In the aftermath of the 2008 financial crisis, regulators have made the Allowance for Loan and Lease Losses a point of emphasis, as a signal to indicate a financial institution’s ability to withstand and absorb the losses that have ensued. With over 400 bank failures since 2009, regulators interpret an inadequate
ALLL as a key barometer of financial health, and as a result, they have been placing more pressure on surviving institutions to appropriately calculate
adequate ALLL provisions.
Qualitative Risk Factors: How to Add Objectivity to an Otherwise Subjective Taskvimster
These qualitative adjustments are a challenge because they are inherently subjective in nature. The 2006 Interagency Policy Statement on the ALLL provides little direction on how these determinations should be made, advising only that “management should consider those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the group's historical loss experience.” It further vaguely explains that these determinations are to be “based on a comprehensive, well-documented and consistently applied analysis of its loan portfolio.”
Migration Analysis: The Way Forward for an Effective ALLL.
Financial institutions will learn about using migration analysis as a methodology to calculate their ALLL. The content covers: the process of migration analysis, how the methodology is viewed by regulators, challenges financial institutions face in implementing the methodology, benefits of using migration analysis compared to other methods, and an overview of recommendations for a financial institution considering implementing migration analysis.
Learning Objectives:
1) To understand what Migration Analysis is, and its role in calculating the ALLL.
2) To understand how Migration Analysis differs from other methodologies used in calculating a financial institution’s ALLL.
3) To gain an understanding of how Migration Analysis works within a loan portfolio.
4) To identify key requirements a financial institution needs to implement Migration Analysis, and how they can pose challenges.
5) To learn how Migration Analysis is viewed by regulators/regulation.
6) To identify the key benefits of using Migration Analysis over other methodologies.
7) To identify preparations a financial institution can take to transition from an existing methodology to Migration Analysis.
8) To understand how the advent of automated solutions has simplified Migration Analysis for financial institutions.
CECL Methodology Series for Consumer Loan PoolsLibby Bierman
Recording: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar series, Sageworks consultants review the different loss rate methodologies that will be available for banks and credit unions under CECL and their applicability for different loan segments. In this session, they look at consumer loan pools and accounting for them under CECL.
Go "Beyond Benchmarking" with Sightlines' ROPA+ ServicesSightlines
You understand how critical it is to take control of our facilities strategies, and eliminate the guesswork so you can optimize operations and capital investments.
Now you can go "Beyond Benchmarking" to make the case for change with ROPA+, the intelligent facilities solution that empowers you to optimize operations and capital investments over time!
Learn how the new ROPA+ Service will allow you to make more informed policy and strategic decisions based on a comprehensive and unique offering that leads a process of: Discovery, Prediction and Performance.
During the CECL Methodology Webinar Series (http://web.sageworks.com/cecl-methodology-webinar-series/) questions from attendees have been compiled and answered. Access the recording to hear all the answers and dialogue: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar, Sageworks consultants explained the role that forecasting can have in preparation for the FASB's CECL model and under the new accounting guidance. Access the recording at http://web.sageworks.com/cecl-methodology-webinar-series/
CECL - Understanding Data Requirements for Expected LossesLibby Bierman
In the webinars, Sageworks presents an overview of data requirements for the expected credit losses. They look at common data pitfalls for community banks and how they can start to bridge data gaps.
Qualitative Risk Factors: How to Add Objectivity to an Otherwise Subjective Taskvimster
These qualitative adjustments are a challenge because they are inherently subjective in nature. The 2006 Interagency Policy Statement on the ALLL provides little direction on how these determinations should be made, advising only that “management should consider those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the group's historical loss experience.” It further vaguely explains that these determinations are to be “based on a comprehensive, well-documented and consistently applied analysis of its loan portfolio.”
Migration Analysis: The Way Forward for an Effective ALLL.
