Funding Benchmarks

Methods and Intended Application

PETER S. DEBBAUT

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Abstract
This document serves as a report on intelligence regarding Abrigo’s Benchmark product within
ALLL, with specific attention paid to funding rates of loans1. The Executive Summary provides a
top-level overview. The Background section includes background information on the production of
the benchmarks. Funding Calculations provides variable definitions and relevant equations. The
last section, Funding Benchmarks, includes detailed summary statistics on funding percentages by
call report code. For any questions relating to this document, please contact ALLL@Abrigo.com.

1
We would like to thank Garver Moore, Kevin Abbas, Jake Buchanan, and Neekis Hammond for comments on
a previous draft. The views expressed in this article are those of the authors and do not necessarily represent
the views of Abrigo.

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Document History
Last Modified By Last Modified Date Comments
• Initial public release (note that we will refer to this release as
Peter Debbaut 2022/10/25
the “2022 release”)

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Contents
Abstract ................................................................................................................................................................................... 1
Document History ................................................................................................................................................................ 2
Executive Summary ............................................................................................................................................................ 5
Background............................................................................................................................................................................ 6
Definitions .......................................................................................................................................................................... 6
Default............................................................................................................................................................................. 6
LFR.................................................................................................................................................................................... 6
Data gathering/reconciliation ..................................................................................................................................... 6
Data presentation ........................................................................................................................................................... 7
Data testing ....................................................................................................................................................................... 8
Completeness & accuracy........................................................................................................................................ 8
Appropriately aggregated data on website ..................................................................................................... 8
Validated Sample ............................................................................................................................................................ 8
Prior Research....................................................................................................................................................................... 9
Funding Calculations ........................................................................................................................................................10
Aggregates by date......................................................................................................................................................10
Aggregates across dates ...........................................................................................................................................10
Funding Benchmarks........................................................................................................................................................11
All Loans ...........................................................................................................................................................................11
All Real Estate Loans [1] ............................................................................................................................................13
Construction and Land Development [1a] ...........................................................................................................15
1-4 Family Residential Construction [1a1] ..........................................................................................................17
Other Construction, All Land Development and Other Land [1a2] ............................................................19
Farmland [1b] .................................................................................................................................................................20
1-4 Family Residential [1c] ........................................................................................................................................21
Home Equity Lines of Credit (HELOC) [1c1] ........................................................................................................23
1-4 Family Closed End [1c2] .....................................................................................................................................25
Multifamily Residential [1d] .......................................................................................................................................26
Commercial Real Estate (CRE) [1e] ........................................................................................................................27
Loans to Depository Institutions and Acceptances of Other Banks [2] ....................................................28
Farm Loans [3] ...............................................................................................................................................................29
Commercial & Industrial (C&I) [4] ............................................................................................................................31
Consumer [6]...................................................................................................................................................................33

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Credit Cards [6a] ...........................................................................................................................................................35
Auto [6c] ...........................................................................................................................................................................36

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Executive Summary
Some institutions can substantiate, based on historical, detailed data, an expectation of funding
rates, balance increases, and/or the relationship between those parameters for a variety of
economic circumstances and for all material portfolio segments.

Many more institutions will not be able to establish these parameters for one or more material
portfolio segments, due to either lack of specific data or lack of observable funding experience. By
aggregating the integrated data of thousands of loan portfolios, Abrigo can provide credible
guardrails that support an institutional assumption of one or more of these parameters. Our goal in
this research is to establish a bridge between detectable, first-party funding rates based on
historical information and a notion of extant funding rates based on a broader set of experience.

Practitioners will see wide dispersions in these results; we present this additional information not to
confuse, but to warn. Even with millions to instruments to work with, and even disaggregating
with a broad brush, there is variance in observed experience. This information is provided for
institutions to interpret, apply, and defend for their own reasons and at their own risk, and no
warranty is made as to the applicability or appropriateness of a given parameter for a given
institution.

