Self Attempt 01

Bank Branch Credit-Risk Lending Committee Skill

API Usage

• Base URL: http://34.46.77.124:8011 (from environment_access.md — ALWAYS override localhost references)
• Start: GET /api/manifest and GET /api/health to confirm connectivity and see record counts
• Key endpoints:
  • GET /api/branches — all branches (id, state, ceilings, capacity)
  • GET /api/branches/{id} — single branch detail
  • GET /api/branches/{id}/metrics — quarterly metrics (NPA, deposits, delinquency, charge-offs)
  • GET /api/branches/{id}/loans — loan portfolio with ratings, DSCR, LTV, FICO, payment status
  • GET /api/branches/{id}/sector-exposures — per-sector exposure, limit_pct, grandfathered flag
  • GET /api/branches/{id}/applications — pending applications
  • GET /api/policies — credit policy (ratings, CDFI, CRE score, stress, concentration rules)
  • GET /api/benchmarks/fdic/q4-2024 — FDIC benchmark ratios
  • GET /api/benchmarks/ncua/q1-2025 — NCUA state-level benchmarks
  • GET /api/credit-union-segments/{segment_id} — CU segment details, peer states, controls

Risk Rating Re-derivation (Dominant Factor Rule)

For ANY loan, re-derive the final_rating as the worst (highest numeric) rating from THREE factors:

Factor 1: DSCR Thresholds

Factor 2: LTV / Collateral Thresholds

Factor 3: Delinquency Floor (from payment_status)

Final rating = max(rating_dscr ?? 0, rating_ltv ?? 0, rating_delinquency ?? 0). Skip null factors. If ALL three factors are null/missing, keep the existing current_rating.

Material Downgrade

A downgrade is material when final_rating - current_rating >= 2 notches.

CDFI Factor Scoring (for watch-list / workout tasks)

Score each loan on 4 objective factors, then sum for total factor_score. Score null/missing factors as 0.

Risk Class from factor_score total:

Projected Loss field in workout queue: true when risk class is "Projected Loss", otherwise false.

CRE Weighted Scoring (for competing CRE decisions)

Five components, each scored 1-3 (lower is better), multiplied by weights:

Score = sum(component_score × weight). Rounded to 1 decimal.

Score classes: ≤2.0 → approve_quality, ≤3.0 → conditional, >3.0 → weak.

Default scoring logic (reasonable inferences from loan/application data):

• capacity: dscr>=1.50→1, >=1.25→2, <1.25→3 (or if docs incomplete → 3)
• capital: ltv<=0.60→1, <=0.80→2, >0.80 or null→3
• character: fico>720→1, 680-720→2, <680 or null→3; demote if prior_delinquencies>0 or existing_relationship_years<2
• collateral_exposure: sector current_exposure/sector_limit well within→1, near ceiling→2, over or close→3
• conditions: full docs_and_strong_purpose→1, incomplete_docs→2, adverse_terms→3

Stress Testing

Watch-List +200bp DSCR Stress (Summit style)

Formula: stressed_dscr = dscr / (1 + 0.18) Breach threshold: 1.00 (breaches when stressed_dscr < 1.00) Only apply to loans where DSCR is available (non-null).

CRE Dual-Stress (Harbor competing CRE style)

Formula: stressed_dscr = dscr * 0.85 / (1 + 0.18) Breach threshold: 1.00 (breaches when stressed_dscr < 1.00)

Label the watch-list shock as "+200bp" and the CRE formula as "dscr*0.85/(1+0.18)".

NPA Benchmark Variance (FDIC)

From metrics endpoint, use the most recent quarter (typically 2025Q1).

branch_npa_ratio = branch_npa_exposure / branch_total_loans (both from metrics)

Which FDIC metric and benchmark to use depends on the review type:

• For general portfolio: total_loans_noncurrent_pct (0.0098)
• For real-estate focused: total_real_estate_noncurrent_pct (0.0121)
• For construction: construction_development_noncurrent_pct (0.0076)
• For delinquency (30-89 day): total_real_estate_30_89_pct (0.0051)

variance_ratio = branch_npa_ratio - fdic_benchmark_ratio variance_bps = variance_ratio * 10000 (rounded to 2 decimals)

All ratios should be in decimal form (e.g., 0.0121 for 1.21%), precision 4 for ratios, precision 2 for bps and currency.

Concentration Rules

Sector Concentration

• Each sector has a limit_pct (from sector-exposures or branch.sector_ceiling_pct as default)
• current_exposure_pct = sector_exposure / branch.total_loans_outstanding (use metrics 2025Q1 total_loans)
• A sector is over limit when current_exposure_pct > limit_pct
• However, grandfathered sectors (grandfathered=1) — existing over-ceiling exposure may be grandfathered, but new approvals MUST NOT worsen it without mitigation
• After approving an application in a sector, recalculate: post_approval_pct = (sector_exposure + approved_amount) / total_loans

CRE-Specific Concentration

• cre_policy_limit_pct from branch detail
• existing_cre_exposure = sum of outstanding balances for all loans with loan_type "CRE"
• existing_cre_concentration = existing_cre_exposure / total_loans_outstanding
• selected_post_approval_cre_concentration = (existing_cre_exposure + selected_app_amount) / total_loans_outstanding
• selected_policy_variance_bps = (selected_post_approval_cre_concentration - cre_policy_limit_pct) * 10000

Lending Capacity

• lending_capacity_q1 is the branch's Q1 capacity
• committed_capacity_amount = sum of approved amounts for all approved/conditional applications
• remaining_capacity = lending_capacity_q1 - committed_capacity_amount
• bank_capacity_used per application = approved_amount if approved, 0 if declined
• All capacity and exposure fields: precision 2, units USD

Application Mitigations (from policy)

Allowed mitigations for concentration breaches: participation_required, reduced_amount, board_exception

Application Decision Logic

Decision Values (enum)

approve, conditional_approve, decline, defer, participation_required

Conditions (enum)

participation_required, reduced_amount, board_exception, sba_guaranty_required, startup_monitoring, none

Decline Reason Codes

capacity_limit, sector_breach, weak_dscr, high_ltv, low_fico, recent_bankruptcy, startup_risk, underwater_collateral, policy_floor_missing, documentation_gap, fdic_adverse_variance, ncua_peer_weakness

Priority Ranking

Sorted list of application_ids from highest to lowest priority among approved and conditionally approved only. Prioritize by: strongest DSCR → lowest LTV → strongest FICO → most relationship years.

