Evaluating ASC 310-10-35 (FAS 114) loans for impairment and identifying the reserve for each one of those individually assessed loans is one of the most critical steps in the ALLL calculation process.
A loan is evaluated for ASC 310-10-35 (FAS 114) status when it is considered impaired, which means the creditor has some expectation that the repayment of the loan will not be realized in full. The resulting reserve for this particular loan would be the amount of loss that can be reasonably estimated. If the loss was actual, then the loan loss should be partially or completely charged off – the emphasis on what is probable and estimated versus actual comes from this difference.
There are three methods of valuating ASC 310-10-35 (FAS 114) impairments. These consist of:
- Fair Market Value of Collateral (for collateral-dependent loans)
- Present Value of Future Cash Flows
- Loan Pricing
Related Asset - Other:
ASC 310-10-35 (FAS 114) Impairment Worksheet
Related Asset - Slides:
How to Calculate Your ASC 310-10-35 (FAS 114) Reserves
Related Asset - Blog
What are bankers’ biggest challenges with ASC 310-10-35 (FAS 114) impairment analyses?
Excerpt Pulled From Blog:
"In calculating the ALLL, often one of most cumbersome components of the process proves to be the ASC 310-10-35 (FAS 114) impairment analysis."