General Yes/No/ Comments
1. Has an independent accountant opined that the ALLL
amount reported in the financial statements is presented in
accordance with GAAP?
2. Has the board of directors ensured that their credit union
has controls in place to consistently determine that the ALLL
is in accordance with the credit union’s stated policies and
procedures, generally accepted accounting principles
(GAAP), and ALLL supervisory guidance?
Policies and Procedures Yes/No/ Comments
1. Do policies and procedures address all areas including:
(a) personnel and department responsibilities?
(b) accounting policies (including charge-offs)?
(d) internal controls?
2. Do written policies and procedures describe the
(a) segmenting the portfolio?
(b) determining and measuring impairment for large
balance non-homogenous loans whether pooled or
individually evaluated for impairment (FAS 114)?
(c) determining and measuring impairment for groups of
small balance homogenous loans pooled based on like risk
characteristics and measured based on loss factors tied to
relevant observable data (FAS 5)?
3. Do written policies and procedures describe the internal
control system for the ALLL estimation process including:
(a) Measures to ensure the reliability and integrity of
information and compliance with laws, regulations, and
internal policies and procedures?
(b) Reasonable assurance that the credit union's financial
statements (including regulatory reports) are prepared in
accordance with GAAP and ALLL supervisory guidance?
(c) A well-defined loan review process containing an
effective loan grading system, sufficient internal controls
and clear formal communication between the board,
management and others involved in the ALLL process?
4. Does the board of directors review and approve the
amount to be reported for provision for loan and lease losses
and ALLL on a periodic basis?
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Identifying, Monitoring, and Addressing Asset Yes/No/ Comments
Quality Problems NA
1. Does the credit union have an adequate loan review
function and credit grading system?
2. Do you agree with the credit grades assigned by the credit
3. Is the credit union charging-off loans timely?
4. Is management effective in identifying, monitoring and
addressing asset quality problems?
5. Is the Board effective in overseeing asset quality?
Methodology Yes/No/ Comments
1. Does the ALLL methodology incorporate management's
current judgments about the credit quality of the loan
portfolio through a disciplined and consistently applied
2. Does the credit union's methodology:
(a) include an analysis of the loan portfolio performed on a
(b) consider all loans?
(c) identify loans to be evaluated for impairment on an
individual basis under FAS 114 and segment the remainder
of the portfolio into groups of loans with similar risk
characteristics for evaluation and analysis under FAS 5?
(d) consider all known relevant internal and external
factors that may affect loan collectibility?
(e) show consistency and, when appropriate, develop
modifications for new factors affecting collectibility?
(f) consider the particular risks inherent in different kinds
(g) consider current collateral values (less costs to sell),
(h) require that analyses, estimates, reviews and other
ALLL methodology functions be performed by well-
(i) base methodology on current and reliable observable
(j) include clear documentation with explanations of the
supporting analyses and rationale?
(k) include a systematic and logical method to consolidate
the loss estimates and ensure the ALLL balance is
consolidated and recorded in accordance with GAAP?
3. Did management properly consider the credit union’s
historical loss experience and all significant qualitative or
environmental factors that affect the collectibility of the
portfolio? Examples include:
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• Changes in lending policies and procedures, including
changes in underwriting standards and collection, charge-
off, and recovery practices not considered elsewhere in
estimating credit losses.
• Changes in international, national, regional, and local
economic and business conditions and developments that
affect the collectibility of the portfolio, including the
condition of various market segments.
• Changes in the nature and volume of the portfolio and in
the terms of loans.
• Changes in the experience, ability, and depth of lending
management and other relevant staff.
• Changes in the volume and severity of past due loans, the
volume of non-accrual loans, and the volume and severity
of adversely classified or graded loans.
• Changes in the quality of the institution’s loan review
• Changes in the value of underlying collateral for
• The existence and effect of any concentrations of credit,
and changes in the level of such concentrations.
• The effect of other external factors such as competition
and legal and regulatory requirements on the level of
estimated credit losses in the institution’s existing
4. Did management quantify qualitative and/or
environmental factors and mathematically adjust the
historical loss factor or, alternatively, document why an
adjustment was not necessary?
