ALM Glossary
Adjusted (Adj.) Total Assets (TAs) - Reported (i.e., net) total assets plus allowance for losses minus investment-related repurchase agreement borrowings.
Asset Yield - The annualized ratio of interest income from loans and investments divided by average adjusted total assets. Asset yield also equals earning asset yield multiplied by the average-balance earning asset mix.
Average Funds Cost - The annualized ratio of dividend and interest expense divided by average net total funds.
Bullet Investments - Investments and securities that have no embedded options and their entire principal balances are due on their final maturity dates.
Capital Contribution - The combined dollar impact of net operating income, non-operating income, net charge offs, interest refunds, and unexplained entries on a credit union's total capital during any accounting period.
Classified Assets - The sum of delinquency factor, unrealized losses of held-to-maturity securities, and other identifiable potential losses associated with other assets if those assets had to be sold at their fair (rather than book) values. In this context, classified assets estimate the dollar amount that the book value of a credit union's total assets may be overstated from a fair-value perspective.
Complex Investments - Include (a) investments with embedded options other than call features; (b) fixed-rate investments with WALs greater than three years; (c) variable-rate investments with next rate-adjustment periods greater than three years; (d) variable-rate investments that have coupon formulas that are based on more than one index; (e) variable-rate investments that have coupon formulas that are inversely related to one or more indices; or (f) mutual funds (excluding money-market funds).
Core Investments - The sum of all investments (excluding the NCUSIF deposit) minus investments financed by reverse repurchase agreement borrowings.
Cost of Funds - The annualized ratio of dividend and interest expense divided by average adjusted total assets. Cost of funds also equals average funds cost multiplied by the average-balance total funds mix.
Delinquency Factor - The aggregate dollar amount of loans over two months delinquent and other real estate owned (OREO) that is statistically likely to be charged off within a year. When calculating a credit union's delinquency factor, estimates are made for the percentages (i.e., loss factors) of both OREO and loan balances that are classified 2-6 months, 6-12 months, and over 12 months delinquent that are apt to be charged off over the next 12 months. Loss factors of 10%, 50%, and 90%, respectively, are often used by regulators for loans classified 2-6 months, 6-12 months, and over 12 months delinquent, while a 20% loss factor for OREO is typical.
Delinquency Ratio - The ratio of delinquent loans divided by gross loans.
Delinquent Loans - The sum of loans classified as 2-6 months, 6-12 months, and over 12 months delinquent.
Earning Assets - The sum of gross loans, core investments and surplus cash from which interest income is generated.
Earning Asset Mix - The ratio of earning assets divided by adjusted total assets. Earning asset mix indicates the percentage of adjusted total assets that a credit union has invested in gross loans, core investments, and surplus cash.
Earning Asset Yield - The annualized ratio of interest income from gross loans and core investments divided by average earning assets.
Effective Duration - The average percent change in a financial instrument's fair value per 100 basis point change in market rates over a +/-300 basis point range.
Embedded Options - Features which allow an investment's characteristics (such as coupon rate, coupon-rate formula, final maturity, or weighted-average life) to change during the investment's term. Embedded options include, among other things, call features, coupon-rate caps/floors, and prepayment features. All mortgage-backed securities have embedded options.
Equity Capital - The sum of regular reserves, undivided earnings, appropriations of undivided earnings that have been designated by the board of directors or regulatory authorities, net income that has not been transferred to undivided earnings, accumulated unrealized gains/losses on available-for-sale securities, accumulated net gains/losses on cash flow hedges, miscellaneous equity accounts (including donated equity) that did not originate from net income and have not closed into retained earnings, and other comprehensive income that did not originate from net income.
Equity Duration - The average change in a credit union's net economic value (NEV) that is expressed as a percentage of equity capital per 100 basis point shift in market interest rates over a specific range of rate changes (e.g., +/-300 basis points).
# FTEs/$mm LNs&SDs (Staffing Ratio) - The average number (#) of full-time equivalent employees (FTEs) per million ($mm) dollars of aggregate average-balance gross loans (LNs) and share drafts (SDs). Loans and share drafts are used in the denominator of this ratio since these two services are generally much more labor intensive than are other types of credit union activities.
Fair Value - The price at which a financial instrument could be either bought or sold in a normal arms-length transaction.
Financing Costs - Dividend and interest expense paid on net total funds. Note: Interest expense associated with investment-related reverse repurchase agreement borrowings is subtracted (i.e., netted) from the related investments' interest income and the resulting net interest income is included in the credit union's investment income.
Fixed & OREO/TAs - The ratio of aggregate fixed assets and other real estate owned (OREO) divided by adjusted total assets.
Gross Loans (LNs) - The sum of all loans before subtracting allowance for loan losses.
