Setting Up and Managing Regions

Overview

In PrecisionLender, regions contain a group of products and users that operate under a certain set of "assumptions", or rules. By grouping all of your products and users that use these same assumptions into a Region, you can control the settings for the Region as a whole, or select each product or user individually. Reporting Regions are managed in the Regions & Users section of Administration for administrators with the "Manage Regions" permission in their security profile. Within an Opportunity, regional assumptions can be viewed in the General Tab of the Assumptions Screen.

 

In this Article

• Create a Region
• Edit a Region
  
  • General
  • Tax Effective Yield Calculations
  • Tax Exempt Cost of Funds
  • Funding Cost Assumptions
  • Unused Line Opportunity Cost
  • Earnings on Capital
  • Cap & Floor Options
  • Fee Options
  • Servicing Channel Assumptions
• Saving Changes
• Move a Region
• Delete a Region

 

Create a Region

From the Regions & Users section, in Reporting Regions, click the () icon next to the existing region that you'd like to create the new region under. The existing region will be the parent region, and the new region will be the child region.

This will bring up the Region Edit Screen, which will be pre-populated with the assumptions currently assigned to the parent region. You can modify these assumptions and update the name for your new region.

 

Once the assumptions are set, click "Save", in the upper left hand corner. Then, click "Close" to return to the Regions & Users screen.

 

Edit a Region

The Region Edit Screen allows you to make changes to a Region's assumptions and push that change to that Region and all Child Regions nested inside it.

From the Regions & Users section, in Reporting Regions, click on the name of the region you wish to edit. Then click the "Edit" button in the upper left hand corner.

 

General

Target Level Strategy

There are two types of target level strategy in PrecisionLender:

• Product Level Up sets the target on every product and these targets are used while pricing the Opportunity.
• Relationship Level Down sets the target at the region level and these targets are used for the Opportunity and Relationship.

For more information, please see Target Level Strategy: Product Level Up vs. Relationship Level Down.

Note

You can only change the target level strategy in the highest available region in your region hierarchy. Once you hit the Save button, the selected target level strategy will be reflected to all subsequent regions.

Capital Strategy

This option sets the type of target depending on the selected option:

• Maximum of Regulatory and Economic Capital: ROE
• Regulatory Capital: RORC
• Economic Capital: ROEC

Visible Return on Capital Types

Selected metrics will display as options in the metric dropdown found in the Relationship Impact Summary footer and Scenario Builder screen (see The Opportunity Screen).

Net income is typically presented as Average Annualized Net Income.  Net Income includes revenue items Interest Income and Fee Income.  It also includes cost items including Interest Expense, liquidity costs, origination costs, servicing costs, loan loss costs and taxes.  In this regard, Net Income in PrecisionLender is risk adjusted for interest rate risk, and credit costs.    

Net income serves as the numerator for all the return measures:  ROA, ROE, RORC and ROEC. 

ROA - Net income divided by Average Loan Balance or Average Earning Assets.  The denominator is the average amount of the instrument (s) over the life or remaining life.  
ROE - Net income divided by Risk Adjusted Capital subject to a regulatory minimum.  PrecisionLender labels this Average Equity for short.  So, ROE is Net income / Average Equity.

RORC - Net Income divided by allocated regulatory capital (RC).

ROEC - Net Income divided by allocated economic capital (EC). 

Default Return on Capital Type

This default metric will be pre-selected in metric dropdown found in the Relationship Impact Summary footer and Scenario Builder screen (see The Opportunity Screen). This metric will also appear on the Opportunity printouts.

Federal Tax Rate

State Tax Rate

Effective Tax Rate

Combined Federal and State Tax Rate.

Effective Tax Rate = Federal Tax Rate + State Tax Rate - (Federal Tax Rate x State Tax Rate)

 

Tax Effective Yield Calculations

Non Bank Qualified Interest Disallowance Factor

Bank Qualified Interest Disallowance Factor

This disallowance will be 100% of the interest expense unless the obligation is deemed to be "Bank Qualified".  That factor is reduced to 20% for all Bank Qualified obligations.

Generally, financial institutions can deduct all interest paid or accrued on indebtedness within a taxable year; however, such a deduction is disallowed for interest on indebtedness to purchase or carry tax exempt obligations by the Tax Equity and Fiscal Responsibility Act (TEFRA).

Custom Non-Bank Qualified Interest Disallowance Factor

This allows you to set a custom interest disallowance factor for Non-Bank Qualified loans. This allows you to use different Non-Bank Qualified disallowance factors for different products within the same region.

Tax Exempt Options for Loan Accounts

 

Tax Exempt Cost of Funds

Marginal Loan Cost of Funds

Point on Funding Curve

If chosen, additional fields will appear allowing you to specify Duration and Adjustment Factor.

Average Cost of Funds

If chosen, an additional field will appear allowing you to specify the Cost of Funds Rate.

 

Funding Package Assumptions

Funding Curve Family for Fixed Rate Spread Lock

This will be the Funding Curve Family used in calculating the Spread Lock on a fixed rate loan

Available Funding Curve Families:

• Treasury, Prime, FHLB-Boston
• Funding Curve: the funding curve that you set up in Funding Packages. If multiple funding packages have been enabled, this will be the funding source selected in the Opportunity.
• Funding Curve (Cost of Funds): the cost of funds for the loan that is being priced. Cost of Funds is calculated as interest expense divided by average balance. If multiple funding packages have been enabled, this will be the funding source selected in the Opportunity.
• Funding Curve (Pre-LP Cost of Funds): the cost of funds for the loan that is being priced before liquidity premiums (if you've configured liquidity adjustments in your assumptions) have been applied. If multiple funding packages have been enabled, this will be the funding source selected in the Opportunity.
• Custom: if selected for the Funding Curve Family, then you can select the Funding Curve Family for one of your Custom Indices.

