing funds greater than five years are considered risk assets. For fixed assets, only those with an estimated life greater than five years are classified as risk assets.

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Customizing Peer Ratio Accounts

You can select which Peer Ratio (available from the NCUA) is Active or Inactive. Active Peer Ratios show on the Update screen and CAMEL Comparative Reports and Graphs.

To Customize Peer Ratio Accounts

1. From the Update menu, select ‘Chart of Accounts.’ The Account Properties screen will appear.

2. Select the Peer Ratio Accounts tab.

3. Check the accounts you want to use, and clear the accounts you don’t want to use.

4. When finished, click [OK].

Peer ratios are used in the NCUA FPR comparison reports and graphs. You may select which peer ratios to set to active or inactive be placing or removing a check in front of the Peer Ratio Account name.

Saving Your Database

CUPRO lets you save your database under a different file name or in a different location.

To Save Your Database

1. From the File menu, choose ‘Save As.’

2. Browse for the drive and folder where you would like to save the file.

3. Type in the new file name. Since CUPRO for Windows 2011 is a 32-bit application, you can use long file names to name your database file. For example, ‘My Credit Union.C20.’

4. Click [Save].

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Using CUPRO on a LAN

You can save your database to a network directory. This allows the database to be more easily accessible to more than one person. CUPRO 2011, however, does not allow more than one person to open a database simultaneously. Only one person can have exclusive use of a CUPRO database file.

CUPRO 2011 must be installed on the local (C :) drive of each user’s PC. CUPRO 2011 is not supported when installed on a LAN drive.

Upgrading from a Previous Version

If you are trying to upgrade to the latest version of CUPRO and encounter this Database Conversion message, call our Helpline at 800-356-9099.



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Downloading with CUPRO®

Downloading with CUPRO


Requirements

The Data File

Setting Download Parameters

Mapping the General Ledger Accounts

Points to Remember when Mapping

If you have the optional download feature, you can use it to automate entering balance sheet and income statement data.

Requirements

Before you can download general ledger data into CUPRO, you need to provide CUPRO with the following information:

A data file from your data processor.

The parameters of the data file.

A map that indicates the relationship between the account in your general ledger and the CUPRO account.

If you would like to upgrade to a version of CUPRO with the download feature, please contact ProfitStars’ Data Services department for details.





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The Data File

The Data File is a text file, either delimited or fixed-position, created by either your processor or by someone at the credit union familiar with your in-house system.

Below is an example of a sample data file.

1110-00 INTEREST INSTALL -72413.63

1112-00 INTEREST LOC -246884.57

1112-09 INT-VRL HELOC -41832.07

1113-00 INT MORTG VRL2ND -178203.35

1113-01 INT VRL MORTG1ST -11398.85

1114-00 INT CERT & SHARE -35115.74

1116-00 INT NEW VEHICLE -240253.27

...

7010-00 INSTALLMENT LNS 667714.14

7012-00 LINE OF CREDIT 1806974.99

7012-09 VRL HELOC 575313.22

7013-00 VRL 2ND MORTGAGE 2552589.31

7013-01 VRL MORTG 1ST 168282.51

7014-00 CERT/SHARE LOANS 523977.68

7016-00 NEW VEHICLE LNS 3420053.52

The first group of data shows a range of general ledger accounts in the income statement section. Each line shows the general ledger number, the description, and the monthly income for each account. This particular file shows negative balances for all the accounts. (Income accounts contain a credit balance.)

The second group of data shows a range of general ledger accounts in the balance sheet section. Each line shows the general ledger number, the description, and the month end balance for each account.

Note that, in this example, there is a one-to-one relationship between the balance sheet account and the related income account. With this detailed information, CUPRO can calculate the yield on earning assets and the cost of funds. CUPRO can also use this information to project a Historical Average.

The Data File must contain the following:

the general ledger number

month-end balances for assets and liabilities

month-end income and expense figures for the month. (not Year-to-date)

Some data files also include a description. While CUPRO does not need a description to process the download, it can assist you when mapping accounts.




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Setting Download Parameters

Download parameters describe the layout of the file from your data processor. CUPRO comes with pre-set parameters for many data processors.

To Use The Parameters Wizard

1. From the Update menu, select Download | Parameters. The Download Parameters Selection screen appears.

2. To set up parameters:

based on a defined vendor, select the vendor from the list and choose [Copy].

based on a vendor not in the list, select [Add], type in the description and press [Enter].

from a previous version of CUPRO, select [Import], type in the description and press [Enter], then browse for the file.

3. Click [Edit] to customize the parameter.

4. When selecting file information (Step 1), choose the data file, the type (delimited or fixed-length), and what line in the file to start importing. The default is Line 1. Click [Next] to continue from step to step.

5. When setting columns (Step 2), create and adjust the columns to define the column layout.

6. When defining columns (Step 3), specify what information each column contains.

7. When setting multipliers (Step 4), define the multiplier for each data type. When finished, click [Finish]. You will return to the Download Parameters Selection screen.

8. Click [Save] to retain your changes.




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The Download Parameters Selection Screen

You can Copy the parameters, customize them if necessary, create your own parameters, and import and export the parameters.

Command Buttons

Copy Makes a duplicate of an existing parameter. Default name is ‘Copy of’ + name of copied parameter.

Add Inserts a new parameter and adds it to the list.

Edit Lets you modify the parameter assumptions.

Delete Removes a parameter from the list. Note: You cannot delete a DP: parameter from the list.

Rename Change the name of a parameter. Note: You cannot rename a DP: parameter.

Import Reads in a file, (e.g., CUPRO.INI) which contains parameter assumptions.

Export Writes parameter data out to a file.

Save Saves the parameter assumptions to the CUPRO database.

Close Closes the screen and returns to the main screen.




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Editing with the Parameter Wizard

When you select [Edit], you are then prompted through four ‘wizard’ screens to set download parameters.

Step 1 - Select File Information

The first screen allows you to select the data file and describe it to CUPRO. You may choose if CUPRO should set columns with a Delimiter or if the file is Fixed-Length. Some data files contain a header record. You may tell CUPRO where to start importing data. When finished, click [Next>] to bring up the second screen.




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Step 2 - Set Columns If you chose Fixed-Length Columns on the first screen, you will see the following screen.

Based upon the parameter you chose, CUPRO displays the data file with vertical lines to represent different columns of data. You may create, delete, and/or move lines to adjust the columns. If you are creating a new parameter, CUPRO makes a ‘best guess’ as to where the column breaks should be.

If you chose ‘Delimited-Columns’ on the first screen, you will see the following screen.




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Choose the appropriate delimiter. When finished, click [Next>] to bring up the third screen.

Step 3 - Define Columns Once CUPRO has grouped the data into columns, you can define the columns to tell CUPRO how to handle each type.

You can add and/or subtract two columns for Balance Sheet and Income/Expense accounts. For example, a data file may contain year-to-date income and expense data in Column 4, and the prior month’s year-to-date income and expense data in Column 5. Since CUPRO needs only the monthly activity, you would enter ‘4-5’ in the Income/Expense text box.

Step 4 - Set Multipliers The multipliers allow CUPRO to adjust data to the proper format.




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Some data processors have an implied decimal in the number they store in the data file. For example, 10000 with two decimal places implied is really 100.00. Use a Multiplier of 0.01. Liabilities have a credit balance and may carry a negative value. Use a Multiplier of –1.

Mapping the General Ledger Accounts

Once you have set your parameters, you can then map accounts.

To Map General Ledger Accounts to CUPRO Accounts

1. From the Update menu, choose Download | Map File. The Map Setting Selection screen will appear.

2. Select the Map Setting you wish to update from the list, and then click [Edit]. The Assign G/L Accounts screen will appear.

3. Select a CUPRO Account from the Account list.

4. From the Unassigned GL Accounts list, find a General Ledger account you wish to assign and double-click

5. Double-click the account or click the [Assign] button.

6. When all accounts have been assigned, click [Save], then [Close] to exit the Assign G/L Accounts screen.




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The Map Setting Selection Screen

The Map Setting Selection screen is where you apply the cross references between your general ledger accounts and the CUPRO accounts.

Command Buttons

Copy Makes a duplicate of an existing map setting. Default name is ‘Copy of’

Add Inserts a new map setting and adds it to the list.

Edit Lets you modify the mapping.

Delete Removes a map setting from the list.

Rename Change the name of a map setting.

Import Reads in a file, (e.g., CUPRO.MAP) which contains data.

Export Writes mapping information out to a file.

Show Report Displays report of mapped and unmapped accounts.

Save Saves the mapping assumptions to the CUPRO database.

Close Closes the screen and returns to the main screen.




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The Assign G/L Accounts Screen

The Assign G/L Accounts screen is where you map the General Ledger Accounts to the CUPRO Accounts.

The three main areas of the Assign G/L Accounts screen are titled ‘CUPRO Accounts,’ ‘Assign GL Accounts,’ and ‘Unassigned GL Accounts.’

CUPRO Accounts

Shows the account list, as well as the ‘Nothing’ account.

Assign GL Accounts

Shows the General Ledger Accounts mapped to CUPRO accounts. The Account Description appears when you highlight an individual account.

Unassigned GL Accounts

Shows the list of General Ledger accounts unmapped.




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Also appearing on the Assign G/L Accounts screen are various command buttons. Their purposes are as follows.

Add Manually assign new GL Account or account range with wildcards to a CUPRO Account.

Edit Modify the GL Account.

Remove Delete the selected CUPRO Account from the map list.

Assign Moves the highlighted unassigned GL Account to the Assign GL Account list for the CUPRO account.

Save Saves the Map Settings to the database.

Close Returns to the Map Setting Selection screen.

The Nothing Account

The Nothing account is used to assign GL accounts that are not needed for the download and to prevent them from showing up as unmapped. For example, you may have a GL account 999999 used for Exceptions. By tagging it to the Nothing account, you will not get a message that the GL account is unmapped.

Using Wildcard Characters

CUPRO allows you to use question marks as wildcard characters when entering general ledger numbers. This is used to simplify data entry. For example, you may have several general ledger accounts for ‘Cash Over/Short.’ Instead of having to type every individual account, (330001, 330002, 330003, 330004, etc.), you can type just one entry (330???) to cover the range. In addition, future general ledger accounts are automatically mapped.

Exceptions to the rule: CUPRO has a multi-level mapping feature and can single out individual accounts in a group. For example, let’s say you have a range of 10 general ledger numbers (740???) assigned to one Investment account (US Government Obligations). You then purchase a Federal Agency Security, and create a new general ledger account; 740011. You can map the one exception to the Agency, while keeping the wildcard setting for the US Government Obligations.

Points to Remember When Mapping

When mapping interest-bearing accounts, be sure to map the balance to the asset or liability account and the income or expense to the income statement account. In CUPRO, the balance sheet accounts are listed first. However, on many general ledger systems, income and expense accounts are listed first.

Ideally, there should be a one-for-one relationship between the Balance Sheet G/L number and Income Statement G/L number. Some general ledger systems may have detail in the Balance Sheet section, but




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only summarized data in the Income Statement section. For example, you may have account balances for 1st Mortgage Loans, 2nd Mortgage Loans, and Home Equity Loans, but only one income account for Mortgage Income. To stay in balance, you can map the income account to one of the three accounts summarized under Real Estate Loans. You will not be able to run detailed reports or use the Historical Trend options for Forecasting unless you manually edit the income numbers.



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Updating Historical Data



Summary

Update Checklist

Entering Data Manually

Selecting a Month

The Data Entry Screen

Updating General Ledger Data

Updating Memorandum Data

Updating Peer Data

Downloading Data

Viewing the Data Summary Report

The Data Entry Worksheet

Deleting Historical Data

Summary

You can update CUPRO with monthly ending balances for Balance Sheet accounts and monthly activity for Income/Expense accounts. You can also update information for the Memorandum and Peer Ratio data. While you may not need to perform Net Income Simulation, Budgeting, or Gap Analysis, we encourage you to update your historical data monthly.

Updating can be completed either through manual data entry or through the automated data download process. Either option requires you to transform the account balances from their General Ledger (GL) chart of accounts into the CUPRO chart of account structure.

Before updating CUPRO for the first time, you may want to customize the chart of accounts.