Financial institutions will learn about using migration analysis as a methodology to calculate their ALLL. The content covers: the process of migration analysis, how the methodology is viewed by regulators, challenges financial institutions face in implementing the methodology, benefits of using migration analysis compared to other methods, and an overview of recommendations for a financial institution considering implementing migration analysis.
Learning Objectives:
1) To understand what Migration Analysis is, and its role in calculating the ALLL.
2) To understand how Migration Analysis differs from other methodologies used in calculating a financial institution’s ALLL.
3) To gain an understanding of how Migration Analysis works within a loan portfolio.
4) To identify key requirements a financial institution needs to implement Migration Analysis, and how they can pose challenges.
5) To learn how Migration Analysis is viewed by regulators/regulation.
6) To identify the key benefits of using Migration Analysis over other methodologies.
7) To identify preparations a financial institution can take to transition from an existing methodology to Migration Analysis.
8) To understand how the advent of automated solutions has simplified Migration Analysis for financial institutions.
CECL Methodology Series for Consumer Loan PoolsLibby Bierman
Recording: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar series, Sageworks consultants review the different loss rate methodologies that will be available for banks and credit unions under CECL and their applicability for different loan segments. In this session, they look at consumer loan pools and accounting for them under CECL.
Go "Beyond Benchmarking" with Sightlines' ROPA+ ServicesSightlines
You understand how critical it is to take control of our facilities strategies, and eliminate the guesswork so you can optimize operations and capital investments.
Now you can go "Beyond Benchmarking" to make the case for change with ROPA+, the intelligent facilities solution that empowers you to optimize operations and capital investments over time!
Learn how the new ROPA+ Service will allow you to make more informed policy and strategic decisions based on a comprehensive and unique offering that leads a process of: Discovery, Prediction and Performance.
During the CECL Methodology Webinar Series (http://web.sageworks.com/cecl-methodology-webinar-series/) questions from attendees have been compiled and answered. Access the recording to hear all the answers and dialogue: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar, Sageworks consultants explained the role that forecasting can have in preparation for the FASB's CECL model and under the new accounting guidance. Access the recording at http://web.sageworks.com/cecl-methodology-webinar-series/
CECL - Understanding Data Requirements for Expected LossesLibby Bierman
In the webinars, Sageworks presents an overview of data requirements for the expected credit losses. They look at common data pitfalls for community banks and how they can start to bridge data gaps.
In this webinar, Sageaworks presents some of the methodologies that institutions are most likely to use with CRE or commercial real estate pools under the CECL model. The recording is accessible here: http://web.sageworks.com/cecl-methodology-webinar-series/
This presentation discusses the criteria an institution should use to evaluate its ALLL, recommendations and best practices to support a change and key areas examiners investigate after a significant change to the ALLL. See how automation can help: http://web.sageworks.com/alll/
Discounted Cash Flow Methodology for Banks and Credit UnionsLibby Bierman
As institutions prepare for the CECL or current expected credit loss model for the allowance for loan and lease losses (ALLL), institutions are prudently learning the various methodologies available to them. Discounted Cash Flow or DCF is one proposed methodology. This session presents best practices and use cases for the ALLL methodology. See the recording: http://web.sageworks.com/dcf-webinar/
Digitizing SMB loans: Overcoming speed and borrower experience concernsLibby Bierman
Banks and Credit Unions can take a look at digitizing their business lending process, with the advantages of both improving the borrower experience and increasing scale.
HVCRE (high volatility commercial real estate): A PrimerLibby Bierman
In this webinar from Sageworks we cover the definition of High Volatility Commercial Real Estate (HVCRE) and best practices for mitigating concentration risk at banks and credit unions. Access this and other webinars at https://www.sageworks.com/banking/resources/bank-webinars/
In a recent poll, 42% of bankers indicated that commercial real estate is the primary focus for growth in the loan portfolio. At the same time, regulators are concerned that CRE may be overheating as lending standards have eased and CRE portfolios have experienced significant growth.
