LAWEI, our expected cash flow model solution, guides your Bank step by step in the correct implementation and automated accounting for loans that have been designated as ASC 310-30 loans. It is our recommendation that Banks use the approved methodology of applying ASC 310-30 treatment to as many of your acquired loans by analogy and implement LAWEI Solution in order to obtain the earnings protection afforded by the pronouncement. Only LAWEI Solution works parallel with our clients’ core loan applications to track each loan carrying value component by pool by loan for every related transaction and contains the necessary program logic to realize the earnings protection opportunity. Our comprehensive reporting and efficient risk-based approach to reassessing your Bank’s expected cash flows allows you to be in control of your acquired loan portfolio thereby saving your Finance and Credit team the most valuable resource –your time.
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Expert guidance from pre-acquisition, through strategic implementation providing for complete documentation
Compliance will keep you out of trouble but strategy will make you profitable and increase shareholder value. At LogiqTree, we understand that while compliance is a critical part of banking life and should be closely monitored, utilizing effective strategies to have a profitable combination of loans and smart low cost funding is critical for a long term sustainable financial institution. That is why, our team does not look at ASC 310-30 (formerly known as SOP 03-3) with only a compliance lens but rather as a strong, complete framework to protect the earnings of your bank from the losses that may exist in the purchased portfolio at the time of acquisition. LogiqTree’s guides you, our client, through the process by which ASC 310-30 allows for a conservative, built-in reserve while ensuring full compliance with accounting pronouncements and regulatory requirements.
Our team will help you establish comprehensive criteria to correctly determine impairment at acquisition and the related built-in reserve (non-accretable difference), as well as assist you in documenting the process. Our team will also assist you with the design of pools that meet current requirements to ensure that the earnings of the consolidated bank have reduced volatility from the unexpected changes in a portfolio that has as much potential as uncertainty.
With solid industry experience gained over decades by helping other financial institutions, our team will coordinate with your external auditors right from the planning stage of the audit to ensure they are in agreement with the approach adopted and obtain their buy-in before the first entries are booked.
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Fully automated tracking of loan carrying value components using monthly download directly from core loan app avoiding Excel manipulation
One of the critical aspects of this process relates to data management. No loan core application system is suited to handle the ASC 310-30 process. Your core application’s focus is client billing, as it should be. The special rules related to the accounting for these loans should not distract your team from their daily operational duties. LogiqTree’s solution LAWEI, works independent of your core system by utilizing information from a monthly data download. Our team will then provide the entries that will comply with the accounting and the reports that have the information related to the acquired loans. We will work with your accounting team to adjust the general ledger structure to ensure that the accounting is seamless and does not affect any of your existing processes for reconciliations, balancing and reporting.
In addition, we will review the data to identify inconsistencies that may reflect potential errors, such as improper loan classification, insufficient data, erroneous call report coding, unusual negative balances. Furthermore, upon conversion to the new platform, LogiqTree will compare your current data download to the old data to look for inconsistencies that could reflect breakdowns in the process; allowing your team to obtain an additional limited independent validation of the success of your conversion.
Upon implementation, our team will prepare the necessary data mapping tables to ensure smooth data flow from the legacy system to LAWEI. Subsequently, upon conversion to your core application, the data mapping will be updated to provide the same ability to upload data from converted data to LAWEI seamlessly
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Unique risk based methodology to dedicate your time to effective reassessment of expected cash flows
LogiqTree will assist your team in developing the necessary estimates of expected cash flows either through the use of loss severities or with more precise information using the specific identification method.
Nonetheless if your institution has engaged a third party to complete a valuation of the loan portfolio, we will incorporate their assumptions into LAWEI and reconcile the results with those obtained from the third party.
On a quarterly basis we will assist your team in developing updated cash flow estimates by focusing on loans that have suffered changes since the last estimation was made. Our team will provide critical reports based on the data obtained from the core system to ensure that your reyielding process is both effective and efficient. Our transparent and well documented approach to reyielding futher facilitates external audits and regulatory examinations.