Update Checklist

While CUPRO gives you a great deal of flexibility and freedom in how you perform your tasks, it is still helpful to have a set of guidelines to know what the important steps to take are.




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The following checklist is designed to guide you in customizing CUPRO, and insuring that all relevant information is gathered and entered.

Monthly Update Checklist

1. Enter or download General Ledger data for the end of the most recent month.

2. Enter Memorandum and Peer Ratio data for the end of the most recent month.

3. Run the Data Cross-Check report.

4. Print the Balance Sheet and Income Statement.

5. Back up the database.

Entering Data Manually

You can update CUPRO with monthly ending balances for Balance Sheet accounts and monthly activity for Income/Expense accounts. You can also update Memorandum and Peer Ratio data. While you may not need to perform Net Income Simulation, Budgeting, or Gap Analysis, we encourage you to update your historical data monthly.

To Update Data Manually

1. From the Update menu, select ‘Data Entry.’ The Select Data Entry Period screen will appear.

2. Select the month you wish to update, and then click [OK]. The Data Entry screen will appear, with the GL Account tab as the active view.

3. Enter the monthly ending balances for each of the asset, liability, and equity accounts.

Also, enter the monthly amounts for each of the income and expense accounts.

4. Click the [Summary] button to show the results of the data crosschecking process from the data entered.

5. Click the [Save] button to save the entered data.

6. Click the [Close] button to return to the main menu.

You can also, from the Edit menu, Copy and Paste data into the area from another application, such as a spreadsheet. You can also download data from a file provided by your data processor.




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Selecting a Month

Selecting Data Entry from the Update menu brings up the following screen.

When you start out with a new database, there is no historical data in the database. The range of months is:

First Month: January of the previous year

Last Month: The month prior to the system date on your computer, or the CUPRO expiration date, whichever is earlier.

Once you enter in a month of data, you will see the months you have entered, as well as a month before the first date and a month after the last date. If the last month of data is the CUPRO expiration date, you will not see any additional dates.

The Data Entry Screen

The Data Entry screen shows all the accounts with their corresponding balances for the selected month. The screen has three tabs which let you update in three areas; GL Accounts, Memorandum Accounts, and Peer Accounts.




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Updating General Ledger Data

The GL Accounts tab is where you enter the month-end balances and month-end income/expense activity for your chart of accounts.

Command Buttons

? Displays context-sensitive Help.

Save Saves the data to the database.

Close Closes the Data Entry screen.

Tab Specific Commands

Expand All Displays all accounts in the Chart of Accounts. Click the to expand a section.

Collapse All Hides all accounts in the Chart of Accounts. Click the to collapse a section.

Summary Displays the Data Summary Report—a quick overview of the Balance Sheet and Income Statement.




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Updating Memorandum Data

On the Memorandum Accounts tab, CUPRO displays miscellaneous information not found in the General Ledger, but which is important when evaluating a credit union’s financial condition.




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The following table lists the Account Codes from the NCUA Call Report (5300) for each Memorandum Account. Some Memorandum Accounts require information from more than one Account Code field.

Account Name

Account Code(s)

Notes

Delinquent Loans 2-6 Months 021B

Delinquent Loans 6-12 Months 022B

Delinquent Loans 12+ Months 023B

Number of Delinquent Loans 041A

Loans Charged Off 550 Enter monthly figure

Recoveries 551 Enter monthly figure

Other R/E Owned 798

Real Estate Loans 712 and 710

Commercial Loans 387

Agricultural Loans 042

Number of Loans 025A

$ Value of New Loans 726 Enter monthly figure

Investment Maturities <= 1 Year 799A

Investment Maturities > 3 Years 799C and 799D

Market Value of HTM Investments 801

Book Value of HTM Investments 796E

Market Value of AFS Investments 797E

Historical Value of AFS Investments

Number of Members 083

Number of Borrowers 025A

Number of Employees (FTE) 564A and 564B

Number of Potential Members 084

The information entered in the Memorandum Accounts section is used to generate the following reports:

Key Ratios Report

NCUA FPR Ratios

General Data Report




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Updating Peer Data

CUPRO provides you with a place to enter peer data. Peer data is useful when you wish to compare your financial performance to the performance of other credit unions. Peer accounts are used as comparison for FPR Ratios.

Tab Specific Commands

Month List Box

Shows a list of months in History.

Copy

Copies peer data from a previously entered month to the active month.

If you don’t need to use all the peer ratios, you can hide peer ratio accounts. This allows you to focus on the ratios that are most important to you.

The NCUA provides peer data at their web site; www.ncua.gov.

http://www.ncua.gov/




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Downloading Data

You can download general ledger data into CUPRO. This allows you to update the model quickly and accurately.

Before downloading, you must first define your download parameters and map settings.




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Viewing the Data Summary Report

Once you have entered or downloaded your General Ledger Data, you can validate your data entry by viewing the Summary Report.

The Data Summary Report shows a quick Balance Sheet and Income Statement.




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The Data Entry Worksheet

In order to simplify each data entry session, you can produce a Data Entry Worksheet.

To Produce a Data Entry Worksheet

1. From the Data Entry menu, select ‘Data Entry Worksheet.’

The following screen will appear.

2. Choose the month and year you wish to update, and the worksheets you want to print and click [OK].

3. Click [Cancel] to return to the Main menu.

The Data Entry Worksheet shows the Account Name, with up to two months of historical data. This can help you spot trends, and will aid you in entering proper amounts into CUPRO.




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Deleting Historical Data

While CUPRO can store several months of historical data, you may want to delete older months. There are several reasons for deleting data.

Old data is not relevant to analysis.

The chart of account has been restructured, and keeping data before and after may prove difficult to maintain.

A smaller database improves performance.

To Delete Data

1. From the Update Menu, select ‘Delete Data.’

2. Choose the month and year. CUPRO will delete all data prior to and including the month you specify.

If a Budget, Forecast, or Gap Analysis relies on a month you wish to delete, CUPRO displays a message.




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Forecasting with CUPRO®

Forecast Theory


An Overview of Strategic Planning

An Overview of Budgeting

Strategic Planning vs. Budgeting

An Overview of Strategic Planning

Strategic planning is generally referred to as long-range planning. It can best be characterized as developing the mission and long-term objectives of the credit union.

Developing a strategic plan requires that you ask the following types of questions:

What are the expectations of our members?

Where do we want to be as a credit union in 3-5 years?

How does our credit union define success?

What do we need to accomplish to achieve that success?

How will we get there?

What are the major challenges and opportunities?

A proven methodology for organizing a strategic plan is to define each aspiration in the plan using the following four categories:

Objectives - What needs to be accomplished?

Strategies - Globally, how will you achieve the objective?

Tactics - Specifically, how will you achieve the objective?

Measurement - How will you measure success?

An Overview of Budgeting

The budget process in credit unions is generally an annual planning process. It involves establishing short-term goals and objectives for the coming year, which are consistent with the strategic plan. The budget plan creates a mind-set for the coming year and establishes what is important to the credit union.

The budget document itself translates the short-term goals and objectives of the credit union into quantifiable results. It is the tool used to measure the original desired outcomes against the actual results achieved throughout the year. The budget document most often includes a balance sheet, income statement, spread report, and several key financial ratios. A reporting system that provides a review of actual performance is critical to the success of the budgeting process.

Forecasting with CUPRO



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The following outline provides some of the key thought processes that go into establishing the annual budget goals and objectives:

1. What are the general trends?

National/local economic conditions?

Market interest rate environment?

Sponsor’s financial condition?

Competitor conditions?

Unusual circumstances?

2. How will these trends affect your credit union?

Member growth?

Share growth?

Asset growth?

Loan demand?

Market share?

3. What key areas do you want to focus on this year?

Improve earnings?

Increase asset growth?

Increase loan/asset ratio?

Strengthen capital position?

Reduce interest rate risk?

Invest in technology?

Improve loan quality?

Increase return on investment portfolio?

Expand products/services?

Reduce operating expenses?

Increase fee income?

Increase membership?

Increase number of SEGs?

Improve member service?

4. Set specific targets/goals.

Must be quantifiable

Must be measurable

Use financial ratios or dollar targets

5. Forecast balance sheet volumes and mix.

Shares

Loans

Other assets/liabilities

Investments

Debt

6. What about interest rates/yields?

Can you budget rate related income/expense without budgeting yields?

Can you budget yields without anticipating market rate trends?

How will changes in market rates affect your loan yields? Investment yields? Share yields?

What if the market performs differently than what you expect?

What will be the effect on your budget?

7. Forecast the income statement amounts.

Loan income

Investment income

Dividend expense

Interest expense

Fee and other income

Operating expense

Non-operating income/expense

8. What does your budget tell you about your financial health?

Camel ratios?

Other financial ratios?

Liquidity position?

Capital position?

Gap position?




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9. How can CUPRO help with the budget process?

CUPRO will be a significant time saver.

You can easily analyze historical trends.

You already have a forecast from which to start.

You can readily adjust account balances through the model’s many forecasting techniques.

You can quickly test different scenarios using the model’s what-if capabilities.

The model serves as your number cruncher.

You can easily generate budget variance reports and graphs.

Strategic Planning vs. Budgeting

The following table outlines the distinctions between a strategic plan and a budget:

Strategic Plan Budget

A strategic plan is dynamic. A budget is static.

A strategic plan is revised monthly. A budget is generally revised quarterly, semi-annually or annually.

A strategic plan is derived mainly from historical patterns.

A budget is based more on goals and objectives.

A strategic plan uses more historical forecasting techniques.

A budget uses more Dollar and Growth forecasting techniques.

A strategic plan generally covers a longer period (i.e., 2-3 years).

A budget generally focuses on a 12 month calendar year period.

Your strategic plan will serve as the foundation, or starting point, for your budget.

Down the road, your strategic plan will serve as an indicator to revise your budget.

Your strategic plan will continually act as a ‘reality check’ on your budget.




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Summary of Forecasting

Forecasting Options

Creating a Forecast

Forecasting Tips

The Forecast Selection Screen

The Rate Shock Setup Screen

The Forecast Settings Screen

Forecast Methods

Fine Tuning a Forecast

Forecasting a ‘What-If’

Creating a Budget

The Budget Selection Screen

Summary of Forecasting

One of CUPRO’s most powerful features you can utilize is its ability to forecast. By forecasting, you can project current trends to see how it will affect your credit union, and test the viability of a plan before implementation.

Forecasting Options

The following table shows the different Forecasting Options available for the three levels.

Level 1

Level 2

Level 3

Forecasting No Yes Yes

# of Forecasts N/A 4 8

Forecast Length N/A 36 60

Rate Shocks N/A No Yes

All three levels of CUPRO have budgeting. Level 2 and 3 also have forecasting, while Level 1 does not.

Creating a Forecast

Before creating a forecast, you must enter at least one month of historical data. Then, you can apply forecast methods and set assumptions. After you have fine-tuned it, you can then copy it, make changes to the ‘what-if’ forecast, and compare it to your base forecast. Once additional months of history are added, you can move the trend date forward so your forecast will reflect these new trends.




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Forecasting Tips

When forecasting, keep the following guidelines in mind:

1.

Keep it Simple. Don’t make too many changes all at once. You won’t be able to tell the good parts of your forecast from the bad. Make only a few changes at a time, view the results, adjust as necessary.

2.

Think Big Picture. Some forecasts take time to implement, and may not pay off right away. Be sure to look at the second and third year of the forecast, not just the first. You may prematurely rule out a forecast that may be a good one in the long run.

3.

Know When to Quit. Don’t get bogged down with micro managing a forecast. You are making assumptions three to five years out, with today’s perspective. Tomorrow’s perspective will be different. The extra time you spend figuring out how to earn that extra dollar may not be worth it.

4.

Have a Contingency Plan. Your forecast, if implemented, may not come to full fruition. (e.g., If loan demand is lower than expected, how will you meet your earnings targets?)

To learn more, see the Forecast Theory section.

To Create a Forecast (Level 2 and 3)

1. From the Analysis menu, select ‘Forecasting...’ The Forecast Selection screen will appear.

2. Click the [Add] button.

3. Type a description for the name, and select the First Forecast Period. You can also type in comments.

4. Level 3 only. Specify the Rate Change and the Rate Change Time Frame.

5. When you have made all your choices, click [Save]. Your changes are now saved to the database.

You may want to

back up your database before making any changes.




