Our previous shared-loss focused newsletters discussed key aspects of due diligence, reviewed major accounting and valuation issues, and stressed the need for strong operation procedures related to loan loss claim submissions to the FDIC. This newsletter focuses on:

 

* Making accurate and complete Certificate submissions
* Tracking and monitoring loan submissions and recoveries over multiple years

 

Making Accurate and Complete Certificate Submissions

In order to submit claims for payment, in most cases banks must provide the FDIC with Certificate submissions on a monthly basis for residential and a quarterly basis for commercial loans. These Certificates summarize charge-off activity and reconcile loans and ORE covered under the shared-loss agreements (SLA) during the life of the Agreements (up to ten years).

 

Completing Certificates requires bank staff to overcome internal barriers that can prevent producing accurate numbers: at most banks multiple systems house the data required to generate the Certificate and its supporting schedules; additional data not typically captured by the bank may also be required, including additional portfolio and charge-off data.

 

Reconciling the data month-to-month and quarter-to-quarter and identifying and correcting out-of-balance loans and ORE is critical to ensure the integrity of the submission made to the FDIC. At the same time, manually compiling the data and completing the data mapping required for each Certificate is time consuming and error prone.

 

Tracking and Monitoring Loan Submissions and Recoveries Over Multiple Years

For our first shared-loss client we manually created required Certificates. However, the manual nature of this effort, the fact that so many individuals had to touch the process, and the need for reconcilement from one period to another quickly uncovered the need to use technology to track and monitor loan submission and recoveries over the life of the SLA. Therefore, we built the FIC Portal, proprietary turnkey software that provides management with one-stop access to all critical data related to Certificate development, claims submissions, and ongoing loan tracking. Banks using a vendor-provided solution, such as ours, benefit from the vendor’s experience in working with multiple banks. As a bank experiences issues or opportunities requiring modifications to the technology, that knowledge is transferred to all banks through scheduled maintenance and functional releases.

 

Whatever system a bank decides to rely on, whether provided by FIC or developed internally, its key characteristics should include:

 

• Serving as the single system that captures all the data required to generate the FDIC monthly and quarterly Certificates

 

• Reconciling data and producing all downloads and spreadsheets required by the FDIC

 

• Supporting both Residential and Commercial reporting requirements

 

• Managing multiple certificates (portfolios) simultaneously with each certificate (portfolio) tracked and reported on separate certificates/reports/downloads

 

• Ensuring a defined process to manage the charge-off process for a commercial loan, automatically including all charge-offs in the Certificate

 

• Providing users with defined “roles”, allowing the segregation of responsibilities and discretion in access to data

 

• Leveraging industry standard tools such as Oracle and Microsoft ASP

 

Using an information management-rich software application streamlines the bank’s access to key data, ensures consistency, and increases productivity around the Certificate submission process. Specifically, the benefits of FIC’s application include:

 

• Eliminating the need for external databases and spreadsheets to track required shared-loss loan information, as the Portal offers a consolidated repository of data from disparate internal systems

 

• Reducing time required to research/redress data inconsistencies preventing reconciliation

 

• Providing reports and backup for any FDIC audits

 

• Including an expense tracking capability that allows users to enter (or upload) expenses and unlimited supporting documents

 

• Limiting the impact of employee turnover by relying on a system with an automated procedure to acquire the data from source systems and produce a Certificate

 

• Reducing the resources required to create and reconcile the Residential and Commercial Certificate while improving the accuracy of submissions

 

Some of its functionality includes:

• Commercial Loan Analysis and Charge-Off Workflow: The application (FIC Portal) supports the activities and workflow of loan analysts and workout specialists, including: appraisals, credit write-ups, and net realizable loss calculations

 

• Loan Reconciliation: The FIC Portal tracks and reconciles all loan transactions (Commercial and Residential) in FDIC Certificate format. Loan adjustments are tracked (user and date stamped) to provide appropriate audit trails for reconciling to other financial systems

 

• Commercial and Residential Certificate Generation: The FIC Portal generates commercial and residential Certificates in “ready to file” format for single or multiple bank acquisitions

 

• Reimbursable Expense Tracking: The FIC Portal tracks all reimbursable expenses for both residential and commercial loans. Residential loan submissions include all paid expenses in sole submission, while commercial expenses are automatically included in each quarter after payment, once a loan has experienced an initial charge-off and claim

 

• Data Tracking: The FIC Portal’s database stores loan trial-balance and related transactions for the life of the agreement. Data for multiple bank acquisitions is identified and segregated per a unique FDIC Certificate identification number.

 

In addition to the above, the Portal meets the ongoing reporting requirements of bank management, internal and external auditors, and the FDIC. Some of the standard formatted reports generated include:

 

 

• Loan Detail Report: Provides detailed, current information for each loan covered under the Agreement, including loan information, analysis/claim summary, and expense summary.

 

• Loan Analysis/Claim Report: Includes loan level analysis detail

 

• Loan Level Reconciliation Report: Generates the reconciliation of the Shared-Loss loan balance through the most recent Certificate for each loan

 

FDIC-assisted transactions offer extraordinary economic benefits to acquiring banks. However, optimizing the opportunity provided by the FDIC requires excellent information management. Whether developed internally or accessed from FIC as a third-party provider, senior management has to pay attention to the data and reporting expectations of the FDIC. Not doing so will cripple the bank’s productivity and threaten the ability of a bank to successfully submit loss claims.