Compiling the Best Data for the Reserve Calculation
-
Upload
sageworks -
Category
Economy & Finance
-
view
111 -
download
1
description
Transcript of Compiling the Best Data for the Reserve Calculation
![Page 1: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/1.jpg)
Presented by:
Regan Camp
Senior Risk Management Consultant
Sageworks
![Page 2: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/2.jpg)
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
![Page 3: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/3.jpg)
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/
![Page 4: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/4.jpg)
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
![Page 5: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/5.jpg)
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.”
![Page 6: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/6.jpg)
Data collection is key!
![Page 7: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/7.jpg)
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
![Page 8: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/8.jpg)
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
![Page 9: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/9.jpg)
![Page 10: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/10.jpg)
![Page 11: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/11.jpg)
![Page 12: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/12.jpg)
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
![Page 13: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/13.jpg)
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
![Page 14: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/14.jpg)
Loss Rate =
(Charge-offs – Recoveries)
Average Loan Balance
![Page 15: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/15.jpg)
![Page 16: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/16.jpg)
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.
![Page 17: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/17.jpg)
![Page 18: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/18.jpg)
Traditionally subjective
Should be as objective and directionally
consistent as possible
- Data-driven
- Well-documented qualitative factors
![Page 19: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/19.jpg)
Economic data from reputable sources
(e.g. Federal Reserve)
Internal reporting
(e.g. concentrations, delinquencies, etc.)
![Page 20: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/20.jpg)
Final details unknown
The more granular the data, the better
When should I start?
![Page 21: Compiling the Best Data for the Reserve Calculation](https://reader033.fdocuments.us/reader033/viewer/2022060106/554918e7b4c90553458c4393/html5/thumbnails/21.jpg)
For more information:
Regan Camp
(919) 851-7474 ext. 532
For more resources on the ALLL, visit:
www.sageworksanalyst.com/alll-methodology.aspx