5. Did management appropriately apply GAAP, including
FAS 114 and FAS 5?
Individual Impairment of Large-Balance, Non- Yes/No/ Comments
Homogenous Loans NA
1. Does the credit union grant large-balance member
business or agriculture loans?
If the answer to the above question is NO move to the next section.
2. Does the ALLL process comply with GAAP as indicated
by the following:
(a) Are the large-balance member business and/or
agriculture loans segregated between those which the CU
has identified for individual evaluation under its normal
established loan grading criteria, and those which the CU
has not identified for individual evaluation?
(b) Does the credit union have supporting documentation
for the loan grading analysis that resulted in a decision to
individually evaluate the loan for possible impairment?
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(c) Are the loans that were identified for individual review
evaluated, and the impairment subsequently measured,
using one of the three available measurement methods
(present value of expected future cash flows, fair value of
collateral, or observable market price)?
(d) Does the credit union have supporting documentation
for the impairment measurement method used?
(e) Are the remaining large-balance member business
and/or agriculture loans not identified as impaired (in (a)
above), pooled by like risk characteristics and an
allowance component developed for each pool (similar to
the methodology discussed in the next section for small-
balance, homogenous loans)?
(f) Are the business and agricultural loans that were
individually evaluated for impairment under FAS 114, that
were subsequently found not to be individually impaired
under one of the three measurement methods, re-evaluated,
when appropriate, under FAS 5?
Allowance for Small-Balance, Homogenous Yes/No/ Comments
Pools of Loans NA
1. Does the ALLL process comply with GAAP as indicated
by the following:
(a) Are the small-balance, homogenous loans pooled by
like risk characteristics?
(b) Is a loss factor developed for each pool based on
relevant observable data for that pool?
(c) Did management adjust the historical loss factors for
qualitative and environmental changes unique to the
2. Does the credit union maintain supporting documentation
to indicate that loans in each component have similar
attributes or characteristics?
3. Does the credit union estimate the amount of ALLL
needed on each pool of loans, on at least a quarterly basis,
based upon its ongoing loan review process and analysis of
4. Did you use ratio analysis as a preliminary check of the
appropriateness and reasonableness of the overall ALLL?
Summarizing Components and Consolidating Yes/No/ Comments
the Amount Required in the ALLLL NA
1. Does documentation exist to summarize the amount to be
reported in the financial statements?
2. Does the summary include:
(a) An estimate of the probable loss or range of loss
incurred for each category evaluated?
(b) The aggregate probable loss estimated using the credit
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(c) A summary of the current ALLL balance?
(d) The amount, if any, by which the ALLL is to be
(e) Detailed sub-schedules of loss estimates that reconcile
to the summary schedule, if necessary?
3. Do the credit union’s Call Report and financial statements
reconcile to the ALLL analyses?
4. Did you review the interest and fee income accounts
associated with the lending process to ensure the credit
union’s net income is not materially misstated?
Validating the ALLL Methodology Yes/No/ Comments
1. Does the board of directors periodically validate and
revise, as needed, the ALLL methodology?
2. Is the review of this validation documented in the board
3. Is a review of the ALLL methodology (consisting of
policies, procedures and processes) performed by a party
who is independent of the ALLL estimation process?
4. Does documentation exist which supports this review?
Conclusions Yes/No/ Comments
1. Does the credit union's ALLL methodology and balance
reasonably reflect the appropriate level of funding, and
address the following actions:
(a) Maintaining effective loan review systems and controls
for identifying, monitoring and addressing asset quality
problems in a timely manner.
(b) Analying all significant qualitative or environmental
factors that affect the collectibility of the portfolio as of the
evaluation date in a reasonable manner.
(c) Establishing an acceptable ALLL evaluation process for
both individual loans and groups of loans that meets the
GAAP requirements for an appropriate ALLL.
(d) Incorporating reasonable and properly supported
assumptions, valuations, and judgments into the evaluation
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