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Poll: Challenges with Fair Market Value of Collateral method

July 2, 2013
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Sageworks recently hosted a webinar, How to Calculate Your FAS 114 Reserves, which covered the three valuation methods for impaired loans and when to use them, as well as when it is appropriate for a loan in FAS 114 (ASC 310-10-35) status to be moved to FAS 5 (ASC 450-20). The most widely used valuation method, the Fair Market Value of Collateral method, is used when a loan is considered collateral-dependent. In this method, an institution determines the fair market value of the underlying collateral, less any selling costs. Any portion of the loan balance that exceeds the collateral’s fair value is identified as the specific impairment and should be reserved against.

This method, however, presents its own set of challenges. During the presentation, more than 160 bankers were polled on the most troubling aspect of performing an impairment analysis using the collateral method. Almost 50% expressed maintaining updated appraisals as their biggest challenge.

Poll Results

For help with the documentation and analysis required for FAS 114 loans, download the complimentary, spreadsheet-based FAS 114 Impairment Worksheet for collateral-dependent loans.

For more information on the three valuation methods, download the whitepaper titled: How to Calculate Your FAS 114 Reserves.

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