Financial institutions have been required to estimate the inherent risks existing in their various lending portfolios for many years. However, in recent years the accuracy of this estimate has experienced increased regulatory scrutiny and is frequently challenged by external auditors and examiners. As a result, many financial institutions find themselves overwhelmed with the process of estimating and documenting the Allowance for Loan and Lease Losses (ALLL) on a monthly or quarterly basis.  For many financial institutions, the process can take several days if not longer each month and can require involvement from several of the institution’s finance, credit, and/ or lending staff.  This process is labor intensive, manual, and often prone to error, through the use of an assortment of data bases, spreadsheets and other documents. Additionally, the financial institution must stay current not only with published regulatory guidance, but also with new accounting standards being issued from FASB.

Bankers can minimize the inherent imperfections of this estimate by adopting a supportable and consistently applied methodology and providing verifiable documentation of their findings. This methodology must include a systematic approach in which the institution carefully examines the impact of their loan policies, and implements a structured approach to evaluating the losses inherent in their portfolio.  Current spreadsheets and policies may or may not be adequate to meet these demands.  Any efforts to streamline the process and better document the financial institution’s assumptions are beneficial in defending the estimation of the ALLL in a comprehensive manner.

Turner and Associates, Inc. is prepared to review the bank's current system and recommend changes when necessary or assist in the preparation of a new structure if one is not in place. Additionally, Turner and Associates has teamed up with Sageworks^® , a leading provider of loan portfolio credit risk and management solutions to financial institutions. Tom Ryan of Turner and Associates is certified to train financial institutions on the Sageworks Surety module.