Allowance for Credit Losses (ACL)

Allowance for Credit Losses (ACL)

Allowance for Credit Losses is one of the most important and most scrutinized figures on a financial institution’s balance sheet is the. It’s not just the number that needs to be right but also the method of the calculation.

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Decades Of Banking Leadership Experience

Artisan Advisors has worked with many financial institutions on Allowance for Credit Losses (ACL) projects, to assist in the calculation of their loan loss reserve levels or to conduct a review of their underlying loan loss reserve methodology. The foundation of Artisan’s approach starts with data – your institution’s unique loan and lease data. Artisan Advisors will analyze the data used in your institution’s calculation and evaluate it for accuracy, completeness, and relevancy.

The Artisan Process

A Process Unique To Every Institution

Artisan Advisors can review your Current Expected Credit Losses (CECL) program for accuracy and best practice application, using the Financial Accounting Standards Board’s (FASB) prescribed requirements for calculating CECL.

Every financial institution has its own credit risk profile based on the unique characteristics of its loans and leases, which Artisan addresses through a focus on the proper segmentation of the loan portfolio. Additionally, Artisan reviews ACL qualitative factors for appropriateness and directional consistency for each loan segment, applying a quantitative approach to what has traditionally been a very inexact process. Factors that are evaluated include the local and national economy trends, industry trends, portfolio credit risk trends, management experience, exam and audit trends, and the impact of policy changes.

It’s important to remember that the ACL is your institution’s first line of defense in protecting your capital levels. An adequate ACL ensures that your strategic plan is adequately sustained with the appropriate level of financial support.

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