Allowance for Loan and Lease Losses (ALLL)

A Tested, Efficient, Industry-Driven ALLL Methodology

Financial institutions face intense scrutiny of their ALLL policies and procedures but often are given minimal direction on critical calculations and adjustments, many of which are subjective in nature. The challenge of defining and maintaining adequate reserves is complicated further by the number and types of financial models used across the organization as well as multiple reporting periods.

How Crowe Horwath LLP Can Help

Crowe offers an industry-driven ALLL solution that streamlines the reserve calculation process, providing a consistent and robust analysis of the lending portfolio that is defensible to auditors, examiners, and the board. The Crowe methodology addresses five areas of critical concern:

Documentation: Comprehensive policies and procedures
Methodology: Portfolio segmentation based on homogenous risk characteristics
Qualitative Factors: Quantified and rationalized
Data and Systems: Accurate and transparent
Reporting: Sufficient, concise information for management and the board

If a comprehensive solution is not what you need, we also offer customized, specific assistance in refining or enhancing your current process, including validating your current model.

The Crowe credit risk services group has extensive experience with financial institutions ranging in size from $500 million to more than $35 billion in assets, helping institutions maintain compliance with ALLL interagency guidance and relevant Financial Accounting Standards Board standards including Accounting Standards Codification (ASC) 450-20-30 and ASC 310-10-35.

In addition, we can help your organization prepare for the transition to a Current Expected Credit Loss model (CECL) recently approved.

A Comprehensive and Integrated Solution

The tried-and-tested Crowe ALLL solution enables banks to:

  • Eliminate inefficient manual data gathering and error-prone data entry by integrating with core lending systems
  • Create audit trails and documentation of ALLL decisions
  • Efficiently connect with core systems, Federal Deposit Insurance Corp. call reports, the federal economic database, and other data sources
  • Integrate seamlessly with other elements of a comprehensive active credit portfolio management system
  • Demonstrate a consistent, repeatable process that meets the needs of management, the board, and examiners from relevant agencies

Regulator Expectations

Crowe credit risk professionals have a comprehensive understanding of regulator expectations about ALLL calculation.

  • Periodic validation of allowance models.
  • Required by 2001 and 2006 policy statements.
  • Must be performed by an independent party.
  • For institutions with more than $500 million in assets, external auditors are prohibited from performing under independence requirements.
  • Current Expected Credit Loss Model