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The Forecast Selection Screen

Selecting ‘Forecasting’ from the Analysis menu brings up the following screen.

Forecast List The Forecast list displays the names of all the forecasts. Level 2 users can have up to 4 forecasts. Level 3 users can have up to 8 forecasts.

Comments You can type a description to help you document your forecast.

Command Button Options

Copy Makes a duplicate of the selected forecast. The new forecast name will begin with ‘Copy of.’ You can then rename the forecast. The [Copy] button is not enabled if the maximum number of forecasts appears in the list.

Add Creates a new forecast. The [Add] button is not enabled if the maximum number of forecasts appears in the list.

Edit Displays the Forecast Settings screen with the methods and assumptions for the selected forecast.

Delete Removes the Forecast from the list.

Rename Changes the name of the forecast.

Set Accounts Level 3 only: Brings up the Rate Shock Setup screen, which lets you set global Old/New Money assumptions for all or some of your interest bearing accounts.

? Displays help for this screen.




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Save Saves all forecast information to the database.

Close Exits this screen and returns to the main menu.

The following table lists the default assumptions set for accounts when a new forecast is added:

Account Type

Method

Assumption

Balance Sheet Accounts Balance Method - Historical % Change # of Months = 1

Interest Bearing Accounts Income/Expense Method - Historical Average # of Months = 1

Income/Expense Accounts Income/Expense Method - Historical Average # of Months = 1

Quick Tip: If you unintentionally delete a forecast, Close the screen without saving.

Parameters

Created Shows the date and time the forecast was created.

First Forecast Period Shows the first forecast month.

Rate Change Level 3 users only. Enter the change in market rates.

Rate Change Time Frame Level 3 users only. Choose either ‘Immediate’ (change happens in first month) or ‘Gradual’ (change is phased in over 12 months) The Rate Change and Rate Change Time Frame are used with the Old/New Money Yield method.




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The Rate Shock Setup Screen

The Rate Shock Setup screen allows you to, under a given forecast or budget, set the Old/New Money method with global assumptions for any or all interest bearing accounts. You can then fine-tune your forecast if you desire.

The Rate Shock Setup screen appears when you click [Set Accounts] on the Forecast Selection screen.

Apply to Rate Shock Assumptions can be applied to:

all accounts within a group

only those accounts currently with the Old/New Money method

only those accounts currently without the Old/New Money method

Update Will update the selected accounts with:

all Assumptions

those specified (only available for the ‘Account with Old/New Money Method’)




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The Forecast Settings Screen

The Forecast Settings screen is where you enter your assumptions for your forecast.

There are three main areas of the Forecast Settings screen: The Account Grid, the Assumption Area, and the Results Area.

Account Grid The Account Grid shows the accounts, and the Account Method(s) assigned to the Account. Interest bearing accounts (Loans, Investments, Shares, and Borrowings) have two Methods—a Balance Method and an Income/Expense Method. Right clicking with the mouse pointer over the Account Grid displays the following pop-up menu:

Expand All

Collapse All

Expand All allows you to show all accounts. Collapse All allows you to hide all accounts.




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Assumption Area The Assumption Area shows the Balance Assumptions for the Account. If the Account is Interest Bearing, it also shows the Yield/Cost Assumptions for the Account. Right clicking with the mouse pointer over the Assumption Area displays the following pop-up menu.

Interpolate

Copy Down

Save

Interpolate - Fill a list of numbers over a specified range

Copy Down - Fill the same value for all future months.

Save - Save the forecast

Results Area The Results Area shows the forecasted Balance for the Account. If the Account is Interest Bearing, it also shows the Income/Expense and the Yield/Cost for the Account. Level 3 only - The Results Area also shows the Old Money, the New Money, and the New Rate.

Forecast Methods

The following details the Balance Methods and Income/Expense Methods.

Balance Methods

Historical % Growth

Uses the rate of change over the number of months specified. For a base forecast, this is a good method to try to use as much as possible.

Quarterly % Growth

The Quarterly % Growth method is used to specify the rate of change for every 3 months. Useful for an account that may grow for several quarters and then decline, such as a Holiday club account. A rate of change is specified each quarter. The percentage can be positive, negative, or a combination of both.

Annual % Growth

The Annual % Growth method is used to specify an annualized 12-month growth rate for each year in the forecast. This method is useful when the historical growth rate is skewed because of unusual activity that will not continue in the future. The percentage can be positive, negative, or a combination of both.

Dollar The Dollar method allows you set a specific value for each month end balance. Projected values using the Dollar method will not adjust as history is updated from month to month, unless the assumptions are edited.




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Income/Expense Methods (Interest Bearing Accounts)

Historical Average

Calculated by taking the income/expense for the months specified annualized, dividing by the months average balance. Recommended for base forecast.

Specify Yield/Cost

Used to specify what the yield/cost is for each month. Used when you want to affect a rate change immediately that will change the entire portfolio.

Old/New Money

Level 3 version only. Specify the Estimated Life and Yield of the Old Money, the Rate of the New Money and the percentage it will react to a change in rates.

Old Money Assumptions

Estimated Life and Yield.

New Money Assumptions

Rate, Reaction, Minimum Rate, and Maximum Rate.

By modifying the Rate Change and/or Rate Change Time Frame on the Forecast Selection screen, the New Yield/Cost and the Yield/Cost will change for all accounts using this assumption.

Income/Expense Methods (Other Income)

Historical Average

The previous X months of historical income/expense amount is carried forward for all forecast months.

Quarterly % Growth

Used to specify the rate of change for each 3-month period on other income or operating expense.

Annual % Growth Used to specify the rate of change for each 12-month period on other income or operating expense.

Dollar This method allows you to input all months of forecasted data.




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Using the Interpolate Feature

The interpolate feature lets you quickly fill a list of numbers over a specified range. This is useful for modeling the seasonality of Holiday Club accounts, or carrying the same number over time.

To Use the Interpolate Feature

1. Enter the desired amount in the first cell and the last cell.

2. Highlight the range to include the first and last cell.

3. Right click and choose ‘Interpolate’ from the pop-up menu.

The Interpolate feature is only available if you are highlighting more than one cell.

Using the Copy Down Feature

The Copy Down features lets you quickly fill the same value for all future months. This is useful for entering an interest rate, or an operating expense.

To Use the Copy Down Feature

1. Enter the desired amount in the cell.

2. Right click and choose ‘Copy Down’ from the pop-up menu.

The Copy Down feature is not available if you are highlighting more than one cell.

System Accounts

CUPRO calculates the forecasted balances for system accounts. You cannot select a method or assumption. (You can set the Yield/Cost method and assumption for the Asset and Liability Balancing Account.) Their forecasted balances are dependent upon the assumptions set for the other accounts. When you select a system account, CUPRO automatically calculates the forecasted balance of the account.

The following is a list of System Accounts:

Allowance for Loan Loss

Asset Balancing Account

Liability Balancing Account

Regular Reserves

Undivided Earnings

Net Income/Loss

.




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Fine Tuning a Forecast

After you have finished setting methods and assumptions for a forecast, you may find that you get undesired results. Fine-tuning is necessary to get the desired results. The following is a list of solutions to common occurrences.

What Happens What Is it/What To Do

Account name and numbers appear in red.

This is what is known as negative new funds. This happens when a Balance assumption calls for dollars to run off faster than the runoff specified under the Old/New Money Income Expense method.

To correct, first look at the amounts on the Old Money and New Money tabs. Then, change either the Balance assumptions or the # of Months under Income/Expense method, until the numbers are in the black.

Forecasted dollars showing up in Asset Balancing Account or Liability Balancing Account.

This situation occurs either when there is an excess of funds that cannot be lent out (Asset Balancing Account) or when there are insufficient funds to cover loan demand (Liability Balancing Account).

To reduce the balance of the Asset Balancing Account, increase the balance of another asset or decrease the balance of a liability. To reduce the balance of the Liability Balancing Account, increase the balance of another liability, or decrease the balance of an asset.

The PCA Check Report indicates a deficit.

Your forecast shows you out of compliance according to Part 702 Prompt Corrective Action of NCUA Rules and Regulation.

Make any necessary changes to:

slow the growth to get the Net Worth/Assets to 7%

increase the income

decrease expenses




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Forecasting a ‘What-If’

Once you establish a Base forecast, you can create a ‘what-if’ forecast. You can Copy a Forecast and make changes to certain accounts. You can then calculate the forecast, and run comparative reports and graphs.

Let’s assume you would like to evaluate an Auto Loan promotion. You have developed your Base forecast in a forecast called ‘Base Forecast.’

To Forecast a What-If

1. From the Analysis menu, select ‘Forecast.’

2. Click [OK].

3. Click the [Copy] button. The default name is ‘Copy of Forecast.’ You can also modify comments.

4. Level 3 only. Specify the Rate Change to apply, and Rate Change Time Frame.

5. Click [Edit].

6. Change the Methods associated with the ‘What-if’ assumptions. These account changes may include the following:

Increase the projected balance of Auto Loans.

Decrease the yield on Auto Loans.

Increase Marketing Expense for loan promotion program.

Creating a Budget

A budget is a set of formal plans for future activities. The budget serves as a basis for evaluating actual performance. CUPRO allows you to create a budget for a particular year.

CUPRO gives you two options to create a budget:

Create the budget manually.

Create the budget with Forecast assumptions.

To Create a Budget Manually

1. From the Analysis menu, select ‘Budgeting...’ The Budget Selection screen will appear.

2. Click the [Add] button. A drop down list of years appears.

3. Select the year for which the budget is being created. The Forecast Assumptions screen will appear.

4. Select the First Budget Period date.

5. Click the [Edit] button. The Budget Settings screen will appear. This is identical to the Forecast Settings screen.




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Creating a Budget Using Forecast Assumptions

Not only can you set budget projections manually, but you can also set assumptions by importing it from a Forecast. This has several advantages:

You only enter one set of assumptions.

Budget reports and forecast reports will match.

To Create a Budget Using Forecast Assumptions

1. From the Analysis menu, select ‘Budget Analysis.’ The Budget Selection screen will appear.

2. Click the [Copy] button. A list of forecasts which could be used for budgets appear. (To qualify, the forecast must have a First Forecast Period starting in July, August, September, October, November, December, or January.)

3. Select the desired Forecast, and then press [Enter].

4. Click the [Edit] button. The Budget Settings screen will appear. This is identical to the Forecast Settings screen.

The Budget Selection Screen




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There are three sections to the Budget Selection screen; the Budget list, the Parameters, and the Comments section.

Budget List The Budget list displays the names of all the budgets. You are allowed one budget per year.

Comments You can type a description to help you document your budget.

Command Buttons

Copy Level 2 and 3 only - Copies the settings, methods, and assumptions from a forecast. The new budget will be named ‘YYYY Budget.’ The [Copy] button is not enabled if there is no forecast

Add Creates a new budget. The [Add] button is not enabled if all budgets for all possible years are listed.

Edit Displays the Forecast Settings screen.

Delete Removes the Budget from the list.

? Displays help for this screen.

Save Saves all budget information (settings, methods, and assumptions) to the database.

Close Exits this screen and returns to the main menu.

Quick Tip: If you unintentionally delete a budget, Close the screen without saving.

Parameters

Created Shows the date and time the forecast was created.

Period Shows the first forecast month.

Rate Change Level 3 users only. Enter the change in market rates.

Rate Change Time Frame

Choose either ‘Immediate’ (change happens in first month) or ‘Gradual’ (change is phased in over 12 months). The Rate Change and Rate Change Time Frame are used with the Old/New Money Yield method.




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Forecasting a Rate Shock


The Necessity of Interest Rate Shocks

Steps in Creating a Rate Shock

An Example of a Rate Shock

Handling Negative New Funds

Suggestions for Setting Assumptions

The Necessity of Interest Rate Shocks

While gap analysis has been the traditional measure of interest rate risk, increasingly the NCUA has required credit unions to simulate the effect a change in rates will have on its profitability. An examiner may require a credit union to stress test their institution under a variety of interest rate shocks (immediate and permanent changes in rates) and interest rate ramps (a gradual change in rates, typically over 12 months). While gap analysis is a static measure of interest rate risk, simulation modeling is a dynamic interest rate risk analysis.