Simply, we conduct and provide this research as an arms-length alternative to guessing, and we
hope it is useful for institutions who have difficulty establishing a modeling parameter using first-
party experience. These parameters may migrate as conditions change, or as more data is
collected; we expect to update and release Benchmark results and the attendant research report to
users of the Abrigo™ ALLL and Abrigo™ LLA solution annually, following the end of the third
quarter.2

While the use of these benchmarks is at a client's own risk, we can identify specific uses that we do
not recommend in the following, non-exhaustive list:
• Use of benchmark inputs where complete, accurate, and relevant data exists for the client
• Automatically applying the results of more recent benchmark studies without evaluation
and consideration
• Asymmetrical application of benchmarks (version A used to specify a model, and version B
used to apply that model).
• Use of benchmarks to justify a failure to capture complete and accurate first-party data on a
go-forward basis
• Periodic changes to interpretation of the "shape" of the benchmarks, e.g. using the 25th
performance percentile in period 1 and the 75th percentile in period 2.
• Use of benchmarks without a strong back-testing and monitoring regime for internal
performance.

2
More frequent studies are available to interested institutions for an additional fee: contact
consulting@abrigo.com for more details.

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Background
This section provides information on the definition of default, how the data is gathered, validation
processes, and summary data on the sample population.

Definitions
The Lifetime Funding Rate (LFR) calculations performed via Benchmarks closely align with what a
user (or customer) would obtain through an engagement with Advisory Services. That is, for a
specific institution and call code within that institution, the results generated via Benchmarks
should closely align with the results generated by Advisory Services holding underlying parameters
constant. The following provides working definitions for Default and the LFR, while the section
titled Funding Calculations presents technical definitions for these terms.

DEFAULT

Within Benchmarks, we define a default to have occurred if:

1. The asset is categorized as non-accrual,
2. The asset is categorized as a troubled-debt restructure,
3. The asset is at least 90 days currently past due, or
4. The asset has a positive charge-off balance.

LFR

Given a segmentation choice, the Lifetime Funding Rate, LFR, is given by the ratio of the maximum
increase in balances from the start of the measurement period (i.e. the maximum of balance during
the period less the balance at the start of the period, bounded by current available credit) to the
current available credit as of the start of the measurement period.

Data gathering/reconciliation
1. Initial Eliminations – The following observations will be eliminated from the analysis
population:
a. Assets categorized as “not-integrated-from-the-core” within the Abrigo database.
b. Assets categorized as “not-migration-analysis-enabled” within the Abrigo database.
c. Assets categorized as Purchased Credit Impaired (PCI/310-30)
d. Assets identified as impaired or individually analyzed per FAS 114 (310-10-35)
e. Assets which do not have a defined FAS code of ‘5’, or ‘91’.
f. Assets with zero, negative, or missing principal balance as of the period start date.
g. Assets that exhibit a days past due value greater than twenty-eight.
h. Assets with zero, negative, or missing current available credit as of the period start
date.
i. Assets classified as “in default” (corresponding with the definition of default
previously outlined).
j. Assets whose call report code is missing or unavailable.
k. Assets whose date-of-observation lies within 12 months of the most recent

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 observation for an institution.
l. Assets (over the measurement period) whose
i. Balance becomes negative or missing,
ii. Identified segment (e.g. call code) becomes missing,
iii. Default status changes,
iv. FAS code changes to a value other than ‘5’ or ‘91’,
v. Days past due value exceeds twenty-eight, or
vi. Number of observations does not exceed 2.
2. Process Eliminations / Reconciliation – The following defined process will remove
observations across all periods or certain observations for specific periods given a segment
(call report code) choice:
a. Find the first period/date, i.e. START_DATE, for which the following hold:
i. The institution has at least 100 loans across all call codes,
ii. The sum of the book balances over the chosen call report code for the
institution varies by at most 10% from the balances stated in the institution’s
call report filing, and
iii. The total charge-off balances across all call codes for the institution varies by
at most 20% from the total charge-off balances stated in the institution’s call
report filing.
b. Remove all observations for the institution where the observation date is before
START_DATE.
c. Remove institutions (and their associated loans for the given segment) where the
institution does not have continuous quarterly data within Abrigo’s database.
d. Remove institutions (and their associated loans for the given segment) where less
than 80% of an institution’s periods satisfy the following:
i. The institution has more than 99 loans across all call codes,
ii. The sum of the book balances over the chosen call report code for the
institution varies by at most 10% from the balances stated in the institution’s
call report filing, and
iii. The total charge-off balances across all call codes for the institution varies by
at most 20% from the total charge-off balances stated in the institution’s call
report filing.
e. Given an institution and date, remove observations where the total number of loans
across all call codes is less than 100.

