Loan Loss Reserving Case Study: Large Community Bank Leverages JWL for Loan Loss Reserve Process

Client’s Challenge

  • A large community bank wanted to migrate away from a roll rate methodology that was subject to more manual error and not easy to run each quarter to a more analytical and efficient approach.
  • The bank did not have much modeling expertise so the enhanced methodology needed to be easily integrated into existing risk management workflow.
  • Five Bridges approached the client about using the Javelin Whole Loan(JWL) analytics platform for its easily adapted and streamlined UI.

Our Solution

  • Five Bridges’ staff guided the risk management team through the JWL setup process, helping the bank staff understand required data elements for processing and how to run JWL for their reserving process.
  • Risk management staff were shown how to make qualitative adjustments to the model estimates based on the bank’s assessment of risk factors affecting the reserve.
  • Five Bridges’ staff provided guidance to the risk team in understanding the impacts to the reserve from different assumptions on the loss confirmation period.
  • JWL dashboard and reporting capabilities were leveraged to summarize the bank’s loan loss reserve and provision analysis.

Outcome

  • The bank found that they saved considerable man hours’ worth of effort in running the reserve process each quarter from greater automation,analytic flexibility and report generation features.
  • With JWL’s forwardlooking loan analytics, the bank’s risk management team was able to meet GAAP guidelines for loss reserving and satisfy their regulators.
  • Since the implementation of JWL, the bank has explored using JWL for other parts of its risk management process including management reporting and portfolio analysis.