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National Cooperative Bank | Inefficiency & Need for Data

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The Challenge:

National Cooperative Bank (NCB) was performing its allowance for loan and lease losses (ALLL) calculation manually using spreadsheets, which was a very convoluted process. Darren Flavell, Vice President of Risk Management at NCB, noted, “We were finding that we were spending so much time accumulating various spreadsheets into our process, that we really weren’t spending enough time analyzing the results or determining whether the overall level of our allowance was adequate.” Instead of focusing on the results of the calculation, the bank was more concerned with ensuring the spreadsheets were mathematically correct. Aside from the inability to focus on the results, NCB was also very reliant on external data in the process. Flavell noted, “We weren’t leveraging our own historical information or experience at all in the process.” For example, the bank relied upon external data from ratings agencies to produce probability of defaults, which resulted in more regulatory scrutiny. Examiners encouraged them to develop a historical loss model based on their experience rather than external data. Combining the regulatory scrutiny, need for better data, and lack of time for analyzing results, NCB recognized a need for a solution to automate their ALLL calculation.

We’re utilizing our resources in a lot more efficient way to allow us to better digest and implement the new regulatory requirements.
Darren Flavell, National Cooperative Bank

The Solution:

After reviewing several ALLL solutions, NCB selected Sageworks ALLL by Abrigo, to automate the ALLL calculation and address the concerns with their current process. Through Abrigo’s implementation process, NCB was able to smoothly transfer data from its core processing system to Sageworks for up-to-date analysis. This data integration and granularity allowed the bank to develop an improved, historical loss model to address regulatory pressure and move to a more robust methodology. Since NCB performs its ALLL calculation monthly but only updates loss rates and qualitative factor adjustments on a quarterly basis, they needed a solution like Sageworks ALLL by Abrigo that was able to conform to their methodology and preferences. The bank is also able to leverage the Federal Reserve Economic Data (FRED) and FDIC links provided within Abrigo to defend its qualitative factors.

The Result:

Since implementing Sageworks ALLL by Abrigo over two years ago, NCB has seen numerous improvements in its process. Flavell noted, “Examiner criticism was one of the main reasons why we looked to implement an automated ALLL solution. Since implementing Sageworks ALLL by Abrigo, the feedback from examiners has been very positive.” Flavell also indicated NCB has been better prepared with its calculation and supporting documentation. “By implementing Abrigo, it has allowed us to divert our resources from putting the calculation together, to now, where those same resources can ensure that appropriate levels of support and documentation exist for our process. We’re utilizing our resources in a lot more efficient way to allow us to better digest and implement the new regulatory requirements.”

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