It is not correct to simply raise the forecasted rate by 1.00%, for example. This would change the rate of existing loans and shares with members. In addition, different financial instruments will react differently to a change in rates due to term, price sensitivity, and other factors.

Setting Rate Shocks with Level 3

With this in mind, Level 3 of CUPRO 2.0 allows you to model the effect of a change in rates.

You can assign a general change in rates to each Forecast. The change in rates can be gradual over 12 months or immediate to ‘shock’ the credit union.

Then, by using the Old/New Money Method for the interest bearing accounts, you can keep the funds currently on the books at a constant rate (Old Money), while allowing the rate of future dollars to react to a change in rates (New Money). Level 3 of CUPRO 2.0 allows you to test the effect of a change in rates on your earnings.




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Steps in Creating a Rate Shock

The steps to creating a rate shock in CUPRO are as follows.

To Create a Rate Shock

1. Update your historical data, if necessary.

2. Select ‘Forecasting’ from the Analysis menu.

3. On the Forecast Selection screen, select the forecast you wish to shock. If you do not want to modify an existing forecast, you may Add a new forecast, or Copy an existing forecast.

4. Start out with the Rate Change setting at 0.00%.

5. Select Edit to modify your assumptions.

6. On the Forecast Settings screen, in the Income/Expense column, use the ‘Old/New Money’ method to set the appropriate reaction of your Investments, Loans, Shares, and Borrowings. Fine tune if necessary.

7. After you Save, return to the Forecast Selection screen and Copy the forecast. Change the name of the forecast to reflect the change.

8. Modify the Rate Change and Rate Change Time Frame. Typically, the Rate Change should be no more than 3.00% and no less than –3.00%. The Rate Change Time Frame can be either Immediate or Gradual.

An Example of a Rate Shock

The following example will illustrate the difference between a 0.00% Forecast and a 1.00% Forecast. Assume you have an account with a balance $240,000 as of December 1999. The assumptions for the Old/New Money method, shown on the Income/Expense assumption tab, are as follows.

Old Money

Estimated Life 48

Yield 8.00%

New Money

Rate 9.00%

Reaction 75%

Even though interest rates are not expected to rise or fall, the Old Money Yield and the New Money Rate are different. The Old Money Yield reflects the earnings on funds issued over the past 48 months, while the New Money Rate reflects today’s rate.

Each month, 1/48 of the $240,000, or $5,000, will run off. The New Money is the difference between the Balance and the Old Money. If we assume an Annual percentage Growth of 10% per year, the forecast for the first 12 months Balance, Old Money and New Money are as follows:




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Date

Balance

Old Money

New Money

New Money Yield/Cost

Yield/Cost

Jan 2000 $242,000

$235,000

$7,000

9.00%

8.01%

Feb 2000 $244,000

$230,000

$14,000

9.00%

8.04%

Mar 2000 $246,000

$225,000

$21,000

9.00%

8.07%

Apr 2000 $248,000

$220,000

$28,000

9.00%

8.10%

May 2000 $250,000

$215,000

$35,000

9.00%

8.13%

Jun 2000 $252,000

$210,000

$42,000

9.00%

8.15%

Jul 2000 $254,000

$205,000

$49,000

9.00%

8.18%

Aug 2000 $256,000

$200,000

$54,000

9.00%

8.21%

Sep 2000 $258,000

$195,000

$63,000

9.00%

8.23%

Oct 2000 $260,000

$190,000

$70,000

9.00%

8.26%

Nov 2000 $262,000

$185,000

$77,000

9.00%

8.28%

Dec 2000 $264,000

$180,000

$84,000

9.00%

8.30%

The Old Money earns a rate of 8.00%. Under the 0.00% Forecast (the Rate Change is 0.00%); the New Money earns a rate of 9.00%. The Yield/Cost is a weighted average rate.




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To continue our example, we can copy our forecast, and then adjust the Rate Change to 1.00% and the Rate Change Time Frame to Immediate. The Old Money will still earn 8.00%. The New Money however will change by a combination of the Rate Change and Reaction.

New Money Yield/Cost = New Money Rate + (Rate Change * Reaction) 9.00% + (1.00% * 75%) = 9.75%

By changing the Rate Change Time Frame to Gradual, the Rate Change is phased in over 12 months.




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New Money Yield Cost

Date

Rate Change = 0.00%

Rate Change = 1.00% Immediate

Rate Change = 1.00% Gradual

Jan 2000

9.00%

9.75%

9.06%

Feb 2000

9.00%

9.75%

9.13%

Mar 2000

9.00%

9.75%

9.19%

Apr 2000

9.00%

9.75%

9.30%

May 2000

9.00%

9.75%

9.31%

Jun 2000

9.00%

9.75%

9.38%

Jul 2000

9.00%

9.75%

9.44%

Aug 2000

9.00%

9.75%

9.50%

Sep 2000

9.00%

9.75%

9.56%

Oct 2000

9.00%

9.75%

9.63%

Nov 2000

9.00%

9.75%

9.69%

Dec 2000

9.00%

9.75%

9.75%

Regardless of the old rate and new rate, the dollars will run off the same.

Handling Negative New Funds

There can be some instances where the forecasted balances conflict with the Estimated Life assumption. Usually this occurs when an account is shrinking. This causes a situation we refer to as ‘Negative New Funds.’




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If, in our example, the growth rate was –30.00% instead of 10.00%, we would see the following results:

Date

Balance

Old Money

New Money

Jan 2000 $234,000

$235,000

($1,000)

Feb 2000 $228,000

$230,000

($2,000)

Mar 2000 $222,000

$225,000

($3,000)

Apr 2000 $216,000

$220,000

($4,000)

May 2000 $210,000

$215,000

($5,000)

Jun 2000 $204,000

$210,000

($6,000)

Jul 2000 $198,000

$205,000

($7,000)

Aug 2000 $192,000

$200,000

($8,000)

Sep 2000 $186,000

$195,000

($9,000)

Oct 2000 $180,000

$190,000

($10,000)

Nov 2000 $174,000

$185,000

($11,000)

Dec 2000 $168,000

$180,000

($12,000)

Since the Total Balance is lower than the Old Money balance, the New Money balance is negative. To alert you of a negative new funds situation, the negative New Money numbers, and the Account Name turns red.

To correct the situation, you must adjust either your Balance assumption or the Estimated Life Assumption. The forecasted results produced by CUPRO should not be used until the situation is resolved.

Break Even Formula

To assist you in knowing how much it takes to go ‘in the red,’ you can use the following formulas to determine break even. That is New Money = $0.00.

Annual % Growth =

1

Estimated Life

* 12

Quarterly % Growth =

1

Estimated Life

* 4

Assuming the same Annual % Growth or Quarterly % Growth.




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Below is a table that shows the break even for various assumption combinations.

Estimated Life

Annual % Growth

Quarterly % Growth

48

–25%

–6.25%

60

–20%

–5.00%

120

–10%

–2.50%

240

–5%

–1.25%

Suggestions for Setting Assumptions

The following are a set of suggested guidelines for using the Old/New Money method:

Estimated Life

Use half of the original term. For example, if New Auto Loans have a term of 60 months, use 30 months as an assumption. You can also use the figure Estimated Loan Maturity in Months from the FPR Ratios report, or use the NCUA formula for Estimated Loan Maturity in Months to come up with your own figure.

Yield

Look at the Yield in the last month of history on the tabs, or run a Spread Analysis Report.

Rate

Use the rates you quote your members.

Reaction

For Loans, use 75%

For Investments, use 100%

For Share Accounts and Share Drafts, use 25%

For Share Certificates, use 50%




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Performing GAP Analysis

Gap Theory


What Is a Gap Report?

What About Regular Shares?

What Does a Gap Report Tell Us?

Cumulative Gap Ratios

Limitations of Gap Analysis

One of the most important objectives of Asset Liability Management is to manage interest rate risk. In other words, how will changes in the market interest rate conditions affect your credit union’s earnings? Gap is a tool that can help you measure that impact.

What Is a Gap Report?

A gap report is a schedule of when assets and liabilities are expected to reprice with the changing market. They are referred as rate sensitive assets and liabilities. The difference between the amount of assets repricing in a given time period, versus the amount of liabilities (shares), is the gap. The gap can either be a positive amount, a negative amount, or zero for a particular time period (a gap bucket).

When does an instrument become rate sensitive (i.e., When does it reprice?) A variable rate instrument reprices in the time period that you expect to adjust the rate, not when you are able to adjust it. On the other hand, a fixed rate instrument is considered to reprice when it matures. Gap analysis therefore assumes that as loans, investments and shares mature, they will be replaced with new funds that are priced at the current market rates (in effect, being repriced).

Also, keep in mind that not all instruments mature according to their contractual terms. Some will prepay, or mature prior to their contractual maturity. For example, fixed rate mortgage loans will generally prepay faster when market interest rates decline as members refinance to take advantage of the lower rates. Investments in mortgage-backed securities may share the same characteristics. Prepayment characteristics can have a material impact on your gap analysis, and therefore, must be given consideration.

What about Regular Shares?

How do we determine the rate sensitivity of shares? This ‘million dollar question’ must be answered before you can apply gap analysis to the real world. Generally, regular shares make up the largest portion of your credit union’s liabilities, and therefore, the gap assumptions you make for these funds determine, largely, what your computed gap figures will be.




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Historically, the majority of these funds were referred to as ‘core deposits,’ or those funds that would remain with the credit union regardless of interest rates. By definition, core deposits are considered non-sensitive for gap purposes.

The problem is, however, that times have changed and so have the rules of the credit union game. The result is that it is very easy for us to overestimate core deposits (non-sensitive funds) given today’s new environment. The reality is that due to an increased consumer awareness of interest rates and increased competition for consumer deposits, the percentage of these so-called ‘core deposits’ has shrunk substantially. If you consider a material portion of your regular shares to be non-sensitive (i.e. 30% or more), think again. The data has indicated that since 1990 credit union regular share rates have, for the most part, adjusted to the market (given certain lag times), and therefore are very much rate sensitive. Moreover, there is every indication that this characteristic may be with us to stay. For this reason, the gap report reflects Decay Rates for the purposes of evaluating share accounts.

What Does a Gap Report Tell Us?

The gap measures the degree to which earnings will be affected (either positively or negatively) by a change in short-term market interest rates. The result depends on three things—whether whether the gap is positive or negative, the size of the gap, and whether market rates are expected to rise or fall. The chart below summarizes the impact under each alternative.

Gap is POSITIVE Gap is ZERO Gap is NEGATIVE

Effect on earnings When short-term Rates FALL Earnings fall No effect Earnings rise

Effect on earnings when short-term rates RISE Earnings rise No effect Earnings fall

A positive gap means the credit union has more assets repricing than liabilities. If market interest rates rise, the credit union should benefit because they are able to reprice more income producing assets at the higher rates than they are required to reprice shares. However, if market rates decline the result is a negative impact to the credit union.

A negative gap would mean just the opposite; the credit union has more liabilities repricing than assets. The credit would benefit in a falling rate scenario and suffer in a rising rate scenario.

The greater the gap, the higher the risk. Theoretically, when gap is zero the market will have no impact on your credit union’s earnings. You will be able to reprice an equal amount of assets as liabilities no matter what market rates do.

The cumulative gap is generally a better measure than the monthly gap. The monthly gap will usually fluctuate widely from one gap bucket to another, whereas the cumulative gap irons out those fluctuations over time. The ratio of cumulative gap to total assets produces a uniform measure that allows gap comparisons between credit unions with different asset sizes.

How are the best cumulative gap targets determined? Understanding the answer to this question gets to the heart of actually taking gap theory and applying it as a real life management tool in your credit union. We recommend taking a four-step approach to solving this gap puzzle.




