> Implementation Guidance
> > Diagram of Loan Impairment Guidance
310-10-55-1 Paragraph superseded by Accounting Standards Update No. 2016-13.The following diagram illustrates the application of loan impairment guidance discussed in Section 310-10-35.
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> Illustrations
> > Example 1: Application of Loan Impairment Guidance to a Loan Portfolio
310-10-55-2 Paragraph superseded by Accounting Standards Update No. 2016-13.This Example illustrates the guidance in paragraphs 310-10-35-13 through 35-24 and 310-10-35-34. Entity A (a bank) has 20 loans (not considered smaller-balance) to businesses in a town in which the principal employer is a major corporation. Some of the loans are secured by bonds or real estate, others are unsecured. The major corporation went bankrupt and fired all of its workers.
Entity A concludes that the loss of that employer has had a dire effect on the economic health of the community and its businesses. Entity A decides to review all 20 of the loans individually.
310-10-55-3 Paragraph superseded by Accounting Standards Update No. 2016-13.Two of the loans are not performing, and Entity A concludes that it is probable it will be unable to collect all of the cash flows on those loans as scheduled. Another five borrowers have approached Entity A for a concession, but those discussions are incomplete. Based on all available information, Entity A concludes that each of those five loans also is impaired. Entity A is unable to identify any other individual loan among the remaining 13 for which it is probable that it will not collect all of the cash flows.
310-10-55-4 Paragraph superseded by Accounting Standards Update No. 2016-13.Entity A would measure impairment on the seven loans that are individually impaired using a method permitted by Section 310-10-35, as appropriate for the loan. Entity A would consider all available information to measure the amount of the loss including the value of any collateral. If the value of the collateral, less selling costs, exceeds the recorded investment in the loan, no allowance would be provided. Entity A would consider its own experience or, to the extent relevant, the industry’s collection experience in similar situations as part of the available information. In doing so, Entity A would consider the effect of information it possesses about the current economic downturn in making its best estimate of expected future cash flows for those seven loans.
310-10-55-5 Paragraph superseded by Accounting Standards Update No. 2016-13. Entity A would then assess whether it is probable that any loss has been incurred on the remaining 13 loans. If three of those loans are fully collateralized, no allowance should be provided under Subtopic 450-20 for those loans and they should be excluded from the assessment of the remaining 10 loans. Entity A would consider the effect of the current economic downturn to assess whether a loss has been incurred in that group of loans at the balance sheet date and to estimate the amount of loss. In doing so, Entity A would consider its historical loss experience in collecting loans in similar situations, such as the typical recovery rate, including amount and timing. However, the use of historical
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statistics alone would be inappropriate if the nature of the loans or current environmental conditions differ from those on which the statistics were based.
Any allowance that is recorded under that Subtopic must be reasonably estimable and supported by an analysis of all available and relevant information about circumstances that exist at the balance sheet date.
310-10-55-6 Paragraph superseded by Accounting Standards Update No. 2016-13.The total allowance for the 20 loans should be the sum of the above components. A total allowance greater than the sum of the above components would be excessive. A total allowance less than the sum of the above components would be inadequate.
> > Example 2: Disclosures about Troubled Debt Restructuring of
Financing Receivables Credit Quality and the Allowance for Credit Losses 310-10-55-7 Paragraph superseded by Accounting Standards Update No. 2016-13.The following table illustrates certain of the disclosures required by paragraph 310-10-50-11B(c), (g), and (h).
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$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
Charge-offs XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
Recoveries XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
Provision XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
Charge-offs XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
Recoveries XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
Provision XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX - $XX,XXX
Ending balance: loans acquired with deteriorated credit quality Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment
Ending balance: loans acquired with deteriorated credit quality
Ending balance: loans acquired with deteriorated credit quality
Ending balance: loans acquired with deteriorated credit quality
20X0
Allowance for credit losses:
Beginning balance Ending balance
Allowance for Credit Losses and Recorded Investment in Financing Receivables For the Years Ended December 31, 20X1, and 20X0
20X1
Allowance for credit losses:
Beginning balance
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310-10-55-8 Paragraph superseded by Accounting Standards Update No. 2016-13.The following table illustrates certain of the disclosures required by paragraph 310-10-50-29(b).
20X1 20X0 20X1 20X0 20X1 20X0
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
20X1 20X0 20X1 20X0 20X1 20X0 20X1 20X0
$XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX $XX,XXX
Credit Risk Profile Based on Payment Activity
Consumer—Credit Card Consumer—Other Finance Leases Consumer—Auto
Grade:
Credit Risk Profile by Internally Assigned Grade
Residential—Prime Residential—Subprime Credit Quality Indicators As of December 31, 20X1, and 20X0 Corporate Credit Exposure
Credit Risk Profile by Creditworthiness Category Commercial
Commercial Real Estate Construction
Commercial Real Estate—Other
310-10-55-9 Paragraph superseded by Accounting Standards Update No. 2016-13.The following table illustrates certain of the disclosures required by paragraphs 310-10-50-7(b) and 310-10-50-7A.
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Age Analysis of Past Due Financing Receivables As of December 31, 20X1, and 20X0
30–59 Days
310-10-55-10 Paragraph superseded by Accounting Standards Update No.
2016-13.The following table illustrates certain of the disclosures required by paragraph 310-10-50-15.
