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.

 

ASC 310-10-35 (FAS 114)

 

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

Download the Excel Sheet


Related Asset - Slides:
How to Calculate Your ASC 310-10-35 (FAS 114) Reserves

View The Slides


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."

Read More: http://www.alll.com/resource-center/bankers-biggest-challenges-fas-114-impairment-analyses-blog/


Related Asset - Video
What Are the Three Valuation Methods for ASC 310-10-35 (FAS 114) Loans?
 

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2 Comments

alex golden

If loan pricing is a method of valuing impairment, then does it follow, that if you sell a loan at that impaired loss, the charge should go direct to the loan loss reserve?

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mike.ford

I’ve heard of the loan pricing method before but it doesn’t seem common. Anyone use this method before?

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