In this webinar from Sageworks (see recording: http://web.sageworks.com/eliminate-manual-data-entry/), consultant Bryce Lugar reviews best practices for document management in the life of the loan, explaining how banks and credit unions can reduce paper waste, inefficiency and data risk in credit analysis.
In this webinar we cover the new and exciting product innovations from the Centricity EDI team. We also share how our customers have improved their A/R and collection rates with the use of these solutions.
Since the precipice of the financial crisis, the Financial Accounting Standards Board (FASB) has been considering changes to the allowance
model, due to criticisms that the current model does not adequately estimate losses until it is too late.
Responding to those concerns and in an attempt to simplify impairment guidance for financial institutions,
FASB has issued several exposure drafts of proposed models to take into account “expected losses” rather than the current “incurred loss” model. On December 20, 2012, FASB issued a new version of an exposure draft
outlining a new “Current Expected Credit Losses” model with its Accounting Standards Update (ASU) Financial Instruments—Credit Losses (Subtopic 825-15).
Migration analysis is a rigorous analytical process recommended by the regulatory agencies to determine financial institutions’ ALLL; yet it is underutilized. This type of analysis uses loan level attributes to track the movement of loans through the various loan classifications in order to estimate the percentage of losses likely to be incurred in a financial institution’s current portfolio.2 The purpose of migration analysis is to determine what rate of loss an institution has incurred on similarly criticized or past due loans.3 This purpose is the same as that of historical loss rate analysis, but it is more granular and therefore can give a truer reflection of the losses inherent in the current portfolio. For proper application, migration analysis requires extensive data collection and consistent, prudent risk rating methodology. The following outlines the problems and benefits of the migration analysis approach.
The CECL Workshop Series Part I: Crafting Your Implementation PlanLibby Bierman
The FASB’s CECL guidance is expected to be released in the first half of 2016. Implementation will be required in 2019 or 2020, but it is imperative to start readying a plan now. You know the basics of CECL, now learn actionable ways to prepare your institution. In Part I of this webinar series, professionals from Sageworks and CliftonLarsonAllen provided the latest information, factors your institution should consider when crafting a CECL implementation plan, example timelines for CECL implementation planning, important data components, how to future-proof your ALLL and the pitfalls of repurposing historical loss calculations for CECL.
Turn the STRESS in Stress Testing (Bank Loan Portfolios) into an Empowering E...Gateway Asset Management
Sponsored by Gateway Asset Management, this webinar document covers:
> Stress vs. Empowerment
> Primary Regulatory and Accounting Catalysts
> CECL- Current Expected Credit Loss Model/ALLL
> Stress Testing – Loan Portfolios
> Why Prepare for CECL and Stress Testing At The Same Time?
> Life-of-Loan "Base Case" & Stress Testing - Foundation - Building Blocks
> Models – Different sources and levels of sophistication
> Use of Models - Regulatory Guidance
> Why Start Preparing for CECL and Stress Testing Now?
Credit Unions will have to alter they way they account for credit losses as part of their allowance for loan and lease losses, assuming the FASB finalizes the CECL accounting standard in Q1 of 2016. In this presentation, learn what is changing for credit unions' ALLL and how to prepare.
The FASB is expected to release its CECL or Current Expected Credit Losses Model in Q1 of 2016. The new accounting standard will impact the way banks calculate their allowance for loan and lease losses, forcing institutions to make some procedural changes to the way they account for credit risk.
WNS’ commercial banking solutions coupled with cutting-edge transformational solutions enable superior customer experience & cost-effective commercial banking operations.
