ALLL / CECL Glossary

Banking with all of the various acronyms can be quite confusing, not to mention when you add in terms and acronyms from the FASB. To make it easier, we've developed this glossary of allowance and CECL terms. ALLL (Allowance for Loan and Lease Losses) – Originally referred to as the “reserve for bad debts,” a valuation reserve established and maintained by charges against a bank’s operating income. It is an estimate, calculated according to the incurred loss estimation model, of noncollectable amounts used to reduce the book value of loans and leases to the amount a bank can expect to collect. ACL (Allowance for Credit Losses) – Replaces the ALLL as a reference to the allowance under CECL. ACL is a more accurate term than ALLL under CECL, as CECL applies to a broader array of financial instruments than did the incurred loss model. Amortized Cost - The sum of the initial investment less cash collected less write-downs plus yield accreted to date. Amortized Cost Basis - The amortized cost basis is the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange, and fair value hedge accounting adjustments. ASU 2016-13 – The FASB update establishing a new accounting standard for estimating the allowance for credit losses (ACL). This ASU represents a significant change in the incurred loss accounting model by requiring immediate recognition of management’s estimates of current expected credit losses (CECL) throughout the lifetime of the loan. Back-Testing- A term used in modeling to refer to testing a predictive model on historical data. Systems that quantify risk ratings in terms of default probabilities or expected [...]