Recognition and Measurement
Easily navigate newly issued disclosure requirements surrounding reporting on financial instruments not recognized at fair value under an “Exit Price” application using our dynamic model that is utilized to value billions of dollars in loans and deposits on an annual basis.
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-01 regarding a significant change in the value of financial instruments with Accounting Standards Codification (ASC) 825-10 – Financial Instruments. Among other things, this update requires financial instruments not recognized at fair value to be disclosed at fair value using an “exit price” application consistent with ASC 820-10 – Leases. This change is similar to the analysis used in Day 1 Valuations and is different than the current practice which allows loans to be disclosed at fair value under an “entry price" application. In addition, this change highlights the importance of considering both components of a fair value mark, including credit and interest rate mark.
Valuant currently values billions of dollars worth of loans and deposits annually for due diligence, Day 1, and Day 2 accounting purposes. Our team and process can assist you with compliance utilizing our well-established model that is validated annually and reviewed through a SOC 1 Type 2 certification process. Our ValuCast™ services can assist you with the following:
- Value loans and deposits at a fair value exit price using our dynamic model
- Leverage your current specific review process in your ALLL and additional credit risk modeling processes
- Provide quarterly deliverables which include quarterly iterations of disclosures, loan level support files, and analytical reports that detail assumptions utilized in developing fair values and comparisons to prior period modeling
Model Methodology
ValuCast™ calculates the total fair value adjustments by explicitly applying a credit loss assumption and calculating an additional fair value adjustment mark which contemplates interest rate and liquidity assumptions under an “exit price” application as outlined in ASC 820. Our proprietary software achieves this objective through individual loan cash flow projections that can be generated for the entire portfolio within seconds allowing the user maximum transparency and flexibility.
Dynamic Assumption Features
Assumptions including default and loss rates, prepayment speeds, etc. can be applied based on bank specific inputs and calculations or by utilizing our proprietary index developed through valuing billions of dollars in loans with calculations performed at a loan level in an efficient manner.
Apply market rate assumptions based on a dual factor approach considering a “build-up” method utilizing various premiums contemplated in your loan pricing model and market rate assumptions based on recent issuances/market offering rates.
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Valuant empowers management teams with the analytical tools and services needed to maximize profitability in the complex world of financial modeling.