I wanted to put up a quick post so members could make sense of a new numbers they’ll find on individual bank reports “Allowance for Loan and Lease Losses” (ALLL) and Loan Loss Provisions. The FDIC says of ALLL
An ALLL methodology is a system that an institution designs and implements to reasonably estimate loan and lease losses as of the financial statement date.
Later this week I’ll be bringing you more information about how to use this in your prospecting. I recently learned form one of our members, a former Wall St banker, about how to use this number to do a back of the napkin calculation to determine what your maximum deal volume would look like for any bank. Very cool.
The Office of the Comptroller of the Currency says of ALLL:
The allowance for loan and lease losses, originally referred to as the reserve for bad debts, is a valuation reserve established and maintained by charges against a bank’s operating income. It is an estimate of uncollectible amounts used to reduce the book value of loans and leases to the amount a bank can expect to collect (ref)
Loan Loss Provisions are the amount added (or subtracted) from ALLL. Read this excellent article at Seeking Alpha for some more color.