ALLL Analysis

Lighthouse Advisory Services performs independent Allowance for Loan and Lease Loss (ALLL) analysis in accordance with FAS 114 and FAS 5 for financial institutions who are evaluating the adequacy of loan loss reserves for their commercial real estate and member business loan portfolios.

Why consider Lighthouse for ALLL Analysis?

Our team combines extensive capital markets, commercial real estate finance and accounting knowledge to assist clients in understanding the credit risk and impairment issues associated with their commercial real estate portfolio.

Our process involves several phases in obtaining an in-depth understanding of the portfolio.

  • We develop a detailed database that contains various attributes of each asset by reviewing related loan and property documentation, ongoing surveillance reports and client correspondence to determine potential impairment based on established criteria.
  • We determine appropriate valuation methodology for FAS 114 analysis: Fair Value of Collateral, Present Value of Future Cash Flows or Observable Market Price.
    • Fair Value of Collateral: Compile and review market data, analyze rent rolls and re-underwrite cash flows to determine fair value of the underlying asset.
    • Present Value of Future Cash Flows: Project future cash flows of the loan using restructured terms and discounting them at the loan’s original effective interest rate.
    • Observable Market Price: We estimate a loan’s observable market price using our loan sale advisory experience.
  • We perform portfolio level analysis for loans not deemed to be impaired under FAS 114, stratifying a wide array of loan and property attributes to categorize these loans for further evaluation under FAS 5. We analyze the financial institution’s loss history and environmental and other qualitative factors to estimate potential losses on those loans identified for FAS 5 review.

Contact Walden Wong for more information on our Allowance for Loan and Lease Loss Analysis services.

Case Study

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