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For the Years Ended December 31, 20X1, and 20X0
20X1
With no related allowance recorded:
With an allowance recorded:
Total:
310-10-55-11 Paragraph superseded by Accounting Standards Update No.
2016-13.The following table illustrates certain of the disclosures required by paragraph 310-10-50-7(a).
49 Financing Receivables on Nonaccrual Status
As of December 31, 20X1, and 20X0
20X1 20X0
310-10-55-12 The following table illustrates certain of the disclosures required by paragraphs 310-10-50-33 through 50-34.
Residential - prime XXX $XX,XXX $XX,XXX XXX $XX,XXX $XX,XXX
Residential - subprime XXX XX,XXX XX,XXX XXX XX,XXX XX,XXX
Consumer - other XXX XX,XXX XX,XXX XXX XX,XXX XX,XXX
Finance leases XXX XX,XXX XX,XXX XXX XX,XXX XX,XXX
Number of As of December 31, 20X1, and 20X0
$XX,XXX
> > Application of the Definition of Class of Financing Receivable
310-10-55-16 Paragraph superseded by Accounting Standards Update No.
2016-13. This implementation guidance addresses application of the term class
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of financing receivable. An entity should base its principal determination of class of financing receivable on both of the following:
a. Initial measurement attribute. Classes should first segregate financing receivables on the basis of the model under which they were initially recorded, such as any of the following:
1. Amortized cost
2. Loans acquired with deteriorated credit quality (accounted for in accordance with Subtopic 310-30).
b. Entity assessment. Classes should secondarily be disaggregated to the level that an entity uses when assessing and monitoring the risk and performance of the portfolio for various types of financing receivables.
This assessment should consider the risk characteristics of the financing receivables.
310-10-55-17 Paragraph superseded by Accounting Standards Update No.
2016-13.In determining the appropriate level of its internal reporting to use as a basis for disclosure, an entity should consider the level of detail needed by a user to understand the risks inherent in the entity’s financing receivables. An entity could further disaggregate its financing receivables portfolio by considering numerous factors. Examples of factors that the entity should consider include any of the following:
a. Categorization of borrowers, such as any of the following:
1. Commercial loan borrowers 2. Consumer loan borrowers 3. Related party borrowers.
b. Type of financing receivable, such as any of the following:
1. Mortgage loans 2. Credit card loans 3. Interest-only loans 4. Finance leases.
c. Industry sector, such as either of the following:
1. Real estate 2. Mining.
d. Type of collateral, such as any of the following:
1. Residential property 2. Commercial property
3. Government-guaranteed collateral
4. Uncollateralized (unsecured) financing receivables.
e. Geographic distribution, including both of the following:
1. Domestic 2. International.
An entity also may consider factors related to concentrations of credit risk as discussed in Section 825-10-55. [Content moved to paragraphs 326-20-55-12 and 326-20-55-13]
51 310-10-55-18 Paragraph superseded by Accounting Standards Update No.
2016-13.Classes of financing receivables generally are a disaggregation of a portfolio segment. For determining the appropriate classes of financing receivables that are related to a portfolio segment, the portfolio segment is the starting point with further disaggregation in accordance with the guidance in paragraphs 310-10-55-16 through 55-17. The determination of class for financing receivables that are not related to a portfolio segment (because there is no associated allowance) also should be based on the guidance in those paragraphs. [Content moved to paragraph 326-20-55-14]
> > Meaning of Credit Quality Indicator
310-10-55-19 Paragraph superseded by Accounting Standards Update No.
2016-13.This implementation guidance addresses application of the term credit quality indicator. Examples of credit quality indicators include all of the following:
a. Consumer credit risk scores b. Credit-rating-agency ratings c. An entity’s internal credit risk grades d. Loan-to-value ratios
e. Collateral
f. Collection experience
g. Other internal metrics. [Content moved to paragraph 326-20-55-15]
310-10-55-20 Paragraph superseded by Accounting Standards Update No.
2016-13.An entity should use judgment in determining the appropriate credit quality indicator for each class of financing receivables. As of the balance sheet date, the entity should use the most current information it has obtained for each credit quality indicator. [Content amended and moved to paragraph 326-20-55-16]
> > Meaning of Portfolio Segment
310-10-55-21 Paragraph superseded by Accounting Standards Update No.
2016-13.This implementation guidance addresses the meaning of the term portfolio segment. All of the following are examples of portfolio segments:
a. Type of financing receivable b. Industry sector of the borrower
c. Risk rate(s). [Content amended and moved to paragraph 326-20-55-10]
> > Determining Class of Financing Receivable and Portfolio Segment
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310-10-55-22 Paragraph superseded by Accounting Standards Update No.
2016-13.A creditor should determine, in light of the facts and circumstances, both of the following:
a. How much detail it must provide to satisfy the requirements of Section 310-10-50
b. How it disaggregates information into classes for assets with different risk characteristics.
A creditor must strike a balance between obscuring important information as a result of too much aggregation and overburdening financial statements with excessive detail that may not assist financial statement users to understand the entity’s financing receivables and allowance for credit losses. For example, a creditor should not obscure important information by including it with a large amount of insignificant detail. Similarly, a creditor should not disclose information that is so aggregated that it obscures important differences between the different types of financing receivables and associated risks.