Gross Spread - The annualized ratio of net interest income divided by average adjusted total assets. Gross spread also equals asset yield minus cost of funds and it is the ROA component that can be adversely affected by rapid changes in money market rates if a credit union is mismatched from a rate-sensitivity (i.e., repriceable GAP) perspective.
Interest Income - The sum of loan and investment income.
Investment Income - The sum of interest and dividend income derived from investments (including CUSOs) and trading account securities (including both realized and unrealized gains/losses). If a credit union has investments that are financed by investment-related reverse repurchase agreement borrowings, only their net interest income (i.e., after the netting of interest expenses associated with these borrowings) is included in investment income.
Investment Yield - The annualized ratio of investment income divided by the average balance of core investments and surplus cash.
Liquidity Ratio - The sum of total loans, investments that have weighted-average lives greater than six months, foreclosed/repossessed assets, and fixed assets divided by the sum of total member shares (all types but excluding borrowed funds and non-member deposits) and net worth.
Loan Maturity - An estimate (in months) of the average maturity of a credit union's total loan portfolio that is calculated by dividing the average balance of gross loans during a specific time span by average monthly loan repayments that occurred during the period.
Loan Yield - The annualized ratio of loan income divided by average gross loans.
Long-Term Real Estate Loans - Total real estate loans less the aggregate sum of real estate loans that will either contractually refinance, reprice, or mature within five years.
Member Fee Income - Regularly occurring fee income charged members for services such as share drafts, ATMs, processing late payments, safety deposit boxes, credit/debit cards, home banking, etc.
Minimum Cash - An estimate of a credit union's minimum daily non-earning cash requirements in settlement accounts, checking accounts, teller cash, ATMs, and accounts at the Federal Reserve.
Mix - The percentage of adjusted total assets that a credit union has either:
invested in a particular type of asset (such as the various categories of loans and core investments) in the case of specific asset mixes; or
financed by a particular type of funding source (such as share certificates, regular shares, non-member deposits, etc) in the case of funding mixes.
For example, loan mix is gross loans divided by adjusted total assets, while share draft mix is share draft balances divided by adjusted total assets. Mixes can be calculated on either a month-end basis or average balances over a specific time period. Note: Earning asset mix is the sum of the gross loan, core investment, and surplus cash mixes, while total funds mix is the sum of the various funding mixes.
Money Market Shares - Either share or draft accounts with dividend rates that closely track changes in money market rates according to their rate sensitivity factor.
N.OPER.EXP./LNs&SDs - The ratio of annualized net operating expenses divided by the aggregate average-balance of gross loans (LNs) and share drafts (SDs).
Net Capital - An estimate of the fair value of a credit union's total capital. When calculating net capital, classified assets are subtracted from total capital. Hence, net capital can be used as a proxy for a credit union's solvency since a negative value implies insolvency. The net capital to adjusted total asset ratio depicts the estimated fair value of a credit union's total capital per dollar of book-value adjusted total assets.
Net Capital Margin - The annualized net contribution to total capital divided by average adjusted total assets. Net contribution (i.e., capital contribution) reflects the combined impact of net operating income, non-operating income, net charge offs, interest refunds, and unexplained entries on total capital.
Net Charge Offs (NCOs) - Annualized loan charge offs minus recoveries.
Net Economic Value (NEV) - The fair value of a credit union's earning assets (i.e., loans and investments) minus the fair value of its funding liabilities (including all term and non-term share and deposit accounts).
Net Interest Income - Interest income from loans and investments minus financing costs (dividend and interest expense). Annualized net interest income is the numerator of a gross spread calculation.
Net Operating Expenses - Operating expenses minus total fee income.
Net Operating Expense Ratio (NOER) - Annualized net operating expenses divided by average adjusted total assets.
Net Operating Income - Calculated as net interest income minus net operating expenses, net operating income reflects a credit union's operating profitability before non-operating income, unrealized gains/losses, loan loss provisions, reserve transfers and interest refunds are taken into account.
Net Total Assets - Reported total assets which are net of the allowance for loan losses.
Net Total Funds - The sum of member share accounts (all types), non-member deposits, and non-reverse notes payable on which either dividends or interest is paid. Dividends and interest payable are also included in a credit union's net total funds. Note: Net total funds exclude investment-related reverse repurchase agreement borrowings.
Net Worth - The sum of regular reserves, undivided earnings, appropriations of undivided earnings that have been designated by the board of directors or regulatory authorities, and net income that has not been transferred to undivided earnings. For a low income-designated credit union, net worth also includes uninsured secondary capital accounts that are subordinate to all other claims, including claims of creditors, shareholders, and the National Credit Union Share Insurance Fund.
Non-Interest Income - The same as total fee income.
