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Appendix C – Qualitative Adjustments

This is not an all-inclusive list. Rather, it provides examples to help credit unions incorporate the qualitative factors (Q-factors).

Qualitative Adjustments Examples
(Q-factors from 2020 IPS and ASC 326-20-55-4) Q-factors may be negative or positive to increase or decrease overall Allowance for Credit Losses
Trends in nature and volume of financial assets A credit union begins indirect lending and experiences 35 percent growth in auto lending in a 3-month timeframe.
Existence and effect of any concentrations of credit A credit union has 95 percent loan to share ratio, 80 percent of loans are concentrated in real estate.
Volume and severity of past due financial assets A credit union has experienced a severe increase in past due loans with an expectation of 40 percent requiring charge-off.
Changes in value of underlying collateral Consider this qualitative factor if the loan is not collateral-dependent and a credit union expects repayment to come from sale of collateral less cost to sell.
Changes in lending strategies, policies, and procedures A credit union loosens underwriting standards to provide more loans to borrowers with substandard credit.
Quality of credit review function A credit union’s quality control function reviews adherence to current lending policies.
Experience, ability, and depth of lending staff Three out of four of a credit union’s loan staff have over 10 years of experience.
External factors—competition, technology, natural disasters New bank in town appears to offer similar products.
Changes to the general market conditions of local area Local unemployment rate is higher than national unemployment rate.
Changes to local business conditions A credit union primarily serves a select employee group and the sponsor recently declared bankruptcy.
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