You can set a different Fixed Rate Spread Lock Funding Curve Family at the product level by editing the Policies & Defaults in the Commercial Loan Product setup, if needed for certain product types.

Use Cost of Funds from Initial Period on Adjustable Rates

Allows the Cost of Funds for the initial rate of an adjustable rate loan to be based on the initial period. This allows you the ability to keep a consistent spread throughout an adjustable rate loan's life, including during the initial fixed period. This setting will only be visible if the Funding Curve Family for Fixed Rate Spread Lock is set to Funding Curve (Cost of Funds) or Funding Curve (Pre-LP Cost of Funds).

Funding Cost Option

Allows you to either include or exclude capital in funding.

This option will only appear if you have the Funding Cost Options setting enabled by PrecisionLender. If you do not see this option but would like to use it, please reach out to Support.

See Should I Include Capital in my Funding Cost? for more information

Funding Packages

The set of funding assumptions that will be used to price a loan.

You can view the default settings for the Funding Packages associated with the region that you're editing by clicking the chevron icon () next to the Funding Package name.

 

Unused Line Opportunity Cost

Allows for assumptions to be set to create a charge against the undrawn portion of a Line of Credit via one of two options:

Point on Funding Curve

This method allows banks to provide inputs (transfer duration and liquidity factor) that are used to calculate the unused line cost rate.

Transfer Duration: The approximation of expected average life, in months, that will be matched for funding purposes to a like point on the fully adjusted funding curve.

Liquidity Factor (percentage): Allows for the appropriate factor to be applied to the Line of Credit based on the nature and typical duration of the Line of Credit.

Unused Line Cost Rate

This method allows banks to enter the specific percentage to be applied to the undrawn portion of a Line of Credit.

The value will appear as the Unfunded Liquidity Premium in the Interest Expense of the Financial Statement.

 

Earnings on Capital

Earnings Factor

The ability to apply an earnings factor for earnings on capital will only be available if the funding cost option of ‘Do Not Include Capital in Funding’ is selected. If a factor of greater than 0% is entered, ‘Earnings on Capital’ will appear as a line item on an Opportunity’s Financial Statement.

Capital

Provides the ability to select which type of capital will be used for calculating earnings on capital

 

Cap & Floor Options

See Setting Up Caps and Floors for details on configuring these options.

 

Fee Options

We offer three Fee Amortization Methods: Amortized Fees, Leveled Fees, or Amortized Fees Over Expected Legal Tenor. The latter option allows a "multiplier" to be configured depending on the maturity duration.

 

Servicing Channel Assumptions

This will appear in Regional Assumptions if you configure your Servicing Channels to be setup at the Product and Regional level. This can be done in the Universal Assumptions tab within Administration. Please reach out to Support if you have any questions on if this option is right for your bank. 

 

Saving Changes

 

Once you are done editing you have three options.

• If you click "Save", your changes will be saved, to this region only.  Any regions that are descendants of this region will not be affected.
• If you click "Save and Propagate to Child Regions", your changes will be saved to this region, and all of the Region's configurations will become the settings of any regions listed as Descendant Regions, at the bottom of the page.
• If you click "Close", none of your changes will be saved.

 

Move a Region

You can move a child region to a different parent region. The Root Region that is named after your institution, cannot be moved.

When a region is moved, all of its users and settings are moved with it.

From the Regions & Users section, in Reporting Regions, click on the  next to the region you would like to move.

The following menu will open giving you the available regions that your selected region can be moved under:

 

Select the region that you would like to be the new parent.

Then, click the Finish button.

 

Delete a Region

If a region is no longer needed, you can delete the region. Please be mindful of the following:

• If there is a loan, deposit, and/or other product that was split out and made available in the region that needs to be disabled, disable the associated product(s) first. This can be done via the "Product Enabled" checkbox at the top of the product edit screen for the region being deleted.
• For products that remain enabled, any product assumptions that were assigned to the deleted region will be deleted and the products will use the assumptions of the parent region.
• All Users from the deleted region will be assigned to that region's parent. 
• For any existing Opportunity tied to a pricing region that has been deleted, the pricing region will not be updated to the home region of the lender assigned to the Opportunity. Here are some things to keep in mind prior to making the update:
  • To update an opportunity's pricing region to the owner's home region, one of the following will need to occur:
    • Update the opportunity's pricing date
    • Use Alternate Pricing Regions to update the region
    • Transfer the opportunity to another owner and then transfer the opportunity back to the current owner
  • If a user's visibility into other regions are limited, when a region is deleted, it may prevent users in the same region as the opportunity owner from being able to open the opportunity until the pricing region is updated.
• If the region you are deleting has sub-regions, these will not be deleted. They will be moved under the parent region.

From the Regions & Users section, in Reporting Regions, click the  icon next to the Region you wish to delete.

This dialog box will confirm what region that is and give the option to proceed or cancel.

 

Once you click "Delete & Save" your selected region will be deleted and all sub-regions and users will be moved to the parent region.