Data presentation
The following eliminations will remove observations before presenting time series and aggregate
values within Abrigo’s Benchmarks product:
1. Given the segment, date, and institution, remove funding rates where the number of
available loans is less than 100.
2. Given the segment and date, as well as the application of part (a), remove all observations
where the number of institutions is less than 25.

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Data testing
COMPLETENESS & A CCURACY

When evaluating benchmark results we test the accuracy of the calculations as well as the
completeness of the data. First, accuracy of the calculations is verified by selecting an institution
included within the benchmark data and matching, through recalculation, the answer within the
benchmark data to a calculation performed within Abrigo. Second, completeness of the data is
verified by querying the database for allowance customers that should be considered for inclusion
in the benchmark dataset (noting not all may be ultimately considered due to the underlying data
not meeting our criteria for inclusion). We then compare these customers to those in the benchmark
dataset, which helps ensure that all institutions were appropriately included.

As stated above, we have placed controls on the dataset’s reconciliation to known public data
sources such as FFIEC call reports in terms of reported loss, nonperforming assets, and
balances. These controls may significantly reduce the included loan population: reported customer
and loan counts present population counts of only portfolios passing our controls. In some cases,
these controls eliminate enough portfolios from the analysis that we do not have sufficient
populations to provide credible analysis.

APPROPRIATELY AGGREGATED DATA ON WEBSITE

This is tested by recalculating the cumulative rate for a given call code using an export of the raw
data and then comparing these values to the benchmarks within Abrigo to ensure no differences.

Validated Sample
In this sub-section, we provide summary details on the underlying customer sample after validation
procedures have been applied (as described previously). Figure 1 presents the percentage of
validated portfolios (customers) broken out by Census Region (Panel A) and asset size (Panel B).

Figure 1. Background – Validated Sample – Portfolios by Region & Asset Size

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Prior Research
This is the first iteration of this study. Practitioners should note that this release may incorporate
funding rate migration from the pandemic and other 2020 economic shocks. The funding rate
methodology is theoretically robust to a changing economic ‘temperature’ but may not be robust to
a changing economic ‘climate,’ and it is yet unknown which impacts to business and consumer
behavior will be durable through a post-pandemic economy.

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Funding Calculations
Let the indices 𝑖, 𝑗, ℎ, and 𝑙 represent a given segment, month-end date, institution, and loan,
respectively. Furthermore, let 𝐵 and 𝐶 denote the book balance and the current available credit,
respectively, for a given loan and let the index 𝑑 denote the date of an “end-of-life” event (or
death). An end-of-life event is defined as either a change in maturity date, a change in renewal
date, or coincides with the last observation available for a loan. Thus, we calculate the Lifetime
Funding Rate, LFR, for a given loan (and observation period) as the ratio of the maximum balance
increase over the forward-looking lifetime of the loan to the starting value of current available
credit:

min { max {𝐵𝑖𝑘ℎ𝑙 − 𝐵𝑖𝑗ℎ𝑙 } , 𝐶𝑖𝑗ℎ𝑙 }

𝑗<𝑘<𝑑
̂ 𝑖𝑗ℎ𝑙 =
𝐿𝐹𝑅 . (1)
𝐶𝑖𝑗ℎ𝑙

Aggregates by date
Time series observations for “Aggregate” LFR are given by

∑ℎ,𝑙 min { max {𝐵𝑖𝑘ℎ𝑙 − 𝐵𝑖𝑗ℎ𝑙 } , 𝐶𝑖𝑗ℎ𝑙 }

̂ 𝑖𝑗 =
𝐿𝐹𝑅
𝑗<𝑘<𝑑
, (2)
∑ℎ,𝑙 𝐶𝑖𝑗ℎ𝑙

where percentiles are calculated in the normal fashion across ℎ and 𝑙.

Aggregates across dates

Let 𝐷 = {𝑗 ∶ 𝑇𝑗 ∈ [𝑇 𝑠 , 𝑇 𝑒 ]} be the set of date indices which specify a date range for some specified
start date, 𝑇 𝑠 , and end date, 𝑇 𝑒 . Given a segment 𝑖, Aggregate LFR is calculated as

∑𝑗∈𝐷,ℎ,𝑙 min { max {𝐵𝑖𝑘ℎ𝑙 − 𝐵𝑖𝑗ℎ𝑙 } , 𝐶𝑖𝑗ℎ𝑙 }

̂ 𝑖,𝐷 =
𝐿𝐹𝑅
𝑗<𝑘<𝑑
, (3)
∑𝑗∈𝐷,ℎ,𝑙 𝐶𝑖𝑗ℎ𝑙

where percentiles are calculated in the normal fashion across ℎ, 𝑙, and 𝑗 ∈ 𝐷.

