Skip to main content

ALLL 101: Calculating a Bank’s Reserves

Sageworks
February 18, 2013
Read Time: 0 min

Abrigos’ risk management consultants documented the process that banks typically follow when calculating the allowance for loan and lease losses or ALLL in the institution. This is a quarterly process but may be completed monthly if the complexity or performance of the bank’s portfolio merits closer attention. Calculating the allowance is often a responsibility of a bank’s CFO or someone familiar with the bank’s reserve amount and provisions. The exact ALLL calculation that a bank uses can oftentimes be a point of scrutiny during federal bank exams; examiners focus on the ALLL in order to ensure the bank has appropriately set aside a reserve or allowance that accounts for the risk in the bank’s portfolio.

A bank’s portfolio is separated into FAS 5 (ASC 450-20) and FAS 114 (ASC 310-10-35). FAS 5 loans are analyzed by assembling homogenous risk pools and then assessing the risk within the pools. FAS 114 loans, loans that are considered impaired, are analyzed individually. The risk within each group of loans is used to calculate how much reserve the bank must keep on hand. Then that required reserve is compared to the current ALLL reserve to determine if an additional provision is needed. Any change in the ALLL must be documented as well as the allowance for loan and lease losses methodology.

Spend 80% less time on your ALLL each quarter.

Request More Information »

To learn more about our ALLL methodology solution, request a demo or watch a testimonial: Sageworks ALLL, ALLL Solution.

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.

 

Looking for Banker’s Toolbox? You are in the Right Place!

Banker’s Toolbox is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to Banker’s Toolbox Community Online.

Make yourself at home!

Looking for MainStreet Technologies? You are in the Right Place!

MainStreet Technologies is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the contact us button here, or the link in the top navigation, to reach product support for your MST products.

Make yourself at home!

Looking for Sageworks? You are in the Right Place!

Sageworks is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to your Sageworks products.

Make yourself at home!

Looking for Farin? You are in the Right Place!

Farin is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to your Farin client portal.

Make yourself at home!

Abrigo acquires construction loan management solutions

Coupled with our lending suite, Construct and +Pay from BankLabs enable end-to-end automated residential/commercial construction loans.

Read the press announcement

BankLabs Logo Abrigo Logo