Get more details on - https://s3.wns.com/S3_5/Documents/Articles/PDFFiles/7064/274/3_Step_Changes_That_Transform_Commercial_Credit_Appraisal.pdf
FASB has set the implementation timeline for calculating the ALLL using the current expected credit losses model (CECL). Discover 5 things your bank or credit union can do now to prepare for implementation
In this webinar, Sageaworks presents some of the methodologies that institutions are most likely to use with CRE or commercial real estate pools under the CECL model. The recording is accessible here: http://web.sageworks.com/cecl-methodology-webinar-series/
This presentation discusses the criteria an institution should use to evaluate its ALLL, recommendations and best practices to support a change and key areas examiners investigate after a significant change to the ALLL. See how automation can help: http://web.sageworks.com/alll/
Discounted Cash Flow Methodology for Banks and Credit UnionsLibby Bierman
As institutions prepare for the CECL or current expected credit loss model for the allowance for loan and lease losses (ALLL), institutions are prudently learning the various methodologies available to them. Discounted Cash Flow or DCF is one proposed methodology. This session presents best practices and use cases for the ALLL methodology. See the recording: http://web.sageworks.com/dcf-webinar/
Digitizing SMB loans: Overcoming speed and borrower experience concernsLibby Bierman
Banks and Credit Unions can take a look at digitizing their business lending process, with the advantages of both improving the borrower experience and increasing scale.
HVCRE (high volatility commercial real estate): A PrimerLibby Bierman
In this webinar from Sageworks we cover the definition of High Volatility Commercial Real Estate (HVCRE) and best practices for mitigating concentration risk at banks and credit unions. Access this and other webinars at https://www.sageworks.com/banking/resources/bank-webinars/
In a recent poll, 42% of bankers indicated that commercial real estate is the primary focus for growth in the loan portfolio. At the same time, regulators are concerned that CRE may be overheating as lending standards have eased and CRE portfolios have experienced significant growth.
In this webinar from Sageworks (see recording: http://web.sageworks.com/eliminate-manual-data-entry/), consultant Bryce Lugar reviews best practices for document management in the life of the loan, explaining how banks and credit unions can reduce paper waste, inefficiency and data risk in credit analysis.
In this webinar we cover the new and exciting product innovations from the Centricity EDI team. We also share how our customers have improved their A/R and collection rates with the use of these solutions.
Since the precipice of the financial crisis, the Financial Accounting Standards Board (FASB) has been considering changes to the allowance
model, due to criticisms that the current model does not adequately estimate losses until it is too late.
Responding to those concerns and in an attempt to simplify impairment guidance for financial institutions,
FASB has issued several exposure drafts of proposed models to take into account “expected losses” rather than the current “incurred loss” model. On December 20, 2012, FASB issued a new version of an exposure draft
outlining a new “Current Expected Credit Losses” model with its Accounting Standards Update (ASU) Financial Instruments—Credit Losses (Subtopic 825-15).
Migration analysis is a rigorous analytical process recommended by the regulatory agencies to determine financial institutions’ ALLL; yet it is underutilized. This type of analysis uses loan level attributes to track the movement of loans through the various loan classifications in order to estimate the percentage of losses likely to be incurred in a financial institution’s current portfolio.2 The purpose of migration analysis is to determine what rate of loss an institution has incurred on similarly criticized or past due loans.3 This purpose is the same as that of historical loss rate analysis, but it is more granular and therefore can give a truer reflection of the losses inherent in the current portfolio. For proper application, migration analysis requires extensive data collection and consistent, prudent risk rating methodology. The following outlines the problems and benefits of the migration analysis approach.
The CECL Workshop Series Part I: Crafting Your Implementation PlanLibby Bierman
The FASB’s CECL guidance is expected to be released in the first half of 2016. Implementation will be required in 2019 or 2020, but it is imperative to start readying a plan now. You know the basics of CECL, now learn actionable ways to prepare your institution. In Part I of this webinar series, professionals from Sageworks and CliftonLarsonAllen provided the latest information, factors your institution should consider when crafting a CECL implementation plan, example timelines for CECL implementation planning, important data components, how to future-proof your ALLL and the pitfalls of repurposing historical loss calculations for CECL.
Turn the STRESS in Stress Testing (Bank Loan Portfolios) into an Empowering E...Gateway Asset Management
Sponsored by Gateway Asset Management, this webinar document covers:
> Stress vs. Empowerment
> Primary Regulatory and Accounting Catalysts
> CECL- Current Expected Credit Loss Model/ALLL
> Stress Testing – Loan Portfolios
> Why Prepare for CECL and Stress Testing At The Same Time?