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Step 1 The first step is to understand how the cumulative gap percentage translates into a measurable impact on earnings given a change in market interest rates. The following formula is used to make that analysis:

Gap Ratio * Change in Rate = Change in ROA

Where:

Gap Ratio = Cumulative gap ratio for that time period (bucket) Change in Rate = Expected change in market rates within that time period Change in ROA = Annualized return on assets

For example, assume the gap report shows a 3-month cumulative gap ratio of –56.49%. If market rates were to increase 50 basis points and remain that way for the entire 3 month time period, the effect on ROA would be calculated as follows:

–.5649 (gap ratio) * .005 (Change in rate) = –.0028 (ROA) = –0.28%

Furthermore, the actual dollar impact on earnings for the 3 month time period can be computed by multiplying the change in ROA (de-annualized) by total assets as follows:

–.0028 * 3/12 * $50,830,000 = $–35,581

Step 2 The second step is to determine how much of a fluctuation in earnings is acceptable to your credit union. For example, you may decide that the desirable maximum change in ROA, given any market interest rate change, is 25 basis points.

Step 3 The third step is to estimate the maximum potential change in market rates for each gap time period (bucket). In theory, the longer the gap period, the larger the potential change in market rates. This reflects the characteristics of a normal yield curve. The normal yield curve is upward sloping because the market recognizes that the longer the time frame, the more likely interest rates will change and the greater the size of the potential change.

Therefore, you may determine that the maximum potential change in market rates is may be 50 basis points for the 3 month gap period versus 200 basis points for the 7–12 month (1 year) gap period and 400 basis points for the 2 year gap period.

Obviously, the risks are less for the shorter gap periods than for the longer gap periods because rates are likely to change more given a longer period of time.

Step 4 The final step is to plug the desired maximum change in ROA (step #2) and the maximum potential change in market rates (step #3) into the formula (step #1) and solve for the target gap ratio. This calculation should be made for each gap period to solve for a targeted gap ratio for each bucket.

The formula in step #1 can be reorganized to solve for the target gap ratio, as shown below:

Gap Ratio = Change in ROA/Change in Rates

The target gap ratios for the 3-month, 1-year, and 2-year gap buckets in our example are computed in the following manner:

3 month bucket: .0025/.005 = .5000 = 50.00%

1 year bucket: .0025/.02 = .1250 = 12.50%

2 year bucket: .0025/.04 = .0625 = 6.25%




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As you can see, the targeted gap ratio should decline as the gap period lengthens. This occurs in order to account for the larger potential market rate fluctuations in the longer periods. The shorter buckets are not as critical because there is less risk to changing market rates.

Managing eight or more targeted gap amounts can be somewhat difficult, so from a practical standpoint you may want to use something less than that, such as three. For example, you might set one targeted gap for all of the short-term buckets (1–6 months), one targeted gap for all of the intermediate buckets (7–24 months), and one targeted gap for all of the long-range buckets (> 2 years).

You could even take it a step further and associate degrees of risk for different gap ratios within the three target areas. The following chart illustrates this analysis. If you did not meet your target gap, you would then be able to categorize the general degree of interest rate risk exposure.

Cumulative GAP Ratios

Short-term gap buckets

(1–6 months) Intermediate term gap buckets

(7–24 months) Long-term gap buckets

(> 2 years)

Low Risk < ± 25% < ± 15% < ± 5%

Moderate Risk ± 25 – 40% ± 15% – 25% ± 5 – 10%

High Risk > ± 40% > ± 25% > ± 10%

Active gap management requires controlling your exposure to interest rate risk by restructuring the timing of the repricing of your balance sheet in order to attain a desired gap level. Examples include offering more variable rate loans, increasing or decreasing the terms of your investment portfolio, or encouraging fixed rate share certificates. Keep in mind, however, that the trade-off to reducing interest rate risk is often a short-term reduction in earnings.

Limitations of Gap Analysis

Gap analysis is not a science, nor is it always a precise measure of how your balances will mature or reprice. You are required to make many assumptions that may or may not be accurate. In addition, gap theory itself, has some limitations. Some of the shortcomings and potential pitfalls of gap are listed below.

Implies a zero gap means no risk

Implies all balances are affected equally

Implies that balance sheet mix remains the same

Implies that falling rates have the same impact on earnings as rising rates

Gap time buckets can be misleading and hide potential risk

Core deposit assumptions are difficult to make and significantly impact the results

Gap management requires getting your members to do what they don’t want to do




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Performing Gap Analysis


Setting Gap Parameters

The Gap Entry Screen

Gap Methods

Summary

One method for measuring a credit union’s interest rate risk is the use of gap analysis. This is where all the earning assets and interest bearing liabilities are listed on a report, with the balances broken out to show when they will reprice.

More on Gap Analysis...

Setting Gap Parameters

Before you can view a gap report for a given period, you must first set gap parameters.

To Set Gap Parameters

1. From the Analysis menu, select ‘Set Gap Parameters...’ The Select Gap Period screen will appear.

2. Select the Gap Period Entry Period, and click [OK]. The Gap Entry screen will appear.

3. Select the account, choose the gap method, and set the assumptions.

4. When finished, select [Save], then [Close].




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The Select Gap Entry Period Screen

When you select ‘Set Gap Parameters’ from the Analysis menu, you will see the following screen.

Select a date for your analysis and click [OK]. If a gap analysis already exists for another period, you will see the following message.

Any detailed assumptions entered for a given period using the Actual Maturity method will be lost when performing gap analysis for another period. CUPRO assumes the actual maturities will not remain the same.

Select [Yes] to set gap analysis assumptions for the new period.

You will lose any Actual Maturity assumptions.

Select [No] to set gap analysis assumptions for the period that already exists.

Select [Cancel] to exit without saving any changes.




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The Gap Entry Screen

The Gap Entry screen is where you enter your gap assumptions for the selected period.

There are two main sections to the Gap Entry screen; the Accounts area and the Assumptions area.

Accounts Area

The Accounts Area is a list that shows the Account Name, Balance, and the Gap Method. As you select accounts, you can also view the detailed assumption and results for the account.

You cannot set gap methods or assumptions for the Asset and Liability Balancing Accounts. These balances will always appear in Month 1 of the gap report.

Gap Methods

There are three Gap Methods that you use to spread the balances over time.

Estimated Life

The Estimated Life method lets you enter in the average term in months for a particular account. For example, let’s say you have an account called New Auto Loans, which originate for 60 months. Since we are modeling the estimated cash flows of a portfolio of loans with different remaining terms, you may want to use an estimated life of 36 months.

The Estimated Life method is most commonly used with Loans and amortizing Investments, such as Mortgage Backed Securities.

Percent Maturity

The Percent Maturity method lets you specify a proportionate amount to appear in each bucket. Enter amounts as numbers. For example, 10% would be entered as 10, not 0.10.

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enters it in the last bucket.

The Percent Maturity method is most commonly used with transaction accounts: Shares, Share Drafts, and Money Market accounts.

Actual Maturity

The Actual Maturity method lets you precisely enter dollar amounts by their scheduled maturity or repricing date. As dollar amounts are entered in each month, it subtracts from the total which remains in the ‘>12 mo’ bucket. While the Actual Maturity method is perhaps the most accurate, you will have to re-enter assumptions each time you change the date.

The Actual Maturity method is most commonly used with non-amortizing Investments and Certificates of Deposit.

Assumptions Area

The Assumptions Area is where you enter detailed information on the method you selected. Depending on the method you selected, you will have access to different sections of the Assumption area.

The Buckets

There are 10 time frames, or buckets, which define the gap report. They are:

1. Month 1 1

2. Month 2 1

3. Month 3 1

4. Month 4 1

5. Month 5 1

6. Month 6 1

7. Month 7 – 12 6

8. Years 1 – 3 24

9. Years 3 – 5 24

10. 5 Yr + dependant on account

Command Buttons

? Displays the online help

Save Saves the assumptions.

Close Returns to the main menu.



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Viewing Results

Viewing Results Summary


Viewing a Report or Graph

The Report/Graph Selection Screen

The Report Preview Screen

The Report Print Preview Screen

The Print Setup Screen

The Graph Preview Screen

The Graph Print Preview Screen

Viewing a Report or Graph

Once you have entered information into CUPRO, you can display and print it in either report form or graphically.

To View a Report or Graph

1. From the Analysis menu, select ‘Reports/Graphs.’ The Reports/Graphs Selection screen will appear.

2. Select the report group, report, or graph,

3. Select the options.

4. Click [View] or [Print].

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The Report/Graph Selection Screen

Selecting ‘Reports/Graphs’ will bring up the following screen.

The Reports/Graphs screen allows you to make all report option selections from this one screen. Every report in CUPRO is created from this screen.

Screen Selections

Report/Graph List

Displays a list of all the available report groups, reports, and graphs. You may click the to view more choices.

Description Gives a brief description on the highlighted selection.

Report Detail Choose Condensed (subtotals) or Detailed (account) level.

Graph Detail Choose Board, Condensed or Detailed level.

Type Lets you select the output format for the report. The options are:

Periodic - View Reports with monthly, quarterly, or yearly data.

Comparative - Compares information from two different time periods and/or

two different sources.

Period-to-Date - Creates period-to-date Income Statement or Spread

Analysis Report format.

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Data Source Choose the Data source and indicate the time period of the report. The options are:

History - Historical database containing all past historical data.

Forecast - Forecast Models containing forecast data created under Forecasting or Budgeting. You can also include the historical data. This allows you to view trend data that includes historical and forecast data on one report or graph.

Peer - Only available with Comparative NCUA FPR Ratios Report

Date Range The Date Range will show both the first and last period of the data contained within the database.

Choose the Time Period of the report.

From: Indicate the first month of data

To: Indicate the last month of data

Available Dates

When selecting from a range of dates, you can choose a Budget or Forecast in addition to any dates in History prior.

Example:

Data in Database If History is selected If 1999 Budget is selected

History: Jul 1998 Jan 2000

1999 Budget Jan 1999 Dec 1999

From Jul 1998

To: Jan 2000

From: Jul 1998

To: Dec 1999

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Report Options

Reports will have the following allowable options:

Report

Report Detail

Type

Data Source

Date Ranges

Balance Sheet Detailed Condensed

Periodic Comparative (one period)

History Forecast Data

Any range

Forecast Summary Balance Sheet Detailed Periodic Forecast (not budgets)

predefined

Income Statement Detailed Condensed

Periodic Comparative (period-to-date) Period-To-Date


Any range


Detailed Periodic Forecast (not budgets)

predefined

Reserve Transfer - PCA Check N/A Periodic (quarterly) History Forecast Data

March 2001 and beyond

NCUA FPR Ratios N/A Periodic Comparative (one period)

History Forecast Data Peer (Comp)

Limited Range (see below)

Key Ratios Report N/A Periodic Comparative (one period)


Any range

General Data Report N/A Periodic Comparative (one period)


Limited Range (see below)

Spread Analysis Report Detailed Condensed

Periodic Comparative (period-to-date) Period-To-Date


Any range


Detailed Periodic Forecast (not budgets)

predefined

Gap Analysis Report Detailed Condensed

N/A N/A N/A

Cross Check Report N/A N/A History Any range

Data Listing Report N/A N/A History Memorandum Peer

Any range

Gap Parameters N/A N/A N/A N/A

Forecast Parameters N/A N/A Forecast Data N/A

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Graph Options

The following options are available when you choose a particular graph.

Graph

Graph Detail (only applies if one month selected)

Type

Data Source

Date Ranges

Balance Sheet Data Board Condensed Account

Periodic Comparative


Any range

Income Statement Data

Board Condensed Account

Periodic Comparative


Any range

Spread Data N/A Periodic Comparative


Periodic 1 Month Comparative Any Range

FPR Data N/A Periodic Comparative

History Forecast Data Peer (Comp)

Limited Range (see above)

Key Ratio Data N/A Periodic Comparative


Any range

General Data N/A Periodic Comparative


Any range

Date Ranges

Depending on the range of dates selected, CUPRO will display either a Trend Graph or a Percent of Total Graph.

If the date range is

And the Graph Type is

The graph will display

Graph Detail options

Graph Styles

= 1 month Periodic Percent of Total Board

Condensed Account

Bar Horizontal Bar Pie

= 1 month Comparative Trend Graph (dates on X-Axis)

N/A Bar Combo

> 1 month Trend Graph N/A Bar Horizontal Bar Line Area Point

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If you select only one month, the level of the graph determines the available Graph Detail options (subsets)

If you select

The available choices are

Level 1 Account (Assets) Board

Condensed Account

Level 2 Account (Loans) Condensed Account

Level 3 Account (RE Loans) Account

Account N/A (no available choices)

Data Output Options

Report Groups

Report groups are pre-defined sets of reports. Report groups allow you to print a batch of reports with one selection.

