Presenting ALLL Results to the Board
In presenting ALLL results to the board of directors, financial professionals should be cognizant of their audience and adjust their presentation accordingly. In the Board presentation, context and commentary are equally as important as the results themselves. The Board is typically not involved in the granular operations of the institution, so financial professionals must concisely show the results and explain them in the context of how it impacts the financial institution.
Common metrics to use in a Board presentation are:
- The allowance as a percentage of total loans for the current period
- The allowance percentage for the prior period
- The allowance percentage for the same period one year ago
- Changes to any unallocated reserve
Other metrics to consider depending on relevancy and Board preferences are:
- Allowance as a percentage of nonaccrual loans
- Allowance as a percentage of nonperforming loans
- Allowance times net charge-offs
- Texas ratio
- Provision expense as a percentage of period end loans
- Provision trends by line of business or product
Board presentations should be concise and focus on high-level matters. Financial professionals typically start with a brief narrative consisting of ALLL highlights, portfolio changes and economic conditions. It is of benefit to illustrate gradual ALLL trends in graphical format and to present the actual results relative to any expected ALLL range.
Related Asset - Blog
The role of management and the board with the ALLL
Excerpt Pulled From Blog:
"Guidance states that it is the responsibility of a bank’s management team and Board to ensure an adequate ALLL level as part of the institution’s safety and soundness. That responsibility includes several specific components as outlined in the Federal Reserve’s Commercial Bank Examination Manual. "