> Life-of-Loan "Base Case" & Stress Testing - Foundation - Building Blocks
> Models – Different sources and levels of sophistication
> Use of Models - Regulatory Guidance
> Why Start Preparing for CECL and Stress Testing Now?
Credit Unions will have to alter they way they account for credit losses as part of their allowance for loan and lease losses, assuming the FASB finalizes the CECL accounting standard in Q1 of 2016. In this presentation, learn what is changing for credit unions' ALLL and how to prepare.
The FASB is expected to release its CECL or Current Expected Credit Losses Model in Q1 of 2016. The new accounting standard will impact the way banks calculate their allowance for loan and lease losses, forcing institutions to make some procedural changes to the way they account for credit risk.
WNS’ commercial banking solutions coupled with cutting-edge transformational solutions enable superior customer experience & cost-effective commercial banking operations.
Get more details on - https://s3.wns.com/S3_5/Documents/Articles/PDFFiles/7064/274/3_Step_Changes_That_Transform_Commercial_Credit_Appraisal.pdf
FASB has set the implementation timeline for calculating the ALLL using the current expected credit losses model (CECL). Discover 5 things your bank or credit union can do now to prepare for implementation
Backtesting - Measuring the Effectiveness of your ALLLLibby Bierman
Backtesting is an exercise that compares the actual outcome with model forecasts during a defined period, a period of time that was not used to develop the methodology. In these slides, financial institutions learn about backtesting their ALL or allowance for loan and lease losses.
Example Of Business Operations Analysis Powerpoint Presentation SlidesSlideTeam
Get this attention-grabbing Example Of Business Operations Analysis PowerPoint Presentation Slides to increase the value of your enterprise. This business process analysis PPT slide deck consists of a varied range of templates like market size globally, infrastructure services, key funding areas, technology trends in infrastructure, drivers for sustainable infrastructure management. Describe the asset management process by utilizing business operation management PPT templates. You can also discuss your business goals and expectations with the help of this slide deck. These slides also help in analyzing the current financial situation of the firm. Discuss the implementation of the new financial plan by using our engaging PPT infographics. Depict the stages of asset management lifecycle like procurement, retirement, and disposal, deploy and discover. Take the assistance of this business operations example PPT slide deck to discuss deterioration modeling. You can further explain types of models like asset deterioration modeling, risk assessment, and deterioration modeling. Provide information on value-driven decision-making methodology, asset management decision journey, performance, and cost function. Plan your operations efficiently by downloading these strategic planning process PPT visuals. https://bit.ly/3wACUEv
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1. How to support changes
in the ALLL reserve
Sageworks, Inc.
Ed Bayer
Regan Camp
1
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
2. In the aftermath of the 2008 financial crisis, regulators have made the Allowance for
Loan and Lease Losses a point of emphasis, as a signal to indicate a financial
institution’s ability to withstand and absorb the losses that have ensued. With over
400 bank failures since 2009, regulators interpret an inadequate
ALLL as a key barometer of financial health, and as a result, they
have been placing more pressure on surviving institutions to appropriately calculate
adequate ALLL provisions.
Many institutions have taken this pressure and regulator influence, along with fear of
past and perhaps future consequences, as motivation to increase their respective
ALLL provision. For some banks, this is likely needed, given the pitfalls of an
understated ALLL. However, it is important to follow accounting guidance to ensure
an accurate ALLL estimation, rather than increase it arbitrarily because of pressure
from regulators. As the OCC stated in March 1997:
“An understated ALLL expense will overstate the bank’s earnings and can
result in the violation of law;”
Conversely, an overstated ALLL expense can understate and limit the bank’s
earnings.1 Overstating an ALLL expense is not prudent to shareholders or boards of
directors nor is it, in light of recent pressure, recommended by regulatory guidance.