Keeping customer interest in mind, LogiqTree’s LAWEI Portal has been developed as an interface that helps make loan data exchanges more efficient. LAWEI system helps enter expected payments and certain management decisions such as pool criteria, discount rates and risk ratings in an interactive fashion.
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Designed according to ASC 310-30 requirements to provide earnings protection opportunities and minimize volatility
LAWEI contains functionality that allows, upon disposition of a loan classified as ASC 310-30, the excess non-accretable difference left on a loan that is part of a pool, to be allocated to the remaining loans in the pool. In the same manner, if a loan is charged off and the charge-off exceeds the amount of non-accretable, LAWEI possesses the functionality to utilize the non-accretable difference from other loans in the pool to cover any deficit thereby obtaining the full benefits of ASC 310-30, and virtually eliminating the volatility resulting from resolution of loans. Upon reyielding, our team will assist you in identifying whether the estimated cash flows can still be considered accurate or if adjustments are needed resulting from current period performance.
These unique qualities of LAWEI combined with a thoughtful and thorough approach to pooling, allows for the accounting to reduce earnings volatility that would otherwise be affected from loan resolution.
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Comprehensive regulatory and financial reporting package with SSAE 16 Type II certification
LAWEI is an accounting solution, therefore, our team will provide your accounting team with monthly entries that contain the entire accounting for these loans, including the following:
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- Recognition of accretion
- Reversal of interest income recognized in ASC 310-30 loans recorded by the core system
- Application of payments of interest to the contractual cash flows component of fair value and removal from the accrued interest receivable accounts
- Application of charge-offs to the non-accretable difference removing the effect of charge-offs from the acquired portfolio from your ALLL
- Application of recoveries to the contractual cash flows removing the effect of recoveries from the acquired portfolio from your ALLL
- Recognition of gain (loss) on loan resolution
In addition, LAWEI alleviates your Finance department by automatically generating valuable reports, including all Call Report schedules, required financial statement disclosures, internal management reporting containing information on the fair values of the acquired loans and other critical historical information further enabling your Credit department with loan resolution decisions and understanding.
LAWEI Portal enables your team easy access to financial reporting that is easy to consume by print-out or downloaded to Excel, Word or PDF.
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Truly automated system with Sandbox feature for multiple simulations
One of the biggest challenges for CFOs around the accounting for loans impaired at acquisition is that until now, there has been no solution that is both effective and affordable in the market. Thus it is easy to make the decision to use Excel to do the accounting. However Excel, as powerful a tool as it is, is not suited to manage this complex monthly process. It’s ability to track charge-offs, recoveries, reallocation of non-accretable difference, and more importantly the recognition of interest and interest payments from your core system to avoid duplications is severely limited. This means that there will be significant amount of manual tracking which may be sustainable for a small portfolio, for a short amount of time but will not give you the benefit of aligning the accounting with your strategic goals and objectives.
Furthermore, since 1998, comprehensive studies completed at the University of Hawaii have tracked the percentage of spreadsheets used in business containing errors. Their results consistently show, that 90-94% of all spreadsheets contain errors and the majority (80%) of these errors have been classified as serious errors. Consequently, there is a high probability that decisions based on spreadsheets will be based on erroneous calculations and typographical errors. ASC 310-30 requires multiple calculations per loan every month. Based on the nature of ASC 310-30 requirements, using Excel long-term is not reliable, nor sustainable. The frustration, time and cost necessary to constantly review the Excel accuracy coupled with the additional regulatory and external audit scrutiny outweigh the Excel cost benefit.
With LogiqTree, your loan data is uploaded to LAWEI which processes calculations and produces all entries, roll forwards and reports consistently and in compliance with ASC 310-30 requirements. LogiqTree’s sophisticated program architecture easily scales to client needs and provides for specific report customization. All the entries and reports are fully auditable. In addition, LAWEI is a Software as a Service (SaaS) model using virtual private cloud technology fully supported and managed by LogiqTree.
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