The Report Groups are as follows:

Standard Month-End Income Statement - Period To Date Income Statement - Comparative Balance Sheet - Periodic Balance Sheet Comparative NCUA FPR Ratios Report Key Ratio Report

Board Financials Balance Sheet - Periodic (with signature) Income Statement - Period To Date

Forecast Summary Reports Forecast Summary Balance Sheet Forecast Summary Income Statement Forecast Summary Spread Report

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Reports

Balance Sheet Displays Statement of Condition.

Forecast Summary Balance Sheet

Displays projected Balance Sheet by year for Forecast.

Income Statement Displays Statement of Income by month.


Displays projected Income Statement by year for Forecast.

Reserve Transfer - PCA Check

Displays reserve Transfer for History or selected forecast.

NCUA FPR Ratios Displays the NCUA FPR Ratios.

Key Ratios Report Displays the Key Ratios by month.

General Data Report Displays General Data by month.

Spread Analysis Report Displays Period-to-Date Yield on Earning Assets, Cost of Funds, and Spread Analysis Summary.


Displays average yield by year for forecast.

GAP Analysis Report Displays Loans, Investments, Deposits, Borrowings, and Gap ratios over time for a selected month of History.

Cross-Check Report Displays Total Assets, Total Liabilities and Equity, and the Difference.

Data Listing Report Shows all data entered for a given date range.

GAP Parameter Report Displays gap assumptions set for Loans, Investments, Deposits, and Certificates.

Forecast Parameter Report Displays Methods and assumptions for chart of accounts.

Graphs

Balance Sheet Data Graphs displaying choice of Balance Sheet account or Account SubType.

Income Statement Data

Graphs displaying choice of Income Statement account or Account SubType

Spread Data Graphs displaying choice of Spread Analysis data by account or Account SubType.

NCUA FPR Data Graphs displaying choice of NCUA FPR Ratio Data.

Key Ratio Data Graphs displaying choice of Key Ratio Data.

General Data Graphs displaying choice of General Account Data.

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The Report Preview Screen

Once you have made your selections, the Report Preview screen will appear.

Command Buttons

Export Saves the report as a tab-delimited or an Excel 97 file.

? Displays online help.

Print Sends the selected report to the printer.

Preview Shows the page layout of the report.

Close Closes the report screen.

You can have multiple reports open at the same time, and then switch between them by either clicking the window, or choosing the name.

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The Report Print Preview Screen

Command Buttons

Previous Displays the previous page of the report.

Next Displays the next page of the report.

Print Sends the report to the printer.

Setup Displays the Printer Setup screen.

Close Closes the Report Print Preview screen.

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The Print Setup Screen

The Print Setup screen is available when viewing a report.

Print Setup Options

Printer Select an output printer from the list of installed printers.

Orientation Choose portrait or landscape mode.

Margins Set the top, bottom, left and right margin of the output. You can set the margins to allow for a 3-hole punch.

Page Range

Select all pages, the current page, or a range of pages. You can also specify how many copies of the report to print.

By setting the orientation to landscape, the left and right margins to 0.50", and by setting the Reports Option under the Dollar Format tab to Dollars instead of Dollars and Cents, you can display up to 12 months of data on one page width.

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Reserve Transfer – PCA Check Report Analysis

Introduction

The NCUA has changed the rules governing required reserve transfers. According to section 702.201 (a) of NCUA’s Prompt Corrective Action:

Beginning the effective date of classification as ‘adequately capitalized’ or lower, a federally-insured credit union must increase its net worth quarterly by an amount equivalent to at least 1/10th percent (0.1%) of its total assets for the current quarter.

The only way a credit union can ‘increase its net worth’ is through earnings. It is also possible, however, to forecast a scenario where earnings are insufficient to meet this requirement. This is the purpose of the Reserve Transfer – PCA Check Report.

Running the Report

The PCA Report can only run if:

The credit union’s charter type selected on the Properties screen is a federal charter, or if the Reserve Transfer Type is set to PCA.

There is historical and/or forecast data for at least 3 months in a quarter on or after January 2001 (the effective date of classification)

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Analyzing the PCA Check Report

When you view the report, you will see the following screen:

The PCA Check Report shows the following:

Components of Net Worth

Net Worth/Assets

Reserve Transfer Required

Quarter-to-Date Net Income/Loss

If the Net Income is greater than the Required Transfer, there will be a surplus. If the Net Income is lower than the Required Transfer, there will be a deficit, and you are out of compliance. If this is the case, you should fine-tune your forecast to meet this requirement.

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The Graph Preview Screen

After making your initial graph selections on the Reports/Graphs screen, and your selection on the Graph menu screen, the Graph Viewer screen will appear.

Setting the Graph Properties

Clicking the [Show Properties] button reveals a tab control. This lets you customize the graph to your specifications.

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Chart Design Options

Style If the graph displays data for only one month, the choices are Bar, Horizontal Bar, and Pie. If the graph displays data for more than one month, the choices are Bar, Horizontal Bar, Line, Area, and Point. If the graph is a comparative graph, the choices are Bar and Combo (Line and Bar)

Title1 By default, CUPRO displays the Credit Union name as the Title, which you may change.

Title2 By default, CUPRO displays the graph list name, which you may change.

Y-Axis Scale

Instead of letting CUPRO scale the graph, you may want to set your own scaling options. You may set the minimum and maximum amounts, as well as the number of ‘ticks,’ or increments, shown on the graph. (Y-Axis scale option is not available for Pie graphs.

3-D Options

Dimensions The choices are: 2D - provides a ‘flat’ view of the graph. EZ-3D - perspective from the top and to the right of the graph. Full 3D - perspective from center of graph. For example, when you view a Bar graph, using this option, you can see the right sides of bars, left of center, and the left sides of bars to the right of center.

Walls Set to show or hide wall color and to set the thickness.

View Depth controls the length of the walls. Perspective (only available on Full 3D) Zoom in or out to set the size.

Rotate Adjust Rotation and Elevation of Chart (Full 3D only)

Legend/Chart Position Options

Display/Print in Black & White Can show graph in black & white. This allows you to print and make photocopies.

Legend Can show or hide legend. The legend can appear to the left, right, top, or bottom of the graph.

Chart Margins Can increase or decrease the left, right, top and bottom margins to ‘stretch’ the graph size.

Chart Position Can position the chart within the white space.

Color/Background Options

Back Wall Color You may set the back wall color to any color on the palette.

Gradient Choose any two colors to transition from one color to another. You can set the direction vertically, horizontally or diagonally.

Back Image You may display an image (for example your credit union’s logo) in the graph. You can Stretch, Tile, or Center.

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You may Copy the displayed graph to the Windows Clipboard with the Copy command from the Edit menu, or Ctrl+C. From there, you may paste the graph into other applications that will accept a graphic.

Preview Sends the chart to the Graph Print Preview screen

Print Sends the chart to the printer.

Close Returns to the Main menu.

Graph Print Preview Screen

Clicking the [Preview] button brings up the Graph Print Preview screen.

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Graph Print Preview Options

Paper Orientation Choose either Portrait or Landscape.

Margins Set the left, right, top and bottom margins. You may also ‘drag’ the margins to resize. Dragging from one of the corners keeps the perspective of the graph. If you unintentionally distort your graph, click the Proportional box.

Printer You may have both a color printer and a black & white printer. You can switch to your color printer for printing graphs, and the black & white printer for printing reports.

Print Clicking the [Print] button will send the graph to your printer.

Close Returns to the Reports/Graph screen.



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Using CUPRO® Tools

Using CUPRO Tools


Entering a Password

Zipping Files

Unzipping Files

Backing Up and Restoring Files

Setting Options

The Tools section of CUPRO allows you to access housekeeping functions. These functions can be accessed without having a CUPRO database opened.

Entering a Password

In order to use CUPRO, you must enter a contract number password. Depending on the password you enter, you will have access to different features in CUPRO. ProfitStars’ Data Services department will provide the contract number and password.

To Enter a Password

1. From the Utility menu, select ‘Access Code.’

The CUPRO Login screen will appear.

2. Enter the Contract #, followed by the Password provided. When finished, click [OK].

To Check the Availability Status

From the Help menu, choose ‘About CUPRO for Windows...’ The About CUPRO screen will appear. This will show the version of CUPRO you are currently running. This will also show the available features set for CUPRO, and your expiration date. You cannot enter historical data after this date.


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Zipping Files

CUPRO includes a utility to archive one or more files into a single compressed file. This file is compatible with compressed files created with programs such as PKZip or WinZip. The zipped file can be copied to a floppy disk or attached to an email.

To Zip a File or Set of Files

1. From the Tools menu, select ‘Zip Files...’ The Zip Files screen will appear.

2. In the Source Files area, browse for the folder containing the files you wish to zip.

3. Click to select one file, or to select all files in the folder. The selected files appear in the Files Selected area. You may select multiple files from different folders to include in your .ZIP file

4. In the Destination (ZIP) File area, either browse for the file destination, or type in the file name of the ZIP file.

5. Click [OK].

If you want to zip the database file you currently have open, you must close it first, then zip the file.

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Unzipping Files

CUPRO includes a utility that allows you to extract (unzip) files from a zip file.

To UnZip a File

1. From the Tools menu, select ‘UnZip Files...’ The UnZip Files screen will appear.

2. Under the Source (ZIP) File area, click the [Browse] button for the name of the ZIP file.

3. Under the Destination Directory area, select the location where you would like to place the contents of the ZIP file.

4. Click [OK].

Backing Up and Restoring

You will typically back up your database on a regular basis. Then, if necessary, you will restore the backup database. Two menu commands, both available under the File menu, are Backup and Restore.

Backup

The Backup command will make a zipped copy of your database, and copy it to the path specified on the General tab on the Options screen.

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If you are backing up to a floppy disk, CUPRO can either keep all files currently on the disk, or delete all files before backing up.

When backing up to a floppy drive, CUPRO will, if necessary, back up to multiple floppy disks.

Restore

The Restore command is available if there is a backup file in the backup location that corresponds to the currently open database file.

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When the Select Backup File to Restore option is set, you can select which backup file to restore.

Setting Options

CUPRO allows you to customize how the software works for you.

To Set Options

1. From the Tools menu, choose ‘Options.’ The Options screen will appear.

2. Select your options, then choose Save.

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General Options

Backup When you exit CUPRO, you can specify one of three options for backing up your database:

No Backup at Shutdown

Prompt For Backup at Shutdown (recommended)

Backup Automatically at Shutdown

Specify the path for the backup file. This could be another folder on your hard drive, a floppy drive, or a folder on your LAN.

Database File: C:\Program Files\CUPro\My Database.C20

Backup File: C:\Program Files\CUPro\Backup\My Database.ZIP

Restore Select one of these options:

Restore Latest Backup File

Select Backup File to Restore

Period Format Select ‘Period Short Name,’ ‘Period Long Name,’ or ‘Year and Month.’

Enable Special Features

Displays additional menu items useful for troubleshooting.

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Report Options

Dollar Format Displays figures on reports as Dollars and Cents, Dollars, or Thousands of Dollars.

Graphs

Displays figures on the Y-Axis (vertical axis) as Dollars and Cents, Dollars, or Thousands of Dollars.

Negative Values

Displays negative values with a minus sign or in parentheses.

Format Include Pagebreaks

Hide Report Headers Hide Report Footers Hide Loan SubHeaders/SubFooters Hide Other Assets SubHeaders/SubFooters

Minimum Column Whitespace

When creating reports, CUPRO determines the necessary column width to display financial figures, based upon your Period Format Dollar Format options. The Minimum Column Whitespace option allows you to increase the column width and fill the page. You can add up to 3/4 inch to the columns.

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Include pagebreaks in all reports

When this option is checked, CUPRO will put a page break so that a section of a report will always start at the top of a page. The following reports recognize the page break option.

