Company: UMBFO
Filing Date: 2025-02-27
Form Type: 10-K
Source: 0000950170-25-028420
Chunk: 280

Company: UMB FINANCIAL CORP
Filing Date: 2025-02-27
Form: 10-K
Item: Item 8
Chunk 280
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 and subjective and complex auditor judgment was involved in the assessment of the collective ACL. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the methods and models used to estimate (1) the PD and LGD and historical loss rates and their significant assumptions, including average prepayment rates, the economic forecast scenario, macro-economic variables, the reasonable and supportable forecast periods, lengths of time and methods of reversion, and risk ratings, and (2) the qualitative factors and their significant assumptions. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD and historical loss rate models.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of the collective ACL, including controls related to the:

•design of the collective ACL methodology

•continued use of the PD and LGD and historical loss rate models

•determination and measurement of the significant assumptions used in the PD and LGD and historical loss rate models

•continued use of the qualitative factors

•performance monitoring of the PD and LGD and historical loss rate models

•analysis of the overall ACL results, trends, and ratios

•risk ratings assigned to loans

We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

•evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles

•evaluating judgments made by the Company relative to the continued use and performance monitoring of the PD and LGD and historical loss rate models by comparing them to relevant Company specific metrics and trends and the applicable industry and regulatory practices

•assessing the conceptual soundness and performance testing of the PD and LGD and historical loss rate models by inspecting the model documentation to determine whether the models are suitable for their intended use

•evaluating the methodology used to develop the economic forecast scenario and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices

•testing the historical credit cycle period and evaluating the length of the reasonable and supportable forecast period by comparing to specific portfolio risk characteristics and trends

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•testing individual risk ratings for a selection of commercial and industrial and commercial real estate loans by evaluating the financial performance of the borrower, sources