2.
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
Awards
◦ Named to Inc. 500 list of fastest growing privately
held companies in the U.S.
◦ Named to Deloitte’s Technology Fast 500
3.
Ancin Cooley, CIA, CISA, is the Founder and Managing
Principal of Synergy Bank Consulting, Inc., the risk
management advisory firm dedicated to helping financial
institutions optimize their security, compliance and business
performance.
Ancin brings deep, first-hand experience gained from
working for the Office of the Comptroller of the Currency
(OCC) as an examiner. During his tenure at the OCC, he
performed safety and soundness examinations at community
and mid-size banks that ranged from $100 million to $4
billion dollars in total assets located in Georgia, South
Carolina, North Carolina, and Florida. After leaving the OCC,
Ancin worked for a regional accounting firm where he led
loan reviews and internal audits.
Ancin specializes in preparing financial institutions for
regulatory exams, process improvement, and project
management. When not advising clients, training for
triathlons, or hanging out with his young son, Ancin designs
and conducts targeted professional development trainings for
the banking industry.
ANCIN COOLEY, CIA, CISA
Principal, Synergy Bank Consulting Inc.
www.synbc.com
11.
What are Qualitative Factors (Q-Factors)?
What are the regulatory expectations?
How can we improve the documentation of
our Q-Factors?
12. Interagency Policy Statement on the Allowance for
Loan and Leases (the guidance), requires that the
ALLL methodology must estimate credit losses on
groups of loans with similar risk characteristics
(homogeneous pools) in accordance with Generally
Accepted Accounting Principles (GAAP) under ASC
450-20, Accounting for Contingencies.
17. Commercial Loans
Loans to Individuals
Net Avg. Loss
2.25%
Net Avg. Loss
1.15%
Real Estate Loans
Net Avg. Loss
1.75%
18. Environmental factors are used to reflect
changes in the collectability of the portfolio
not captured by the historical loss data.
These factors augment actual loss experience
and help to estimate the probability of loss
within a loan portfolio based upon emerging
or inherent risk trends.
19. Changes in lending policies and procedures, including
changes in underwriting standards and collection, chargeoff, and recovery practices not considered elsewhere in
estimating credit losses.
Changes in international, national, regional, and local
economic and business conditions and developments that
affect the collectability of the portfolio.
Changes in the nature and volume of the portfolio and in the
terms of loans.
20. Changes in the experience, ability, and depth of lending
management and other relevant staff.
Changes in the volume and severity of past due loans, the
volume of nonaccrual loans, and the volume and severity of
adversely classified or graded loans.
Changes in the quality of the institution’s loan review
system.
Changes in the value of underlying collateral for collateraldependent loans.
The existence and effect of any concentrations of credit, and
changes in the level of such concentrations.
21. ASC 450-20 (formerly FAS 5)
Historical Net
Charge-offs
Q-Factors
Q-factors are used to reflect
changes in the collectability of
the portfolio not captured by the
historical loss data
23. Excerpts from 2006 Interagency Policy Statement on the ALLL
The determination of the amounts of the ALLL should be based on management’s current judgments
about the credit quality of the loan portfolio, and should consider all known relevant internal and external
factors that affect loan collectability as of the evaluation date. Management’s evaluation is subject to
review by examiners.
The board of directors is responsible for overseeing management’s significant
estimates pertaining to the determination of an appropriate ALLL.
judgments and
Determining the appropriate level for the ALLL is inevitably imprecise and requires a high degree of
management judgment. Management’s analysis should reflect a prudent, conservative, but not
excessive ALLL that falls within an acceptable range of estimated credit losses.
Management should maintain reasonable documentation to support which factors affected the analysis
and the impact of those factors on the loss measurement..
24.
Assess appropriateness of ALLL and supporting
documentation
Assess effectiveness of board oversight and the quality of
the loan review system
Evaluate ALLL policies, procedures, and methodology
Assess whether institution appropriately considered
historical loss experience and all significant qualitative or
environmental factors
25.
Ensure that management appropriately applied FAS 114 and
FAS 5
Review any loss estimation models
Review appropriateness and reasonableness of the overall
level of the ALLL
Review the adequacy of ALLL documentation
33. Changes in the experience, ability, and depth of lending
management and other relevant staff.
Changes in the volume and severity of past due loans, the
volume of nonaccrual loans, and the volume and severity of
adversely classified or graded loans.
Changes in the quality of the institution’s loan review
system.
Changes in the value of underlying collateral for collateraldependent loans.
The existence and effect of any concentrations of credit, and
changes in the level of such concentrations.
34. ①Don’t
wait to last day before the meeting to document your
Q- Factors.
①Share
ALLL.
the load. Use a team approach to documenting your
②Every
time you change your Q-factors make sure you have the
corresponding data to support the change. Directional
Consistency is key.
③Document
in your ALLL methodology the financial indicators
that drive the changes to your Q-factors
35. Use the free information available on the internet.
⑤
⑥
⑤
http://research.stlouisfed.org
Uniform Bank Performance Report
Use the process of documenting your qualitative
factors as an opportunity to assess your current
economic environment, trends in your loan portfolio,
and risk management practices.
Incorporate the data from your portfolio stress process
into your ALLL documentation.
