With Visible Equity software it is easy to create custom segments and classes for use in your allowance analysis and reporting. Whether you're looking forward to new CECL requirements or performing more traditional allowance calculations, properly segmenting your portfolio forms the basis for solid analysis.
While the focus on CECL is clearly on collectively review methods, any asset that does not share similar risk characteristics with a suitable class should be reviewed on an individual basis using either discounted cash flow, fair value less cost to sell, or other appropriate loss estimation methods.
One of the biggest changes CECL will bring to your allowance calculations is to use “life of loan” loss methods, instead of a more traditional 1-yr charge-off ratio.
Visible Equity provides the following CECL compliant life of loan loss methods:
Static Pool is the simplest of CECL methods Visible Equity offers, but sometimes the simplest solution is the best solution. The Static Pool method goes back in time and creates a static pool. The loss rate is calculated by taking the losses from the pool, divided by the starting balance of the pool.
The Vintage method uses your historical data, just like static pool, but puts a finer point on the calculation. The vintage method calculates a different loss rate for each vintage (typically origination year) and each future period of the loan’s life. Loss rates are calculated by segmenting the portfolio into vintages and dividing historical losses by the appropriate balance and then weighting the results.
We also provide traditional charge-off ratios for easy comparison between current allowance methodologies and CECL compliant methodologies.
Qualitative and Environmental
Visible Equity makes it easy to adjust base loss rates by standard or custom Q&E factors. Factors such as changes in Policies, Economic Conditions, Loan Mix, Delinquency/ Charge-off Trends, and the Competitive Landscape are just a few of the factors you can use in your analysis.
Another big change CECL brings to the allowance calculation is the requirement to consider “reasonable and supportable” economic forecasts. With our PD model, forecasts are already included. With other loss methods we make it easy to adjust base loss rates to satisfy this new requirement.
Expected Loss Simulations
Visible Equity has been performing expected loss modeling long before CECL was first introduced. By combining probability of default with loss given default and simulating results, Visible Equity provides you with key insights into the likelihood of certain loss events occurring and how these events affect your expected losses.
Want to see the impact changes in collateral values, credit scores, or other variables have on your expected loss? We make it easy to shock your portfolio and see the results in real time. Armed with this information you can appropriately plan to withstand whatever stress scenarios come your way.
Reports and Disclosures
CECL requires an institution to report on the credit risk inherent in the portfolio and how management monitors credit quality, management’s expectation of credit losses, and changes that have occurred in the expected credit losses during the reporting period.
Imagine producing a complete set of allowance reports with just a few clicks of the mouse? Imagine being able to easily compare your current methodology with an unlimited variety of CECL complaint methods? With Visible Equity we make this dream a reality.