Current Expected Credit Losses (CECL): How to Calculate and Maintain a Proper Allowance

Present and Proposed Changes to the "ALLL"

The Allowance for Loan and Lease Losses ("ALLL") represents one of the most significant estimates in an institution's financial statements and regulatory reports. It is a valuation reserve established and maintained by charges against the bank's operating income and is an estimate of loans that may be uncollectable. Regulators are just as interested in your bank's methodology in calculating the ALLL in addition to the adequacy of the reserve.

Because of its significance, each institution has a responsibility for developing, maintaining and documenting a comprehensive, systematic and consistently applied process for determining the amount of the ALLL and the Provision for Loans and Lease Losses. To fulfill this responsibility, each institution should ensure controls are in place to consistently determine the ALLL in accordance with:

  • Generally Accepted Accounting Principles
  • Institution's stated policies and procedures
  • Management's best judgment
  • Relevant supervisory guidance

We'll also review the proposed restructuring of the ALLL as we know it today. That change is referred to as "CECL" (Current Economic Credit Losses) and will have a dramatic change in the methodology of how reserves for potential loan losses are calculated to comply with Generally Accepted Accounting Principles.

Covered Topics:

  • Establishment and Purpose of the ALLL
  • Review of Regulators' expectations for the ALLL as set forth in:
    • FASB ASC 450-20 Contingencies - Loss Contingencies (formerly FASB 5 - accounting for Contingencies)
    • FASB ASC 310-10-35-2 through 30, Receivables-Overall-Subsequent Measurement-Impairment (formerly FASB 113 - Accounting by Creditors for Impairment of a Loan)
    • Various Interagency Policies on the ALLL Methodology and Adequacy 
  • Proposed changes to the present method of calculating the ALLL
  • Methodology to Quantify the Qualitative Factors under FASB ASC 450-20 (Formerly FAS 5)
  • Available software to aid in the calculation of the ALLL

Participants will gain an enhanced understanding of the importance of creating and maintaining an adequate Allowance that is legally defensible and insures the bank is operating in a safe and sound environment.

Who Should Attend?

CEO's, Presidents and Board Members, Credit Administrators, Senior Credit Officers, Loan Review Officers, Compliance Officers, Senior Loan Officers, Commercial and Consumer Loan Officers, Loan Operation Officers, and Loan Administrators.

"Practical! Answered all the questions I had. Great resources for reference. Thanks!", Linda Keith CPA