1
The Director’s Book: The Role Of The National Bank Director; The Office of the Comptroller of the Currency;
March 1997
2
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
3. Therefore, institutions may be asking:
“If I feel I have an overstated ALLL, how can I decrease my
provision?”
Before that question can be answered, it’s best to answer another question first –“As
a financial institution, am I following the guidance released in the 2006 Interagency
Policy Statement?”
The 2006 Interagency Policy Statement makes it clear that in order to estimate a
proper ALLL provision, the analysis of a financial institution’s loan portfolio should
be:2
• Comprehensive
• Well Documented
• Consistently Applied
• Inclusive of Environmental and Qualitative Risk Factors
Comprehensive
The ALLL calculation has become a cumbersome and complicated process given the
complexity of the loan portfolios at financial institutions. Excel, a widely used tool for
2
Interagency Policy Statement on the Allowance for Loan and Lease Losses; OCC, FDIC, NCUA, OTS, Fed Board of
Governors; 2006
3
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
4. determining the ALLL provision, is relatively weak and error-prone when it comes to
complex analyses. As such, relative to ALLL-specific solutions, Excel is not well
equipped to handle the complex reserve calculations that
are now necessary. Using a more comprehensive approach to calculating the
ALLL provision is one step to justify an ALLL decrease, and there needs to be a
process in place to support it.
A more comprehensive approach can be accomplished by one or more of the
options below:
• De novo institutions changing from peer group loss rates to true historical
loss rates after their de novo status ends.
• Moving from historical loss rates to migration analysis.
• Using automated software that provides more detailed analysis, which Excel is
unable to provide without incurring excessive costs or room for additional
error.
4
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
5. Proper Documentation
The Interagency Policy Statement also points out that a ‘well documented’ analysis is
required. This should seem intuitive in nature yet most institutions could still
improve. Undoubtedly, there is a cost to each institution, regardless of size, for
creating the documentation needed to support each ALLL calculation. Web-based
software can reduce the time required for the analysis and improve documentation.
It does so by maintaining existing impaired loan calculations, pulling in graphs from
the Federal Reserve Economic Data, showcasing past environmental factor changes
in accordance with changes in relativity data, and, in turn, proving directional
consistency in the institution’s ALLL calculation. The better documented an
institution’s ALLL calculation, the more evident it is that the calculation is sound,
justified, and in compliance with accounting guidance.
Consistency
Examiners and regulatory guidance call for a consistently applied analysis in
determining a financial institution’s ALLL reserve amount. This may seem like a
difficult obstacle if it requires a methodology change, such as peer groups to
historical loss rates, historical loss rate to migration analysis, or the move from using
an Excel-based calculation to implementing a web-based software solution. Yet,
regulatory guidance supports changes that result in a more
granular and detailed analysis. For example, a change to migration
analysis for larger banks is not only accepted by examiners, but it is also recognized
5
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
6. for its sophistication and accuracy. In fact, regulatory criticism is often reduced after
such a change, even with an outcome resulting in decreased ALLL provisions.
Similar experiences dictate that moving from a complex, manual set of multi-tab
Excel files to a software application can lead to less regulatory criticism. Software
solutions also provide a level of subject matter expertise
and eliminate a degree of human error through automation.
The structure of software encourages and makes it easier for better documentation,
along with more comprehensive and granular analysis, while reducing subjectivity
from environmental and qualitative factors.
Environmental and Qualitative Factors
Environmental and qualitative factors are vital to regulators’ guidance on a financial
institution’s ALLL provision. These factors are subjective in nature and are often the
area in an ALLL calculation most susceptible to examiner criticism. Therefore, it is
important to take action to limit the subjectivity while increasing objectivity. Using
any or all of the following six steps can significantly limit negative examiner
feedback, while improving your environmental and qualitative factor calculations:
• Follow Interagency Guidance
• Create a Standard Process of Review
• Utilize Current Market Information
• Ensure Directional Consistency
6
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
7. • Conduct Correlation Analysis
• Use Back-Testing as a Method of Validation
So, to repeat the question “How can a financial institution justify a decrease to their
ALLL provision?” The response is – An institution can justify a decrease if it’s
following the guidance released in the 2006 Interagency Policy Statement.