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Funding Benchmarks
This section contains the figures and data presented in the benchmarks product aggregated by call
report code. In each sub-section, a figure is provided to display the counts of loans and customers
in the sample (by date), as well as a figure for LFR by date and a table for LFR aggregated across
all dates. Shadings in time-series figures represent 10th, 25th, 75th, and 90th percentiles unless
specified otherwise. The tables present missing values for 2019, 2020, and 2021 to be consistent
across Benchmarks reports even though no funding benchmarks were generated for those years.

Also, we again note that the COVID-19 pandemic may have introduced volatility into the presented
series and/or aggregates. We have tried to exclude loans tied to the SBA’s Paycheck Protection
Program (PPP) to limit the effects of these loans on the presented data but we do not believe we
have captured all of them. We will continue to work on capturing these loans and update the
following data accordingly.

All Loans
Figure 2. Funding Benchmarks - All Loans - Counts - Current

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Figure 3. Funding Benchmarks - All Loans - Series - Current

Table 1. Funding Benchmarks - All Loans - Aggregates - Historical

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All Real Estate Loans [1]
Figure 4. Funding Benchmarks - Call Code [1] - Counts - Current

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Figure 5. Funding Benchmarks - Call Code [1] - Series - Current

Table 2. Funding Benchmarks - Call Code [1] - Aggregates - Historical

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Construction and Land Development [1a]
Figure 6. Funding Benchmarks - Call Code [1a] - Counts - Current

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Figure 7. Funding Benchmarks - Call Code [1a] - Series - Current

Table 3. Funding Benchmarks - Call Code [1a] - Aggregates - Historical

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1-4 Family Residential Construction [1a1]
Figure 8. Funding Benchmarks - Call Code [1a1] - Counts - Current

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Figure 9. Funding Benchmarks - Call Code [1a1] - Series - Current

Table 4. Funding Benchmarks - Call Code [1a1] - Aggregates – Historical

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Other Construction, All Land Development and Other Land [1a2]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Farmland [1b]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of those
portfolios that passed said control, there is insufficient funding history to draw conclusions for this
particular segment. We will continue to work with our customers to collect reconciled data and we
may be able to establish a significant population of portfolios during or subsequent to future periods.

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1-4 Family Residential [1c]
Figure 10. Funding Benchmarks - Call Code [1c] - Counts - Current

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Figure 11. Funding Benchmarks - Call Code [1c] - Series - Current

Table 5. Funding Benchmarks - Call Code [1c] - Aggregates - Historical

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Home Equity Lines of Credit (HELOC) [1c1]
Figure 12. Funding Benchmarks - Call Code [1c1] - Counts - Current

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Figure 13. Funding Benchmarks - Call Code [1c1] - Series - Current

Table 6. Funding Benchmarks - Call Code [1c1] - Aggregates - Historical

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1-4 Family Closed End [1c2]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Multifamily Residential [1d]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Commercial Real Estate (CRE) [1e]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Loans to Depository Institutions and Acceptances of Other Banks
[2]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Farm Loans [3]
Figure 14. Funding Benchmarks - Call Code [3] - Counts - Current

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Figure 15. Funding Benchmarks - Call Code [3] - Series - Current

Table 7. Funding Benchmarks - Call Code [3] - Aggregates - Historical

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Commercial & Industrial (C&I) [4]
Figure 16. Funding Benchmarks - Call Code [4] - Counts - Current

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Figure 17. Funding Benchmarks - Call Code [4] - Series - Current

Table 8. Funding Benchmarks - Call Code [4] - Aggregates - Historical

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Consumer [6]
Figure 18. Funding Benchmarks - Call Code [6] - Counts - Current

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Figure 19. Funding Benchmarks - Call Code [6] - Series - Current

Table 9. Funding Benchmarks - Call Code [6] - Aggregates - Historical

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Credit Cards [6a]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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Auto [6c]
Insufficient portfolios passed our reconciliation controls to provide meaningful research, and of
those portfolios that passed said control, there is insufficient funding history to draw conclusions
for this particular segment. We will continue to work with our customers to collect reconciled data
and we may be able to establish a significant population of portfolios during or subsequent to
future periods.

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