ALLL Not the SameSurvey Reveals Widely Divergent

Approaches to the ALLL

Banks responding to a recent survey on Estimating the ALLL

• From across the United States40 states

• Variety of asset size $60 million to $1 trillion

• Equal participation from public and private institutions

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

Perc

enta

ge

Methodology

Quantitative ALLL Methodology Used

Historical LossRate

Loss Migration:PD/LGD

Loss Migration:Historical

Other

Note: Survey shows banks using multiple methodologies.

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

Perc

enta

ge

Segmentation

Segmentation Used to Estimate ALLLLoan ProductTypeRisk Rating

Collateral Type

Geography

OriginationValueOther

Note: Survey shows banks using multiple approaches to segmentation.

Loss Emergence Period

• 30.86% use a Loss Emergence Period (LEP)

• LEP range used is wide3 – 23 quarters | one and two years being

most popular• Almost 50% use different LEPs for different

categories of loans

48%

42%

10%

Highly Manual

Blend of Manual andQuantitative

Quantitative based on datafeeds and matrices

Qualitative Adjustments Process

54%

45%

Maintain UnallocatedReserves

No Unallocated Reserves

Unallocated Reserves

In Conclusion . . . Overall, responses reveal a wide range of approaches to the ALLL among the financial institutions that responded to our survey. Such diversity is indication of both the complexity surrounding the allowance and the need for each bank to address its allowance uniquely with methods and practices that best suit its portfolio and the community it serves.

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About MSTSince 2005, MST has implemented technology solutions to help financial institutions simultaneously simplify and sophisticate the way they manage the inherent risk in their loan portfolios. MST is the leader and pioneer in ALLL software solutions and education for financial institutions across the U.S. and committed to its leadership role in developing and refining products that address ALLL compliance requirements as they evolve, including the new CECL standard. Our solutions are bank-defined, integrate with core systems, deliver greater adherence to policy, and exponentially improve efficiencies - all of which positively impact profitability.

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