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The SEC staff’s comments regarding loans receivable and valuation allowances (credit losses) have focused on the following:
  • Disclosures relating to the significant qualitative factors that affect the collectibility of the lending portfolio and in particular how those qualitative trends influence the amount of the allowance for loan losses.
  • Requests for revisions to quantitative and qualitative disclosures to adequately address the characteristics and risks of particular portfolios, which are assessed to determine the allowance for loan losses.
  • Requests for registrants to provide additional disclosures when there are significant quantitative changes in the allowance for loan losses or changes that appear inconsistent with changes in key credit metrics or in the lending portfolios.
  • Requests for inclusion of disclosure and discussion of the reasonable and supportable forecast used in the current estimate of credit losses.
  • Requests for disclosure of loan charge-off policies within the allowance for credit losses including discussion of triggering events or other relevant information that may result in a charge-off.
Comment Examples
Guidance references
  • Please revise future filings to discuss the underlying factors contributing to changes in credit quality (e.g., charge-offs, delinquency rates) during each period presented. Also, ensure that you comprehensively explain how changes in credit quality trends impacted your allowance for loan losses.
  • We note your disclosure for loan portfolio by loan type as well as the description of credit risk associated with each loan type. However, it does not appear your disclosure adequately addresses the risks and characteristics of certain portfolios which make up the vast majority of your allowance balance. Please revise your MD&A to address the following related to these portfolios: (1) allocation between prime and non-prime loans; (2) typical terms of your retail installment contracts and auto loans and the percentage of fixed loans versus variable loans; and (3) default rates and other risks associated with non-prime loans, the procedures you follow to mitigate those risks, and how the level of non-prime loans in your portfolio affects your allowance levels.
  • Tell us and revise future filings to disclose the quantitative assumptions used in estimating the prepayment estimate for each loan class in accordance with ASC 310-20-50-2.
  • Please revise future filings to discuss the reasonable and supportable forecast used in your current estimate of credit losses. Refer to ASC 326-20-50-11b for guidance.
  • Please tell us and revise future filings to disclose your policy for recognizing loan write offs within the allowance for credit losses. Specifically discuss the triggering events or other facts and circumstances that cause you to charge-off a loan. Refer to ASC 326-20-50-17 (c) for guidance.

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