Institutions can further improve upon their ALLL and conduct a more
granular, robust ALLL provision analysis by moving to migration analysis, by
switching to ALLL-focused software, removing subjectivity in
environmental factors, or combining all these improvements.
This process very well may show a decrease in the required reserve. Will this raise an
examiner’s eyebrow? Likely. Teresa Curran, the director of banking supervision and
regulation for the Federal Reserve Bank of San Francisco, in June 2011’s ”Supervisory
Spotlight,“ noted that examiners watch certain areas more closely
when an ALLL decrease occurs.
Areas watched with greater scrutiny include:
• Showing adequate support for a reduction of the allowance due to improved
qualitative factors
• Studying impaired loan analysis for excessive optimism for cash flow
expectations.3
3
The ALLL Triple Play; Linda Keith CPA; 2011
7
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
8. However, the decrease in your reserve can be justified and supported by
regulatory and accounting guidance by:
• Performing a more detailed, robust analysis.
• Providing increased and richer documentation to strengthen the reasoning
behind your ALLL calculation.
• Maintaining a consistently applied ALLL procedure.
• Limiting subjectivity in environmental and qualitative risk factor calculations.
An institution shouldn’t necessarily aim to increase or decrease their ALLL provision.
But if a decrease in the reserve makes sense for a financial institution, the
recommendations outlined above, especially when combined, will help justify that
decrease and please not only shareholders and directors but also examiners.
8
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
9. About Sageworks
Sageworks, Inc. is a financial information company that works with financial
institutions, accountants, and private company executives across North America to
collect and interpret financial information. The mission of the company is to help
people make more-informed financial decisions in a business by giving them
information they can understand and use. Sageworks’ data, the largest database of
real time private company financial information in the U.S., grows as more than one
thousand reports are run each day, and the new data is screened and anonymously
incorporated into our industry statistics. We incorporate this data into our products
for financial institutions including credit analysis and ALLL estimation solutions.
About Ed Bayer
Ed Bayer is a Risk Management Consultant at Sageworks, where he serves as a
specialist in assisting financial institutions with accurately interpreting and applying
federal accounting guidance. Ed’s primary focus is allowance for loan and lease loss
provisions (ALLL) and stress testing loan portfolios. Before joining Sageworks, he
acted as president for a private holding company where he focused on new business
acquisitions, valuation models, federal taxation, and subsidiary business structures.
Prior to that, Ed served as a Financial Consultant with Merrill Lynch, graduating from
their Path of Achievement program. He received his MBA with concentrations in
strategy and entrepreneurship from Vanderbilt University’s Owen Graduate School of
Management, where he was a CLARCOR Scholarship Recipient, and he received his
bachelor’s degree from the University of Tennessee.
About Regan Camp:
Regan Camp is Risk Management Consultant at Sageworks, where he serves as a
specialist in assisting financial institutions with accurately interpreting and applying
federal accounting guidance. Regan focuses on the allowance for loan and lease loss
9
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com
10. provisions (ALLL) and stress testing loan portfolios. Prior to joining Sageworks,
Regan served as a Project Manager and Senior Consultant at Dittrich & Associates
LLC, where he assisted financial institutions in the administration of FDIC Loss Share
Agreements, the establishment of special asset divisions, and the resolution of
troubled portfolios. Prior to joining Dittrich, he worked at Deloitte and Touche, L.P.
as a Senior Consultant and Asset Manager. Regan received his bachelor’s degree
from Brigham Young University’s Marriott School of Business, where he studied
business management and finance.
10
5565 Centerview Drive | Raleigh, NC 27606 | 866.603.7029 | www.sageworksinc.com