Balance Sheet

Income Statement

Spread Analysis Report

NCUA FPR Ratios

Gap Analysis Report

The report pagebreaks assume you are printing all reports in landscape mode. Printing reports in landscape mode with the pagebreak option checked will leave additional white space on the bottom of reports.

When printing condensed reports, clear the pagebreak option so the report will fit on one page.

Be sure to set the Active status to ‘Inactive’ for all CUPRO accounts you are not currently using.

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Graphs Options

Depending on your report selection (detailed or condensed), the number of months, margin settings, and page orientation (portrait or landscape), the printed report may not be exactly in the style you want.

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CUPRO

® 2011 Help System Content


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Calculations

NCUA FPR Ratios Calculations


Introduction

FPR Ratios vs. CAMEL Ratios

Ratio Components

Capital Adequacy Ratios

Asset Quality Ratios

Earnings Ratios

Asset/Liability Management Ratios

Productivity Ratios

Other Ratios

Introduction

The CAMEL ratios are defined in accordance with NCUA Letter No. 161 issued December 1994. This was later modified in Letter No. 167, issued May 1995. On November 15, NCUA issued a Letter to Credit Unions (00-CU-08) adjusting the ‘C’-for capital adequacy—in CAMEL—to accommodate prompt corrective action (PCA). It is the same criteria NCUA examiners use to calculate CAMEL ratios during their year-end audits.

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FPR Ratios vs. CAMEL Ratios

The terms ‘FPR Ratios’ and ‘CAMEL Ratios’ are sometimes used interchangeably. There are, however, differences between how the two sets of ratios are calculated.

FPR Ratios

CAMEL Ratios

Calculated from data submitted by a credit union on the Call Report, NCUA 5300.

Calculated by the NCUA during an examination.

Compared to national peer averages. A moving scale that changes over time

Compared to a benchmark system. Establishes standards for credit unions to achieve.

Only a quantitative review. A quantitative and qualitative review.

Assumes data submitted accurately reflects the financial condition of the credit union.

An examination may determine that certain accounts require an adjustment.

Examples:

Estimated Losses includes the Allowance for Loan Loss. It is assumed that Allowance for Loan Loss accurately reflects individually classified loans plus historical losses.

In conformity with SFAS 115, it is assumed that investments classified as Available for Sale or Trading are properly reported at fair value.

CUPRO calculates FPR Ratios.

The following shows the definitions and formulas for FPR Ratios.

Ratio Components

Average Assets

Total assets for the current period plus total assets for the prior year end, divided by 2

Average Loans

Total loans for the current period plus total loans for the prior year end, divided by 2.

Net Worth

Regular Reserves + Special Reserves + Other Reserves + Undivided Earnings + Net Income/Loss

Classified Assets

Abs (Allowance for Loan Loss) + (Book Value of AFS Investments - Market Value of AFS Investments)

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Delinquent Loans

Loans Delinquent 2–6 mos + Loans Delinquent 6–12 mos + Loans Delinquent 12+ mos

Total Income (also known as Gross Income)

Total Loan Income + Total Investment Income + Other Income

Fixed Assets

Land & Building + Furniture & Fixtures + Data Processing Equipment

Note: The NCUA considers Share Insurance a non interest-bearing asset. Depending on how you have Share Insurance set up in CUPRO will affect some of your ratios.

Capital Adequacy Ratios

Net Worth/Total Assets (Key Ratio)

Net worth divided by total assets.

Delinquent Loans/Net Worth

Delinquent loans divided by net worth.

Solvency Evaluation (Estimated)

Total Assets + Allowance for Loan Losses – (Total Liabilities + Classified Assets)

Total Shares

Classified Assets (Estimated)/Net Worth

Classified assets divided by net worth.

Asset Quality Ratios

Delinquent Loans/Total Loans (Key Ratio)

Delinquent loans divided by total loans.

Net Charge-Offs/Average Loans (Key Ratio)

Total amount of loans charged off during the year less all recoveries on charged loans during the year divided by average loans.

Fair (Market) Value/Book Value (HTM Invest)

Fair market value of investments Held-to-Maturity divided by the book value of investments Held-to-Maturity.

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Accumulated Unrealized Gain(Loss) On AFS Securities/Cost of AFS Investments

Accumulated Unrealized Gains (or Losses) on Available for Sale Investments divided by the Historical Value of Available for Sale Investments.

Delinquent Loans/Assets

Delinquent loans divided by total assets

Earnings Ratios

Return on Average Assets (Key Ratio)

Net income (loss) after all cost of funds and after all operating expenses but before the net transfer to statutory reserves divided by average assets, annualized as appropriate.

Return on Average Assets before NCUSIF Stabilization (Key Ratio)

Net Interest Income after Provision for Loan and Lease Losses plus Non-Interest Income Less Total Non-Interest Expense / (Total Assets (Current Month) + Total Assets (PYE)) / 2.

Gross Income/Average Assets

Gross income divided by average assets, annualized as appropriate.

Yield on Average Loans

Interest on gross loans minus Interest refunded, divided by average loans.

Fee and Other Operating Income/Average Assets

Fee income plus other operating income, divided by average assets.

Yield on Average Investments

Income from Investments and Trading Profits and Losses divided by average investments, annualized as appropriate.

Cost of Funds/Average Assets

Interest on borrowed money from all sources plus dividends on shares and interest on deposits divided by average assets, annualized as appropriate.

Net Margin/Average Assets

Gross income minus cost of funds divided by average assets, annualized as appropriate.

Operating Expenses/Average Assets

Operating expenses (excluding the provision for loan losses and cost of funds) divided by average assets, annualized as appropriate. (Operating expenses include the NCUSIF stabilization expense.)

Prov for Loan and Lease Losses/Average Assets

Provision for loan losses divided by average assets, annualized as appropriate.

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Net Interest Margin/Average Assets

Loan income plus investment income minus the cost of funds divided by average assets, annualized as appropriate.

Operating Expenses/Gross Income

Total operating expenses (excluding the provision for loan losses and cost of funds) divided by gross income. This ratio is not annualized. (Operating expenses include the NCUSIF stabilization expense.)

Fixed, Foreclosed and Repossessed Assets/Total Assets

The sum of land and building, other fixed assets, and foreclosed and repossessed assets divided by total assets.

Net Operating Expenses/Average Assets

Total operating expenses (excluding the provision for loan losses and cost of funds) minus fee income divided by average assets, annualized as appropriate. (Net operating expenses include the NCUSIF stabilization expense.)

Asset/Liability Management Ratios

Net Long-Term Assets/Total Assets.

The sum of real estate loans which will not refinance, reprice or mature within 3 years, member business loans (excluding those not already included as real estate loans), investments with remaining maturities of more than 3 years, land and building and other fixed assets divided by total assets.

Regular Shares/Total Shares and Borrowings

Regular shares divided by total shares and borrowings.

Total Loans/Total Shares

Total loans divided by total shares.

Total Loans/Total Assets

Total loans divided by total assets.

Cash and Short-Term Investments/Assets

Cash plus investments with less than one year remaining maturity, divided by total assets.

Total Shares, Deposits and Borrowings/Earning Assets

Total shares, deposits, and borrowings divided by the sum of total loans and total investments (excluding reverse repurchase transactions placed in investments for positive arbitrage).

Reg Shares & Share Drafts/Tot Shares & Borrowings

((Regular Shares) + (Share Drafts))/(Total Shares and Deposits) + Total Borrowings – Reverse purchase transactions))

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Borrowings/Total Shares and Net Worth

Total borrowings divided by total shares and net worth.

Estimated Loan Maturity in Months

Loans outstanding at the end of the previous year divided by the amount of principal payments made during the current period (credits) with the result annualized. The amount of principal payments made during the current period is equal to loans outstanding at the end of the prior year plus loans granted year-to-date (debits) minus the loans outstanding for the current period.

The following example illustrates the calculation for March 2001:

Dec 2000 Jan 2001 Feb 2001 Mar 2001

Total Loans 19,681,000 18,984,500

$ Value of New Loans 350,000 485,000 615,000

$ Value of New Loans: YTD 350,000 835,000 1,450,000

YTD Principal Payments

Total Loans: Dec 2000 19,681,000

+ $ Value of New Loans: YTD 1,450,000

– Total Loans: Mar 2001 (18,984,500)

2,146,500

Est Loan Maturity in Months

= Total Loans: prior Year-End YTD Principal Payments * Number of Months

= 19,681,000 2,146,500

* 3

= 27.5

Productivity Ratios

Members/Potential Members

Number of current members divided by the total of potential members.

Borrowers/Members

Number of loans divided by number of current members.

Members/Full-Time Employees

Number of current members divided by equivalent full-time employees.

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Average Shares per Member

Total shares and deposits divided by number of current members.

Average Loan Balance

Total loans divided by number of loans.

Salary & Benefits/Full-Time Employees

Employee compensation and benefits divided by equivalent full-time employees.

Other Ratios

This section of the FPR shows growth ratios for shares, net worth, assets, loans, and investments. All growth ratios are computed using the same basic formula:

Current Period (***) - Prior Year End (***)

Prior Year End (***)

times Annualization Factor

Where (***) is the growth item to be calculated (such as shares or loans). The growth ratios must be annualized. These ratios are annualized by multiplying the result of the basic formula by the appropriate annualization factor. (12 / number of months).

Month Annualization Factor

January 12

February 6

March 4

April 3

May 2.4

June 2

July 1.714

August 1.5

September 1.333

October 1.2

November 1.091

December 1

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Market Growth

This ratio measures the growth in shares. To compute the ratio, use total shares in the basic formula discussed above and annualize as appropriate.

Net Worth Growth

This ratio measures the growth in total net worth. To compute the ratio, use total net worth in the basic formula discussed above and annualize as appropriate. (Note: The calculation of this ratio requires taking the absolute value of the denominator.)

Asset Growth

This ratio measures the growth in assets. To compute the ratio, use total assets in the basic formula discussed above and annualize as appropriate.

Loan Growth

This ratio measures the growth in loans. To compute the ratio, use total loan in the basic formula discussed above and annualize as appropriate.

Investment Growth

This ratio measures the growth in investments. To compute the ratio, use total investments (excluding for all periods reverse repurchase transactions placed in investments for positive arbitrage) in the basic formula discussed above and annualize as appropriate.

Membership Growth

This ratio measures the growth in membership. The ratio is: (Number of members in the current month + Number of members from the prior year end) / Number of members from the prior year end.

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Spread Ratio Calculations


What is Spread

Calculating Spread

The Spread Formula

Spread vs. Net Interest Margin

Other Calculations

What Is Spread?

Spread analysis is one of the most basic and useful asset/liability management (ALM) tools available to you, and is a common vehicle for measuring earnings performance in credit unions. The benefits of spread analysis are two-fold.

First, it measures the degree to which each balance sheet item contributes to overall earnings.

Second, it isolates the causes behind changes in earnings.

It is well understood that a fundamental objective of ALM is to manage the balance sheet so as to maintain a strong and stable level of earnings. After all, earnings is a credit union’s lifeblood because it provides the only source of funds to increase capital, support asset growth, and improve member services. It therefore stands to reason that earnings should be the single most important consideration of any financial plan, including your strategic plan, your ALM plan, and your budget plan.

Interest spread (also commonly referred to as interest margin) can be defined as the difference between income on earning assets and cost of funds, or net interest income. Spread can be expressed as either a dollar amount, or a percentage.

A percentage is sometimes more useful because it provides a relative measure of spread that allows you to compare the results between alternative scenarios, and even between different credit unions, regardless of asset size. In fact, a percentage computed with total assets as the denominator is referred to as a return on assets, or ROA. ROA is an extremely useful measure because it is always desirable to maintain a certain level of earnings to assets.

It is also very important to be able to measure the contribution to overall earnings of each individual loan, investment, and share account. In fact, it is the only way you can effectively manage interest spread. However, to do this analysis, you must be able to provide both dollar balances and income or expense amounts for each individual account type. That will allow you to, for example, compute yields on each individual loan account such as five-year new auto loans, fifteen-year fixed-rate real estate loans, and so on. The end result is that you will understand each product’s contribution to earnings, and know where you are performing well and where you need to improve.

