According to the FASB, their Accounting Standards Update (ASU) on Financial Instruments—Credit Losses will be issued during the first half of this year. Since institutions should be addressing 2015 loan loss estimates now, we are offering this important webinar so that you can begin to factor in the impact of an increase in your ALLL estimate as well as additional costs related to gathering data for the new ALLL estimation procedures.
Background
Has your institution recently lowered the allowance for loan and lease losses (ALLL) estimate? Many institutions have because the economy is improving. In fact, lowering the ALLL is the way some institutions have improved profits while interest margins remain tight. So how would you react if you knew that the accounting profession was about to require that your institution increase the ALLL estimate? What if that increase was substantial? Where would profits and capital be if that happened?
This is exactly what will be happening when the Financial Accounting Standards Board (FASB) finalizes their long-awaited Accounting Standards Update (ASU) titled Financial Instruments—Credit Losses. Here’s what is going to happen that will cause many institutions to have to substantially increase their ALLL estimate and reduce profits and capital:
• For commercial loans and commercial real estate loans, you will no longer wait until a loan is considered to be “impaired” to include a loss estimate in the ALLL. Instead, a loss estimate will be needed when the loan is underwritten. Furthermore, the loss estimate will be for the life of the loan which means you will need to project potentially substantial losses for loans you just booked.
• When you make loan commitments to borrowers now, any loss estimates related to those commitments are included in a contingent liability on the institution’s balance sheet that often goes unnoticed. Under the new ASU, those loss estimates will need to be included in the ALLL estimate starting with when you book the loan. This will require another increase in the ALLL and reduction to profits and capital.
• When you estimate losses now, you only have to determine which loans have “inherent” losses as of the date of your financial statements. This accounting concept means that you have to look backwards from the financial statement date and use historical loss data to only estimate losses that are essentially already happening. Under the new ASU, you will need to look to the future to predict what events might cause losses. This means you will need to rely on economic forecasts and a more in-depth analysis of your institution’s loss history to estimate future losses.
According to the FASB, their Accounting Standards Update (ASU) on Financial Instruments—Credit Losses will be issued during the first half of this year. All of the major provisions are already defined. Since institutions should be addressing 2015 loan loss estimates now, we are offering this important webinar so that you can begin to factor in the impact of an increase in your ALLL estimate as well as additional costs related to gathering data for the new ALLL estimation procedures. Don’t wait and be late to plan. Keep your Board informed about this significant accounting change so they can adjust their financial objectives for 2015 and beyond.
Benefits
Participate so you can:
• Understand the implications of the FASB’s proposed CECL model
• Identify what is changing from current GAAP
• Discuss methods that could be used to comply
• Determine how an allowance for expected credit losses estimate could increase from current levels
• Recognize what data and documentation you will need to begin collecting now
• Identify changes needed to your ALLL estimation process
Who Should Attend
• Loan Review Managers
• Senior Loan Officers
• Loan Administrators
• Internal Auditors
• CFOs
• Controllers
• Risk Managers
• Anyone involved with the ALLL estimation process