Non-Operating Income - Sources of income and expenses that do not occur on a regular basis and that are not considered components of net operating income. Examples include realized gains/losses resulting from the sale of either securities or fixed assets, non-recurring income/expenses, payments received on bonding claims, and legal settlements.
Non-Reverse (Rv) Notes Payable - The sum of all notes payable (NP), borrowed funds, promissory notes, and subordinated debt minus investment-related reverse repurchase agreement borrowings.
Operating Expenses - All expenses except dividends and interest, non-operating expenses (or losses), investment losses (both realized and unrealized), loan loss provisions and reserve transfers.
Operating Return on Assets (ROA) - The summary measurement of a credit union's core profitability which can be determined either by dividing annualized net operating income by average adjusted total assets or by subtracting the net operating expense ratio from gross spread.
Option-Free Investments - Investments with no embedded options.
Other Operating Income - Regularly occurring income (other than interest income and member fee income) such as (but not limited to) lease/rental income, endorsement fees, and gains/losses associated with the sale of real estate loans in the secondary markets.
Rate Sensitivity Factor (RSF) - An indication of the responsiveness of either an earning asset's yield or a particular funding source's dividend (or interest) rate to a change in money market rates. For example, if the yield on a pool of variable-rate loans rose 75 basis points for each 100 basis point increase in money market rates (such as six-month T-bill rates), the pool of loans would have a 75% RSF. Similarly, if the dividend rate of a credit union's IRA shares changed 50 basis points for each 100 basis point change in money market rates, the estimated RSF associated with these IRA shares would be 50%. Before measuring a credit union's six-month repriceable GAP, RSFs must be determined (or estimated) for variable-rate loans, floating-rate investments, IRA shares, money market shares, regular shares, share drafts, and other types of share accounts that don't have contractual maturity dates.
Repriceable Assets - Earning assets that either mature within the next six months or have yields (in the case of variable-rate loans and floating-rate investments) which would respond to changes in money market rates in accordance with their respective rate sensitivity factors.
Repriceable Funds - The sum of funds (such as share certificates, borrowed funds, and non-member deposits) that have contractual maturity dates within the next six months and other funding sources (such as IRA shares, money market shares, and regular shares) that can be sensitivity adjusted in accordance with their respective rate sensitivity factors.
Repriceable GAP - Repriceable assets minus repriceable funds.
Repriceable GAP Ratio - The ratio of repriceable GAP divided by adjusted total assets that indicates the potential responsiveness of a credit union's gross spread to changes in money market rates.
$m S&F/FTE Employees (Compensation Ratio) - Annualized salary and fringe (S&F) expenses that are denominated in thousands ($m) of dollars divided by the average number of full-time equivalent (FTE) employees.
$m S&F/$mm LNs&SDs - The product of the staffing and compensation ratios that indicates annualized salary and fringe (S&F) expenses in thousands ($m) of dollars incurred by a credit union to deliver each million ($mm) dollars of aggregate average-balance gross loans (LNs) and share drafts (SDs) to its members.
Share Certificates (SC) - The sum of all member share certificates (both regular and IRA) that have contractual maturity dates. Although most SCs have fixed contractual maturity dates when they are issued, some SCs could also be callable at the credit union's option while others may contain embedded options that allow members to either lengthen or shorten the SC's original maturity date.
Statutory Reserves - The sum of regular reserves and allowance for loan losses. Statutory reserves are capital accounts that are controlled by regulation rather than by a credit union's board of directors.
Surplus Cash - Reported non-earning cash balances minus an estimate of a credit union's minimum cash needs. Surplus cash can be either positive or negative and it is included with core investments when calculating investment yield.
Total Capital - The sum of the allowance for loan & lease losses and equity capital. For a low income-designated credit union, total capital also includes uninsured secondary capital accounts that are subordinate to all other claims, including claims of creditors, shareholders, and the National Credit Union Share Insurance Fund.
Total Fee Income - The sum of member fee income and other operating income. Total fee income is often referred to as non-interest income.
Total Funds Mix - The percentage of adjusted total assets financed by net total funds (i.e., non-reverse notes payable, non-member deposits, share certificates, IRA shares, money market share accounts, club accounts, regular shares, and share drafts).
Unexplained Entries - Changes in total capital from one accounting period to another that cannot be explained by typical factors affecting total capital, such as net operating income, non-operating income, net charge offs, and interest refunds. Direct entries (such as changes in the aggregate fair value of available-for-sale securities) to any of the various capital accounts that were not recorded in the statement of income and expenses will result in unexplained entries.
Variable-Rate Loans - Either open- or closed-end loans with yields that respond to changes in money market rates according to their rate sensitivity factors.
Weighted-Average Life (WAL) - The weighted-average time of a financial instrument's principal repayments (both scheduled and unscheduled) where each repayment's weight is its percentage of the instrument's total remaining principal. The WAL for a bullet investment is its final maturity.