Embed Size (px)
DESCRIPTION
With increased regulatory scrutiny and proposed FASB changes, compiling the right data for the ALLL calculations is prudent for all financial institutions. Download the whitepaper to learn more: http://web.sageworks.com/best-data-for-reserve-calculations/
Citation preview
Presented by:
Regan Camp
Senior Risk Management Consultant
Sageworks
Financial information company that provides credit and
risk management solutions to financial institutions
Data and applications used by thousands of financial
institutions and accounting firms across North America
Provides resources for bankers, including whitepapers,
webinars, videos, and templates—accessible at
www.sageworksanalyst.com
Early-bird ends today!
When: December 5-6, 2013
Where: Gaylord Opryland
Resort & Convention Center in
Nashville, TN
Speakers and panels centered on ALLL and stress testing practices, as
well as breakout sessions for Sageworks Surety and Clarity users. The
summit will also feature plenty of networking and Q&A sessions.
web.sageworks.com/risk-management-summit/
Challenges of the ALLL
Important Data Collection Elements
Loan Portfolio Information
Collateral Valuations
Historical Loss Rates
Supporting Documentation for Qualitative Factors
Preparing for FASB’s CECL Model
The 2006 Interagency Policy Statement articulates:
“The ALLL represents one of the most significant
estimates in an institution’s financial statements
and regulatory reports… each institution has a
responsibility for developing, maintaining, and
documenting a comprehensive, systematic, and
consistently applied process for determining the
amounts of the ALLL and the provision for loan
and lease losses.”
Data collection is key!
Loan portfolio information
Collateral valuations and loan data for FAS 114
calculations
Historical loss data for FAS 5 calculations
Supporting data for qualitative adjustments to FAS 5
calculations
Difficult to extract the data for the allowance
unless the process is automated
Loan portfolio data for ALLL can be separated
as portfolio-level or loan-level information
Importance of measuring impairment
Fair Market Value of Collateral
Collateral-dependent
Reliance on up-to-date and accurate appraisal
information
Appraisal documentation
Effects of having outdated collateral valuations
Impact of historical loss rates on reserve amount
Two methods to calculate historical loss rates for their
FAS 5 pools:
1. Traditional historical loss rate calculation
2. Migration analysis
Loss Rate =
(Charge-offs – Recoveries)
Average Loan Balance
Loan-level metrics to track the migration of loans to
charge -off from different classifications in order to
generate the estimated loss.
The idea here is to measure the migration to loss for a
static group of loans in each risk classification and to use
that measurement to apply a loss rate to the current
balance of loans in that risk classification.
Traditionally subjective
Should be as objective and directionally
consistent as possible
- Data-driven
- Well-documented qualitative factors
Economic data from reputable sources
(e.g. Federal Reserve)
Internal reporting
(e.g. concentrations, delinquencies, etc.)
Final details unknown
The more granular the data, the better
When should I start?
For more information:
Regan Camp
(919) 851-7474 ext. 532
For more resources on the ALLL, visit:
www.sageworksanalyst.com/alll-methodology.aspx