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Spread analysis can be used with many financial planning applications on the CUPRO software, including:

Analysis of profitability

Analysis of interest rate sensitivity

Analysis of alternative asset/liability strategies

Analysis of other what-if scenarios

Analysis of alternative budget scenarios

Evaluation of budget versus actual results

Keep in mind, however, in order to use spread analysis effectively on this model, you must first have adequate chart of account breakout in the loan, investment and share areas. Then, you must be able to provide both the monthly balances and monthly income and expense amounts for each individual account. If your model is deficient in either of these areas, you should make it a high priority to resolve the problem. Why? Because spread analysis is critical to the ALM process.

Calculating Spread

To illustrate, assume the following annual financial results for XYZ Credit Union.

Loan Income $2,500,000

Investment Income $1,000,000

Dividend Expense $1,500,000

Average Total Assets $50,000,000

Here, interest spread can be calculated as:

a dollar amount: $2,500,000 + 1,000,000 - 1,500,000 = $2,000,000

a percentage: $2,000,000 / 50,000,000 = 4.0%

The Spread Formula

CUPRO uses the following formula to calculate spread:

Income or Expense (Annualized)

Average Balance

Annualization

CUPRO uses the actual number of days in the month or months to annualize the income or expense.

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Average Balance

The following table outlines how CUPRO calculates the average balance.

If the time period for the spread report is...

...the average balance is calculated as follows:

one month The average of the month-end balance for this month and the prior month.

greater than one month

(e.g., period-to-date spread analysis)

First, the average balance for each month is calculated. Then, the average balances are averaged. (An average of the average.)

Examples of Spread Calculations

The following table of data will be used in the example.

Month Days in Year Days in Month Income Ending Balance

Average Balance

October 1999 9,500

November 1999 365 30 65.78 10,500 10,000

December 1999 365 31 77.08 11,500 11,000

January 2000 366 31 85.35 12,500 12,000

Example 1a: Periodic Spread for November 1999

(65.78 * 365/30)

10,000

= 800.323

10,000

= 8.00%

Example 1b: Periodic Spread for December 1999

(77.08 * 365/31)

11,000

= 907.555

11,000

= 8.25%

Example 1c: Periodic Spread for January 2000

(85.35 * 366/31)

12,000

= 1.007.681

12,000

= 8.40%

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Example 2: Period-to-Date Spread

The spread for the 3-month period November 1999 through January 2000 is calculated as follows

(65.78 + 77.08 + 85.38) * 365/92

Avg(10,000 + 11,000 + 12,000)

= 905.52

11,000

= 8.23%

Spread vs. Net Interest Margin

While Spread and Net Interest Margin are sometimes used interchangeably, there is a difference when comparing the two ratios.

Spread = Yield on Earning Assets – Cost of Funds

Interest Income

Interest Expense

=

-

Average Earning Assets Avg. Int Bearing Liabs

Spread is used when evaluating the marginal impact.

(Interest Income - Interest Expense)

Net Interest Margin/EA =

Average Earning Assets

Net Interest Margin is used when evaluating the average impact.

Other Calculations

Net Interest Margin/AA

Interest Income – Interest Expense (Annualized)

Average Assets

Provision for Loan Loss/AA

Provision for Loan Loss (Annualized)

Average Assets

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Non-Interest Income/AA

Non-Interest Income (Annualized)

Average Assets

Non-Interest Expense/AA

Non-Interest Expense (Annualized)

Average Assets

Key Ratio Calculations

Note: Average balances, such as Average Assets or Average Equity, use a two-point average of the current month and prior month.

Asset Mix Ratios

Gross Investments to Assets

Total Investments divided by Total Assets

(Note: Gross Investments does not include Unrealized G/L AFS Invest)

Total Loans to Assets

Total Loans divided by Total Assets

(Note: Total Loans does not include Allowance for Loan Loss)

Earning Assets to Assets

Earning Assets divided by Total Assets

Earning Assets = Gross Investments + Total Loans

Fixed Assets to Assets

Fixed Assets divided by Total Assets

Shares to Assets

Shares divided by Total Assets

Equity to Assets

Total Equity divided by Total Assets

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Total Regular Reserves to Risk Assets

Total Regular Reserves (TRR) for a given month N is calculated by taking the prior month’s Regular Reserves + Allowance for Loan Loss – current month’s Provision for Loan Loss (PLL).

TRR(N) = RR(N–1) + ALL(N) PLL(N)

Allowance for Loan Loss is calculated before this calculation.

Risk Assets are those accounts defined in Chart of Accounts

Total Regular Reserves are then divided by Risk Assets to come up with a percentage.

Total Loans to Shares

Total Loans divided by Total Shares

Earning Assets to Int Bearing Liabilities

(Loan + Investment Income) {annualized} divided by (Total Share + Notes Payable Avg. Balance)

Real Estate Loans to Total Loans

Total Real Estate Loans divided by Total Loans

LOC Loans to Total Loans

Total Line of Credit Loans divided by Total Loans

Other Loans to Total Loans

Total Other Loans divided by Total Loans

Liability Mix

Regular Shares to Total Shares

Total Regular Shares divided by Total Shares

Drafts/MMAs to Total Shares

Total Drafts/MMAs divided by Total Shares

Certificates to Total Shares

Total Certificates divided by Total Shares

IRAs to Total Shares

Total IRAs divided by Total Shares

Earnings

Return on Average Assets

(Total Income Total Expenses) divided by Average Assets

Return on Average Equity

(Total Income – Total Expenses) divided by Average Balance of Total Equity

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General Ratio Calculations

Date Ranges

The General report requires data from January for its year-to-date ratio calculations. Therefore, the date range starts with the first January in the database. At a minimum, there must be one January in the month range. If not, you cannot run the report.

Member Data

Number of Members

Value entered in Miscellaneous tab of Data Entry

Regular Shares/Members

Total Regular Shares divided by Number of Members

Total Shares/Members

Total Shares divided by Number of Members

Total Assets/Members

Total Assets divided by Number of Members

Total Income/Members

Total Income divided by Number of Members

Operating Expense/Members

Total Operating Expenses divided by Number of Members

Dividend Expense/Members

Total Dividend Expenses divided by Number of Members

Net Income/Members

(Total Income – Total Expenses + Other Income/Expenses) divided by Number of Members

YTD Total Income/Members

YTD Total Income divided by Number of Members

YTD Operating Exp/Members

YTD Operating Expenses divided by Number of Members

YTD Dividend Exp/Members

YTD Dividend Expenses divided by Number of Members

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YTD Net Income/Members

(YTD Total Income – YTD Total Expenses + YTD Other Inc/Exp) divided by Number of Members

Loan Activity

Number of Loans


Number of Borrowers


Loan Balance/Borrowers

Total Loans divided by Number of Borrowers

$ Value New Loans


$ Value Loans Made YTD

YTD Value entered in Miscellaneous tab of Data Entry

# Delinquent Loans


$ Value Delinquent Loans 2 – 6 Months


$ Value Delinquent Loans 6 – 12 Months


$ Value Delinquent Loans 12+ Months


Value Delinquent Loans

The Sum Value of all Delinquent Loans entered in Miscellaneous tab of Data Entry

% Loans Delinquent

Number of Delinquent Loans divided by Number of Loans

Delinquency Rate

Dollar value of Delinquent Loans divided by Total Loans

Employee Data

# of Employees (FTE)


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Assets/Employees

Total Assets divided by # of Employees (FTE)

Members/Employees

Number of Members divided by Number of Employees (FTE)

System Accounts Calculations


How System Accounts Work

Calculation of Allowance for Loan Loss

Calculation of the Asset and Liability Balancing Accounts

Calculation of the Net Income/Loss Account

Calculation of the Undivided Earnings Account

Calculation of the Reserve Transfer to Regular Reserves

How System Accounts Work

A system account is an account for which the user cannot set a forecast assumption. The forecasted results are computed based upon results of other accounts. After all user-forecasted accounts are calculated, CUPRO calculates the following system accounts in order:


Asset and Liability Balancing Account

Net Income/Loss

Undivided Earnings

Regular Reserves

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CUPRO calculates Allowance for Loan Loss for each month of the forecast using the following formula:

Allowance for Loan Loss (prior month) – Provision for Loan Loss + Net Charge Offs

Example:

Allowance for Loan Loss – Dec 1999 –100,000

– Provision for Loan Loss – Jan 2000 10,000

+ Net Charge Offs – Jan 2000 25,000

= Allowance for Loan Loss – Jan 2000 –85,000

Asset and Liability Balancing Accounts

CUPRO uses an Asset Balancing and a Liability Balancing Account to keep the forecast Balance Sheet in balance. In cases where Total Assets are projected higher than Total Liabilities, such as high loan demand, CUPRO will borrow money, shown in the Liability Balancing Account, to fund the asset growth. Conversely, if Total Liabilities are projected higher than Total Assets, CUPRO will invest the excess funds within the Asset Balancing Account.

Although you cannot set Balance assumptions, you can set Yield/Cost assumptions on the Balancing Accounts. Monthly Interest Income or monthly Interest Expense will be calculated on balances placed within those accounts during the calculation process. You will find the monthly-calculated Interest Income or Interest Expense in the projected Income Statement.

Equity Accounts

Three of the Equity Accounts are calculated by CUPRO in a forecast:

Net Income/Loss

Undivided Earnings

Regular Reserves

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Net Income/Loss Account

Two transactions affect the Net Income/Loss account:

On January 1 of a forecast year, the amount in the Net Income account is transferred to the Undivided Earnings account.

Every month of the forecast, Net Income is increased (decreased) by the total of all Income accounts and all expense accounts.

Undivided Earnings

Two transactions affect the Undivided Earnings account:

On January 1 of a forecast year, the amount in the Net Income account is transferred to the Undivided Earnings account.

If necessary, an amount equal to the Reserve Transfer is subtracted from Undivided Earnings and added to Regular Reserve. This transfer can occur monthly for forecast months prior to January 2001, and can occur quarterly for forecast months after January 2001. The amount of the Reserve Transfer cannot exceed the balance of Undivided Earnings.

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Reserve Transfer to Regular Reserves

CUPRO uses one of two methods to determine the Reserve Transfer to Regular Reserves.

Forecast Date

Method on or before December 2000 on or after January 2001

Risk Asset Method

All credit unions

Federally insured state chartered credit unions with Risk Asset method or Non-Federally Insured State Chartered credit unions with Risk Asset method

PCA Method N/A

Federally chartered credit unions or Federally insured state chartered credit unions with PCA method or Non-Federally Insured State Chartered credit unions with PCA method

Method A: Risk Asset Method

Under the Risk Asset Method, CUPRO uses the Federal Calculation for Federal Credit Unions with Assets over $500,000 and in Operation More that 4 Years to determine the Reserve Transfer in each month of the forecast.

First CUPRO must determine Total Regular Reserves and Total Risk Assets. They are defined as follows:

Total Regular Reserves

Prior month’s Regular Reserves + Allowance for Loan Loss – current month’s Provision for Loan Loss (PLL).

Risk Assets The sum of all assets with the Risk Assets checked. This is set under the Chart of Accounts section.

Total Regular Reserves is then divided by Risk Assets to come up with a percentage. CUPRO evaluates this ratio, and then calculates the Reserve Transfer for a given month as follows:

If Total Regular Reserves as a percent of Risk Assets is Then the Reserve Transfer is

less than 4% 10% of Total Income less the current month’s PLL

greater than or equal to 4% and

less than or equal to 6%

5% of Total Income less the current month’s PLL

greater than 6% 0

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Every month, if necessary, an amount equal to the Reserve Transfer is subtracted from Undivided Earnings and added to Regular Reserve. The amount of the Reserve Transfer cannot exceed the balance of Undivided Earnings.

Method B: PCA Method

Under the PCA method, CUPRO calculates Net Worth/Assets for a given quarter. CUPRO then evaluates this percentage and calculates the Reserve Transfer for the quarter as follows:

If Net Worth/Assets is Then The Reserve Transfer is

less than 7% 1/10th of 1 percent (0.1%) of Total Assets

greater than or equal to 7% 0

You can verify the Reserve Transfer by viewing the Reserve Transfer – PCA Check Report. For more information on Net Worth/Assets, please refer to NCUA FPR Ratio Calculations.

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