Decision Heuristics

• approve: meets all credit metrics (DSCR≥1.25, LTV≤0.80, FICO≥680), no sector breach, capacity available
• conditional_approve: meets most metrics but has a mitigatable weakness (sector near ceiling, startup risk, thin DSCR≥1.05), needs conditions like sba_guaranty_required or reduced_amount
• decline: multiple adverse factors (DSCR<1.0, LTV>1.0, FICO<580, recent bankruptcy, sector breach with no mitigation)
• defer: documentation incomplete, missing key data
• participation_required: credit quality is acceptable but branch lacks capacity or sector ceiling breached — use participation

Credit Union Segment Posture

Posture Choices

continue_approving, continue_with_tighter_conditions, temporarily_pause

State Benchmark Metrics (from NCUA)

• delinquency_bps: integer as reported
• loan_to_share_pct: integer as reported
• roaa_bps: integer as reported
• positive_net_income_pct: integer as reported

Peer Comparison

For each metric, compare NC's value to the comparison (peer median or US):

• higher / lower / equal

NCUA "US" row represents national values. Peer median is the median of the segment's peer_states values.

Controls

Required checklist gates (from segment minimum_checklist plus constraints): board_authorization, equipment_invoice, fleet_replacement_plan, payer_contract_summary, public_contract_or_tax_support, proof_of_insurance, ucc_or_title_lien

Added operating controls based on segment risk: pre_close_insurance_binder_verification, lien_perfection_prior_to_funding, senior_underwriter_second_review, quarterly_state_benchmark_monitoring, monthly_segment_delinquency_watch, committee_exception_for_capacity_overrun

Escalation Triggers

Match conditions to owners:

• segment_recent_delinquency_ge_90_bps → credit_risk_manager
• missing_insurance_or_lien_exception → operations_control_manager
• quarterly_capacity_exceeded_or_exception_requested → lending_committee_chair
• state_delinquency_gap_widens_25_bps → credit_risk_manager

Interpretation

• capacity_status: capacity_available if remaining capacity > 0, capacity_constrained if near limit, no_capacity if exhausted
• external_risk_status: compare NC to national and peers on delinquency and ROAA — stronger_than_national_and_peers, mixed_vs_national_and_peers, weaker_than_national_and_peers
• risk_tolerance: from segment or policy — restrained, moderate, expansive
• committee_message: routine_approval_path_supported, capacity_available_but_external_risk_weaker, pause_until_state_metrics_recover

Watch-List Actions Enum

monitor, watchlist, special_assets, workout, partial_chargeoff_review, legal_referral

Escalation mapping (by risk severity):

• Prime → monitor
• Desirable → monitor
• Satisfactory → monitor
• Watch → watchlist
• Doubtful → workout or special_assets
• Projected Loss → partial_chargeoff_review or legal_referral
• Nonaccrual payment status → escalate one tier higher
• 90+ Days Past Due → special_assets minimum

Payment Status Enum

Current, 30 Days Past Due, 60 Days Past Due, 90+ Days Past Due, Nonaccrual

Sorting / Ordering Conventions (CRITICAL — the templates enforce these)

Rounding / Precision Rules

Common Pitfalls

1. Delinquency floor applies even when DSCR/LTV are strong — a 90+ Days Past Due loan with great DSCR still gets a rating floor of 7
2. Null factors are SKIPPED, not scored as 0 — if only payment_status is "Current" (no floor) and DSCR/LTV are both null, keep the existing rating; don't force it to 0
3. Nonaccrual is rating-8 floor, not 7 — per the delinquency minimums table
4. FDIC benchmarks are in decimal form — multiply by 10000 for bps comparisons, not 100
5. CRE concentration uses CRE loan_type only, not all real estate loans — check total CRE balance, not just sector
6. Grandfathered sectors can remain over-limit but new approvals must not increase the breach
7. Sector limit_pct varies per sector — check sector-exposures, don't blindly use branch.sector_ceiling_pct for every sector
8. DSCR stress ONLY applies to loans where DSCR is available — skip null-DSCR loans in stress_results list
9. Material downgrade is >= 2 notches — downgrades of exactly 1 notch are NOT material
10. Projected Loss requires both factor_score >= 19 AND ltv > 1.0 — if only one condition meets, it's Doubtful
11. bank_capacity_used = 0 for declined/deferred applications, not the requested amount
12. Watch-list formula uses /(1+0.18), while CRE dual-stress uses *0.85/(1+0.18) — they are different
13. The by_action array in watch_list_action_coverage must use action enum values: monitor, watchlist, special_assets, workout, partial_chargeoff_review, legal_referral
14. For competing CRE: only ONE application gets selected; the unselected gets disposition "decline" or "defer" with reason codes from the unselected_reason_codes enum (sector_breach, weak_dscr, high_ltv, fdic_adverse_variance)
15. Answer template enums are EXACT — never invent values; use only what the template or policy allows